BlackSky Technology Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of reasonably ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2021, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 31, 2021, our disclosure controls and procedures were effective at a reasonable assurance level. In designing and evaluating the disclosure controls and procedures, management recognized that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company will be detected. Management’s Report on Internal Control Over Financial Reporting Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and effected by the Company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of 78 Table of Contents financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on the assessment, management believes that we maintained effective internal control over financial reporting as of December 31, 2021, based on those criteria. Material Weakness Remediation Efforts We identified material weaknesses in our controls over financial reporting in the year ended December 31, 2020 for Legacy BlackSky and Osprey. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected in a timely basis. As of December 31, 2021, we have remediated these material weaknesses and we did not identify any additional material weaknesses in our controls over financial reporting as of and for the year ended December 31, 2021. Attestation Report of the Registered Public Accounting Firm Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act. Changes in Internal Control Over Financial Reporting There was no change in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the year ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION BlackSky - Executive Incentive Compensation Plan On March 28, 2022, the compensation committee of our board of directors adopted our Executive Incentive Compensation Plan (the “Incentive Compensation Plan”). The Incentive Compensation Plan will be administered by our board of directors or a committee appointed by our board of directors. Unless and until our board of directors determines otherwise, our compensation committee will be the administrator of the Incentive Compensation Plan. The Incentive Compensation Plan allows the administrator to provide cash incentive awards to selected employees, including our named executive officers, determined by the administrator, based upon attainment of performance goals established by the administrator. The administrator, in its sole discretion, may establish a target award for each participant under the Incentive Compensation Plan, which may be expressed as a percentage of the participant’s average annual base salary for the applicable performance period, a fixed dollar amount, or such other amount or based on such other formula or factors as the administrator determines. Under the Incentive Compensation Plan, the administrator will determine the performance goals, if any, applicable to awards or a portion thereof, which goals may include, without limitation: attainment of research and development milestones, sales bookings, business divestitures and acquisitions, capital raising, cash flow, cash 79 Table of Contents position, contract awards or backlog, corporate transactions, customer renewals, customer retention rates from an acquired company, subsidiary, business unit or division, earnings (which may include any calculation of earnings, including but not limited to earnings before interest and taxes, earnings before taxes, earnings before interest, taxes, depreciation and amortization, and net taxes), earnings per share, expenses, financial milestones, gross margin, growth in stockholder value relative to the moving average of the S&P 500 Index or another index, internal rate of return, leadership development or succession planning, license or research collaboration arrangements, market share, net income, net profit, net sales, new product or business development, new product invention or innovation, number of customers, operating cash flow, operating expenses, operating income, operating margin, overhead or other expense reduction, patents, procurement, product defect measures, product release timelines, productivity, profit, regulatory milestones or regulatory-related goals, retained earnings, return on assets, return on capital, return on equity, return on investment, return on sales, revenue, revenue growth, sales results, sales growth, savings, stock price, time to market, total stockholder return, working capital, unadjusted or adjusted actual contract value, unadjusted or adjusted total contract value, and individual objectives such as peer reviews or other subjective or objective criteria. As determined by the administrator, the performance goals may be based on generally accepted accounting principles, or GAAP, or non-GAAP results and any actual results may be adjusted by the administrator for one-time items or unbudgeted or unexpected items and/or payments of actual awards under the Incentive Compensation Plan when determining whether the performance goals have been met. The goals may be on the basis of any factors the administrator determines relevant, such as on an individual, divisional, portfolio, project, business unit, segment or company-wide basis. Any criteria used may be measured on such basis as the administrator determines. The performance goals may differ from participant to participant and from award to award. The administrator also may determine that a target award or a portion thereof will not have a performance goal associated with it but instead will be granted (if at all) in the compensation committee’s sole discretion. The administrator may, in its sole discretion and at any time before payment of an award, increase, reduce or eliminate a participant’s actual award, and/or increase, reduce or eliminate the amount allocated to the bonus pool. The actual award may be below, at or above a participant’s target award, as determined by the administrator. The administrator may determine the amount of any increase, reduction or elimination based on such factors as it deems relevant, and it will not be required to establish any allocation or weighting with respect to the factors it considers. Actual awards will generally be paid in cash (or its equivalent) in a single lump sum as soon as practicable after the end of the performance period to which the actual award relates and after they are approved by the administrator, but no later than the dates set forth in the Incentive Compensation Plan. The administrator has the right, in its sole discretion, to settle an actual award with a grant of an equity award, which equity award may have such terms and conditions, including any vesting requirements, as the administrator determines in its sole discretion. Unless otherwise determined by the administrator, to earn an actual award, a participant must be employed by us (or any parent, subsidiary, or affiliate of ours, as applicable) through the date the actual award is paid. . All awards under our Incentive Compensation Plan will be subject to reduction, cancellation, forfeiture, recoupment, reimbursement or reacquisition in accordance with any clawback policy that we (or any parent, subsidiary, or affiliate of ours, as applicable) may establish or amend from time to time to comply with applicable laws, including without limitation, the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, the administrator may specify when providing for an award that the recipient’s rights, payments, and benefits with respect to such award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events. In the event of any accounting restatement due to our material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, the recipient of an award will be required to repay a portion of the proceeds received with respect to an award earned or accrued under certain circumstances. The administrator will have the authority to amend or terminate the Incentive Compensation Plan provided such action does not materially alter or impair the existing rights or obligations of any participant with respect to any earned actual award without the participant’s consent. The Incentive Compensation Plan will remain in effect until terminated in accordance with the terms of the Incentive Compensation Plan. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 80 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE We will provide information that is responsive to this Item 11 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2021. Such information is incorporated into this Item 10 by reference. ITEM 11. EXECUTIVE COMPENSATION We will provide information that is responsive to this Item 12 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2021. Such information is incorporated into this Item 11 by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS We will provide information that is responsive to this Item 10 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2021. Such information is incorporated into this Item 12 by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE We will provide information that is responsive to this Item 13 in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2021. Such information is incorporated into this Item 13 by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34 ) will be presented in our definitive proxy statement for our 2022 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2021. Such information is incorporated into this Item 14 by reference. 81 Table of Contents PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES 1. and 2. Financial Statements and Financial Statement Schedules The consolidated financial statements and financial statement schedules of BlackSky required by Part II, Item 8, are included in Part IV of this report. See Index to Consolidated Financial Statements and Financial Statement Schedules beginning on Page F-1. 3. Exhibits The documents listed below are incorporated by reference or are filed with this report, in each case as indicated therein. Exhibit No. Exhibit Description Form SEC File No. Exhibit No. Filing Date Filed or Furnished Herewith 2.1 Agreement and Plan of Merger, dated as of February 17, 2021, by and among Osprey Technology Acquisition Corp., Osprey Technology Merger Sub, Inc., and BlackSky Technology Inc. 424(b)(3) 333-256103 Annex A August 11, 2021 3.1 Amended and Restated Certificate of Incorporation of the Company 8-K 001-39113 3.1 September 15, 2021 3.2 Amended and Restated Bylaws of the Company 8-K 001-39113 3.2 September 15, 2021 4.1 Specimen Warrant Certificate S-1 333-234180 4.3 October 11, 2019 4.2 Warrant Agreement, dated October 31, 2019, between Continental Stock Transfer & Trust Company and Osprey Technology Acquisition Corp. 8-K 001-39113 4.1 November 5, 2019 4.3 Description of Capital Stock X 10.1 Private Placement Warrants Purchase Agreement, dated October 31, 2019, by and between Osprey Technology Acquisition Corp. and Osprey Sponsor II, LLC 8-K 001-39113 10.4 November 5, 2019 10.2+ BlackSky Technology Inc. 2021 Equity Incentive Plan 424(b)(3) 333-256103 Annex E August 11, 2021 10.3+ BlackSky Technology Inc. 2021 Employee Stock Purchase Plan 424(b)(3) 333-256103 Annex F August 11, 2021 10.4+ BlackSky Technology Inc. Outside Director Compensation Policy 8-K 001-39113 10.13 September 15, 2021 10.5+ BlackSky Technology Inc. Form of Indemnification Agreement 8-K 001-39113 10.4 September 15, 2021 10.6 Right of First Offer Agreement, dated as of October 31, 2019, by and between Spaceflight Industries, Inc. and Intelsat Jackson Holdings, S.A. S-4 333-256103 10.10 May 13, 2021 10.7 Sponsor Support Agreement, dated as of February 17, 2021 8-K 001-39113 10.3 February 22, 2021 10.8 Form of Stockholder Support Agreement 424(b)(3) 333-256103 Annex H August 11, 2021 10.9 Form of Registration Rights Agreement 8-K 001-39113 10.5 February 22, 2021 10.10 Form of Subscription Agreement 8-K 001-39113 10.1 February 22, 2021 10.11+ Executive Employment Agreement for Brian O’Toole S-4/A 333-256103 10.15 June 25, 2021 10.12+ Executive Employment Agreement for Brian Daum S-4/A 333-256103 10.16 June 25, 2021 10.13+ Offer Letter from BlackSky Holdings Inc. to Brian O’Toole, dated August 18, 2021 8-K 001-39113 10.1 August 18, 2021 10.14+ Offer Letter from BlackSky Holdings Inc. to Johan Broekhuysen, dated August 18, 2021 8-K 001-39113 10.2 August 18, 2021 10.15+ Offer Letter from BlackSky Holdings Inc. to Henry Dubois, dated August 18, 2021 8-K 001-39113 10.3 August 18, 2021 10.16+ Offer Letter from BlackSky Holdings Inc. to Chris Lin, dated August 18, 2021 8-K 001-39113 10.4 August 18, 2021 82 Table of Contents Exhibit No. Exhibit Description Form SEC File No. Exhibit No. Filing Date Filed or Furnished Herewith 10.17+ Transition and Consulting Agreement from BlackSky Holdings Inc. to Brian Daum, dated August 18, 2021 8-K 001-39113 10.5 August 18, 2021 10.18 Amended and Restated Loan and Security Agreement, dated October 31, 2019, by and between Intelsat Jackson Holdings SA, Seahawk SPV Investment LLC, Spaceflight Industries, Inc. and its subsidiaries. S-4/A 333-256103 10.17 June 25, 2021 10.19 Satellite Program Contract, dated March 12, 2018, by and between LeoStella LLC and BlackSky Global LLC S-4/A 333-256103 10.18 June 25, 2021 10.20 Amendment No. 1 to Satellite Program Contract, dated February 20, 2019, by and between LeoStella LLC and BlackSky Global LLC S-4/A 333-256103 10.19 June 25, 2021 10.21 Amendment No. 2 to Satellite Program Contract, dated May 27, 2020, by and between LeoStella LLC and BlackSky Global LLC S-4/A 333-256103 10.20 June 25, 2021 10.22 Palantir Subscription Agreement, dated as of September 13, 2021, by and between BlackSky Holdings, Inc. and Palantir Technologies, Inc. 8-K 001-39113 99.2 September 1, 2021 10.23 Sponsor Support Agreement, dated as of February 17, 2021, by and among BlackSky Holdings, Inc., Osprey Sponsor II, LLC, and Osprey Technology Acquisition Corp. 8-K 001-39113 10.3 February 22, 2021 10.24 First Amendment, Consent and Joinder to Amended and Restated Loan and Security Agreement, dated as of September 9, 2021, by and among BlackSky Holdings, Inc. and the subsidiaries named therein, Intelsat Jackson Holdings SA and Seahawk SPV Investment LLC. 8-K 001-39113 10.5 September 15, 2021 10.25 BlackSky HQ Lease Agreement S-1 333-260458 10.25 October 25, 2021 10.26+ BlackSky Technology Inc. Executive Change in Control and Severance Plan, adopted August 16, 2021, and form of participation agreement attached as appendix A. 8-K 001-39113 10.6 August 18, 2021 10.27 Form of Stock Option Agreement under the BlackSky 2021 Equity Incentive Plan S-8 333-261778 4.4 December 20, 2021 10.28 Form of Restricted Stock Unit Agreement under the BlackSky 2021 Equity Incentive Plan S-8 333-261778 4.5 December 20, 2021 10.29 Form of Stock Appreciation Right Agreement under the BlackSky 2021 Equity Incentive Plan S-8 333-261778 4.6 December 20, 2021 10.30 2014 Equity Incentive Plan and forms of agreements thereunder S-8 333-261778 4.7 December 20, 2021 10.31 Spaceflight, Inc. Amended and Restated 2011 Equity Incentive Plan Assumed by Spaceflight Industries and forms of agreements thereunder S-8 333-261778 4.8 December 20, 2021 10.32 2014 Equity Incentive Plan and forms of agreements thereunder S-8 333-261778 4.9 December 20, 2021 10.33 Form of Restricted Stock Unit Agreement under the BlackSky 2014 Equity Incentive Plan S-8 333-261778 4.4 March 4, 2022 10.34+ 2022 Executive Incentive Compensation Plan X 16.1 Letter from Marcum LLP to the SEC, dated September 14, 2021 8-K 001-39113 16.1 September 15, 2021 83 Table of Contents Exhibit No. Exhibit Description Form SEC File No. Exhibit No. Filing Date Filed or Furnished Herewith 21.1 List of Subsidiaries S-1 333-260458 21.1 October 25, 2021 23.1 Consent of Deloitte LLP, independent registered public accounting firm of BlackSky Technology Inc. X 24.1 Power of Attorney (included in signature pages hereto) X 31.1 Certification of the Company’s Chief Executive Officer, Brian O’Toole, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of the Company’s Chief Financial Officer, Johan Broekhuysen, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1 Certification of the Company’s Chief Executive Officer, Brian O’Toole, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 32.2 Certification of the Company’s Chief Financial Officer, Johan Broekhuysen, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) X ________________ + Indicates management contract or compensatory plan. ITEM 16. FORM 10-K SUMMARY None. 84 Table of Contents ITEM 16A. SIGNATURES SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. March 31, 2022 BlackSky Technology Inc. By: /s/ Brian E. O’Toole Brian E. O'Toole Chief Executive Officer and Director (Principal Executive Officer) By: /s/ Johan Broekhuysen Johan Broekhuysen Chief Financial Officer (Principal Financial and Accounting Officer) 85 Table of Contents POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Brian O’Toole and Johan Broekhuysen, and each one of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such individual in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or the individual’s substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated on behalf of the registrant. Signature Title Date /s/ Brian E. O’Toole Chief Executive Officer, President and Director (Principal Executive Officer) March 31, 2022 Brian O’Toole /s/ Johan Broekhuysen Chief Financial Officer (Principal Financial and Accounting Officer) March 31, 2022 Johan Broekhuysen /s/ Magid Abraham Director March 31, 2022 Magid Abraham /s/ David DiDomenico Director March 31, 2022 David DiDomenico /s/ Susan Gordon Director March 31, 2022 Susan Gordon /s/ Timothy Harvey Director March 31, 2022 Timothy Harvey /s/ William Porteous Director March 31, 2022 William Porteous /s/ James Tolonen Director March 31, 2022 James Tolonen 86 Table of Contents Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Changes in Stockholders' in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-8 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of BlackSky Technology Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of BlackSky Technology Inc. (the "Company") as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP McLean, VA March 31, 2022 We have served as the Company's auditor since 2015. F-2 Table of Contents BLACKSKY TECHNOLOGY INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) December 31, December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 165,586 $ 5,098 Restricted cash 2,518 5,475 Accounts receivable, net of allowance of $ 39 and $ 0 , respectively 2,629 2,903 Prepaid expenses and other current assets 6,264 965 Contract assets 1,678 3,796 Total current assets 178,675 18,237 Property and equipment - net 70,551 20,852 Goodwill 9,393 9,393 Investment in equity method investees 4,002 3,277 Intangible assets - net 2,480 3,831 Satellite procurement work in process 40,102 62,664 Other assets 560 1,661 Total assets $ 305,763 $ 119,915 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable and accrued liabilities $ 10,837 $ 7,966 Amounts payable to equity method investees 5,613 8,762 Contract liabilities - current 11,266 14,537 Debt - current portion — 16,739 Other current liabilities 2,819 7,439 Total current liabilities 30,535 55,443 Liability for estimated contract losses 6,054 6,252 Long-term contract liabilities 568 2,559 Derivative liabilities 16,925 — Long-term debt - net of current portion 71,408 84,869 Other liabilities 653 3,605 Total liabilities 126,143 152,728 Commitments and contingencies (Note 24) Stockholders’ equity (deficit): Preferred stock, $ 0.0001 par value; 100,000 shares authorized; none issued or outstanding. — — Class A common stock, $ 0.0001 par value-authorized, 300,000 shares; issued, 117,160 and 35,582 shares; outstanding, 114,452 shares and 34,692 shares as of December 31, 2021 and 2020, respectively. 11 3 Additional paid-in capital 650,518 191,168 Accumulated deficit ( 470,909 ) ( 223,984 ) Total stockholders’ equity (deficit) 179,620 ( 32,813 ) Total liabilities and stockholders’ equity $ 305,763 $ 119,915 See notes to consolidated financial statements F-3 Table of Contents BLACKSKY TECHNOLOGY INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands) Years Ended December 31, 2021 2020 Revenue Imagery & software analytical services $ 25,046 $ 18,737 Engineering & systems integration 9,039 2,398 Total revenue $ 34,085 $ 21,135 Costs and expenses Imagery & software analytical service costs, excluding depreciation and amortization 21,507 13,331 Engineering & systems integration costs, excluding depreciation and amortization 13,241 10,535 Selling, general and administrative 86,655 28,606 Research and development 112 255 Depreciation and amortization 14,306 9,803 Satellite impairment loss 18,407 — Operating loss ( 120,143 ) ( 41,395 ) Gain on debt extinguishment 4,059 284 Gain (loss) on derivatives 23,885 ( 558 ) Income (loss) on equity method investment 1,027 ( 953 ) Interest expense ( 5,165 ) ( 5,201 ) Other (expense) income, net ( 147,656 ) 103 Loss before income taxes ( 243,993 ) ( 47,720 ) Income tax (expense) benefit — — Loss from continuing operations ( 243,993 ) ( 47,720 ) Discontinued operations: (Loss) gain from discontinued operations (including (loss) gain from disposal of Spaceflight Inc. of $( 1,650 ) and $ 30,672 for the years ended December 31, 2021 and 2020, respectively) ( 1,650 ) 28,185 Income tax (expense) benefit — — (Loss) gain from discontinued operations, net of tax ( 1,650 ) 28,185 Net loss $ ( 245,643 ) $ ( 19,535 ) Other comprehensive income — — Total comprehensive loss $ ( 245,643 ) $ ( 19,535 ) Basic and diluted loss per share of common stock: Loss from continuing operations $ ( 3.37 ) $ ( 1.45 ) (Loss) gain from discontinued operations, net of tax ( 0.02 ) 0.85 Net loss per share of common stock $ ( 3.39 ) $ ( 0.60 ) See notes to consolidated financial statements F-4 Table of Contents BLACKSKY TECHNOLOGY INC. CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) Years Ended December 31, 2021 and 2020 (in thousands) Year Ended December 31, 2021 Redeemable Convertible Preferred Stock Class A Common Stock Class B Common Stock Common Stock Additional Paid-In Treasury Stock Accumulated Total Stockholders' Shares Amount Shares Amount Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance as of January 1, 2021, as adjusted — $ — — $ — — $ — 34,692 $ 3 $ 191,168 — $ — $ ( 223,984 ) $ ( 32,813 ) Stock-based compensation — — — — — — — — 42,582 — — — 42,582 Issuance of common stock due to Bridge Notes — — — — — — 20,343 2 106,351 — — — 106,353 Issuance of common stock upon exercise of stock options — — — — — — 1,044 — 130 — — — 130 Issuance of common stock upon exercise of warrants (1) — — — — — — 3,251 — 2,289 — — — 2,289 Issuance of common stock upon vesting of restricted stock awards — — — — — — 546 — — — — — — Issuance of common stock upon vesting of restricted stock units — — — — — — 111 — — — — — — Conversion of bridge notes and accrued interest into common stock — — — — — — 7,736 1 77,096 — — — 77,097 Exercise of warrants in connection with merger — — — — — — 11,187 1 38,328 — — — 38,329 Issuance of sponsor earn-out shares — — — — — — — — ( 17,659 ) — — — ( 17,659 ) Reverse recapitalization, net (Note 4) — — — — — — 34,584 4 202,195 — — ( 1,282 ) 200,917 Issuance of common stock upon settlement of promissory notes — — — — — — 958 — 8,038 — — — 8,038 Net loss — — — — — — — — — — — ( 245,643 ) ( 245,643 ) Balance as of December 31, 2021 — $ — — $ — — $ — 114,452 $ 11 $ 650,518 — $ — $ ( 470,909 ) $ 179,620 1. Inclusive of warrants exercised for preferred stock then exchanged into common stock in connection with merger. Year Ended December 31, 2020 Redeemable Convertible Preferred Stock Class A Common Stock Class B Common Stock Common Stock Additional Paid-In Treasury Stock Accumulated Total Stockholders' Shares Amount Shares Amount Shares Amount Shares Amount Capital Shares Amount Deficit Deficit Balance as of December 31, 2019, as previously reported 76,971 $ 171,321 72,319 $ 1 83,987 $ 1 — $ — $ 26,681 11,500 $ ( 12,500 ) $ ( 203,799 ) $ ( 189,616 ) Retroactive application of the recapitalization ( 76,971 ) ( 171,321 ) ( 72,319 ) ( 1 ) ( 83,987 ) ( 1 ) 31,074 $ 3 158,820 ( 11,500 ) 12,500 — 171,321 Balance as of December 31, 2019, as adjusted — — — — — — 31,074 3 185,501 — — ( 203,799 ) ( 18,295 ) Adoption of Accounting Standards Updates "ASU", ASU 2014-09 — — — — — — — — — — — ( 650 ) ( 650 ) Balance as of January 1, 2020, as adjusted — — — — — — 31,074 3 185,501 — — ( 204,449 ) ( 18,945 ) Stock based compensation, including $ 218 thousand in the sale of Spaceflight, Inc. — — — — — — — 2,390 — — — 2,390 Issuance of preferred stock in the sale of Spaceflight, Inc — — — — — 999 — 3,247 — — — 3,247 Issuance of common stock upon exercise of stock options — — — — — 188 — 30 — — — 30 Issuance of common stock upon vesting of restricted stock awards — — — — — 2,376 — — — — — — Issuance of common stock as contingent consideration for the purchase of OpenWhere, Inc — — — — — 55 — — — — — — Net loss — — — — — — — — — — ( 19,535 ) ( 19,535 ) Balance as of December 31, 2020 — $ — — $ — — $ — 34,692 $ 3 $ 191,168 — $ — $ ( 223,984 ) $ ( 32,813 ) See notes to consolidated financial statements F-5 Table of Contents BLACKSKY TECHNOLOGY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 245,643 ) $ ( 19,535 ) (Loss) gain from discontinued operations, net of tax ( 1,650 ) 28,185 Loss from continuing operations ( 243,993 ) ( 47,720 ) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization expense 14,306 9,803 Gain on debt extinguishment ( 4,059 ) ( 284 ) Bad debt expense 58 — Stock-based compensation expense 42,571 1,982 Loss on issuance of Bridge Notes 99,669 — Issuance costs for derivative liabilities and debt carried at fair value 48,009 — Amortization of debt discount and issuance costs 1,807 1,137 (Gain) loss on equity method investment ( 1,027 ) 953 Loss on disposal of property and equipment 24 — (Gain) loss on derivatives ( 23,885 ) 558 Satellite impairment loss 18,407 — Changes in operating assets and liabilities: Accounts receivable 216 1,425 Contract assets 2,118 ( 3,796 ) Prepaid expenses and other current assets ( 5,207 ) 400 Other assets ( 309 ) ( 1,024 ) Accounts payable and accrued liabilities 2,543 2,483 Other current liabilities ( 2,680 ) ( 340 ) Contract liabilities - current and long-term ( 5,262 ) 9,019 Liability for estimated contract losses ( 198 ) 6,252 Other liabilities 3,020 3,852 Cash flows used in operating activities - continuing operations ( 53,872 ) ( 15,300 ) Cash flows used in operating activities - discontinued operations — ( 16,374 ) Net cash used in operating activities ( 53,872 ) ( 31,674 ) Cash flows from investing activities: Purchase of property and equipment ( 1,266 ) ( 281 ) Satellite procurement work in process ( 62,643 ) ( 18,096 ) Purchase of domain name ( 7 ) — Proceeds from equity method investment 302 — Cash flows used in investing activities - continuing operations ( 63,614 ) ( 18,377 ) Cash flows provided by investing activities - discontinued operations — 8,607 Net cash used in investing activities ( 63,614 ) ( 9,770 ) Cash flows from financing activities: Proceeds from recapitalization transaction, net of payment of equity issuance costs 244,880 — Payments of transaction costs related to sponsor earn-out shares ( 291 ) — Proceeds from issuance of debt 58,573 3,600 Proceeds from options exercised 130 30 Proceeds from warrants exercised 163 — Capital lease payments ( 2 ) ( 39 ) Debt payments ( 22,198 ) — Payments for debt issuance costs ( 6,238 ) ( 108 ) Withholding tax payment on vesting of restricted stock awards and options exercised — ( 39 ) Cash flows provided by financing activities - continuing operations 275,017 3,444 Cash flows used in financing activities - discontinued operations — — Net cash provided by financing activities 275,017 3,444 Net increase (decrease) in cash, cash equivalents, and restricted cash 157,531 ( 38,000 ) Cash, cash equivalents, and restricted cash – beginning of year 10,573 37,190 Cash reclassified to assets held for sale at beginning of period — 11,383 Cash reclassified to assets held for sale at the end of period — — Cash, cash equivalents, and restricted cash – end of period $ 168,104 $ 10,573 See notes to consolidated financial statements F-6 Table of Contents The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows: December 31, 2021 2020 Cash and cash equivalents $ 165,586 $ 5,098 Restricted cash 2,518 5,475 Total cash, cash equivalents, and restricted cash $ 168,104 $ 10,573 December 31, 2021 2020 (in thousands) Supplemental disclosures of cash flows information: Cash paid for interest $ 378 $ 1,113 Supplemental disclosures of non-cash financing and investing information: Property and equipment additions accrued but not paid $ 5,222 $ 5,397 Capitalized interest 620 1,162 Capitalized stock-based compensation 11 — Issuance of common stock due to Bridge Notes and rights offering, net of issuance 106,353 — Issuance of common stock warrants due to Bridge Notes 18,800 — Issuance of common stock upon settlement of promissory notes 8,038 — Net exercise of common stock warrants 210 — Net exercise of common stock warrants in connection with merger 1,324 — Conversion of Bridge Notes 77,097 — Net exercise of Bridge Note warrants 38,329 — Contingent liability for working capital adjustment and use taxes to M&Y Space Co. Ltd 1,650 — Issuance of preferred stock in the sale of Spaceflight, Inc. — 3,247 Increase of debt principal for paid-in-kind interest — 2,791 Application of Secured Loan against the 2020 Share Purchase Agreement (“SPA”) purchase price — 26,182 Equipment acquired under capital lease — 9 See notes to consolidated financial statements F-7 Table of Contents BLACKSKY TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 1. Organization and Business On September 9, 2021, Osprey Technology Acquisition Corp. (“Osprey”) consummated the previously announced merger (the “Merger”) with BlackSky Holdings, Inc. (f/k/a Spaceflight Industries, Inc.), a Delaware corporation (“Legacy BlackSky”), pursuant to the agreement and plan of merger, dated February 17, 2021, by and among Osprey, Osprey Technology Merger Sub, Inc., a direct, wholly owned subsidiary of Osprey, and Legacy BlackSky. Immediately following the Merger, Osprey changed its name to BlackSky Technology Inc. (“BlackSky” or the “Company”). Legacy BlackSky survived the Merger and is now a wholly owned subsidiary of BlackSky. As a special purpose acquisition corporation, Osprey had no pre-Merger operations other than to identify and consummate a merger. Therefore, BlackSky’s operations post-Merger are attributable to those of Legacy BlackSky and its subsidiaries, and references to “BlackSky” or the “Company” should be read to include BlackSky’s wholly owned subsidiaries. References in this report to Company actions, assets/liabilities, or contracts may be references to actions taken, assets/liabilities held, or contracts entered into by one or more current Company subsidiaries; however, the Company has distinguished between actions taken by Legacy BlackSky or Osprey for certain time based, historical transactions. BlackSky, headquartered in Herndon, Virginia, is a leading provider of real-time geospatial intelligence. The Company owns and operates one of the industry's leading high-performance low earth orbit small satellite constellations. Our constellation is optimized to cost-efficiently capture imagery at high frequencies where and when our customers need it. BlackSky’s Spectra AI software platform processes millions of observations a day from our proprietary satellite constellation and from multiple external data sources including imaging, radar and radio frequency satellites, environmental sensors, asset tracking sensors, Internet of Things (“IoT”) connected devices, internet-enabled narrative sources, and a variety of geotemporal data feeds. Spectra AI employs advanced, proprietary AI and machine learning (“ML”) techniques to process, analyze, and transform these data feeds into alerts, information, and insights. Customers can access Spectra AI’s data and analytics through easy-to-use web services or through platform application programming interfaces. As of December 31, 2021, BlackSky had 12 satellites in commercial operation. BlackSky has two primary operating subsidiaries, BlackSky Global LLC and BlackSky Geospatial Solutions, Inc. The Company also owns fifty percent of LeoStella LLC (“LeoStella”), its joint venture with Thales Alenia Space US Investment LLC (“Thales”). LeoStella is a vertically-integrated small satellite design and manufacturer based in Tukwila, Washington, from which the Company procures satellites to operate its business. The Company accounts for LeoStella and X-Bow Launch Systems Inc. (“X-Bow”), a space technology company specializing in additive manufacturing of solid rocket motors of which BlackSky owns approximately 17.5 %, as equity method investments (Note 7) Prior to the Merger, Legacy BlackSky owned a division called Spaceflight, Inc. (“Spaceflight”), a Delaware corporation based in Seattle, Washington, that provided satellite launch brokerage services to customers. On June 12, 2020, BlackSky sold 100 % of its equity interests in Spaceflight to M&Y Space Co. Ltd. (“M&Y Space”) for a final purchase price of $ 31.6 million. Spaceflight’s financial results were material to the Company’s financial results and, as such, are reported as discontinued operations in the consolidated statements of operations and comprehensive loss (Note 8). 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Preparation The Company has prepared its consolidated financial statements in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) and the instructions to Form 10-K and Article 8 of Regulation S-X of the Securities and Exchange Commission (the "SEC"). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. In addition, the consolidated financial statements include the Company’s proportionate share of the earnings or losses of its F-8 Table of Contents equity method investments and a corresponding increase or decrease to its investment, with recorded losses limited to the carrying value of the Company’s investment. All intercompany transactions and balances have been eliminated upon consolidation. For accounting purposes, the Merger constituted a reverse recapitalization (the “Reverse Recapitalization”), with Osprey treated as the “acquired” company and Legacy BlackSky as the “acquirer”. The Reverse Recapitalization was treated as the equivalent of Legacy BlackSky issuing equity for the net assets of Osprey, accompanied by a recapitalization, rather than a business combination, which would have included goodwill and intangible assets. Legacy BlackSky was considered the acquirer based on the facts and circumstances, including the following factors evaluated at the time of the Merger: • Legacy BlackSky’s former stockholders held a majority ownership interest in BlackSky; • Legacy BlackSky’s senior management team comprise senior management of BlackSky; • Legacy BlackSky was able to designate all but one director to BlackSky’s initial board; • Legacy BlackSky was the larger of the companies based on historical operating activity and employee base; and • Legacy BlackSky’s operations comprise the ongoing operations of BlackSky. Accordingly, all historical financial information presented in these consolidated financial statements represents the accounts of Legacy BlackSky and its wholly owned subsidiaries “as if” Legacy BlackSky is the predecessor and legal successor. The historical operations of Legacy BlackSky are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Legacy BlackSky prior to the Merger; (ii) the combined results of Osprey and Legacy BlackSky following the Merger; (iii) the assets and liabilities of Legacy BlackSky at their historical carrying value; and (iv) the Company’s equity structure for all periods presented. The Company’s consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities, including derivative financial instruments, which are stated at fair value. The Company also incurred debt, which was also stated at fair value and subsequently converted to equity in the Merger. Unless otherwise indicated, amounts presented in the Notes pertain to the Company’s continuing operations. Emerging Growth Company The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. The Company has elected to use this extended transition period to enable it to defer the adoption of new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided for by the JOBS Act. As a result, the Company’s financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates. In addition, the Company intends to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, the Company intends to rely on such exemptions, the Company is not required to, among other things: (i) provide an auditor’s attestation report on its system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide certain of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive F-9 Table of Contents compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. Use of Estimates The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies at the reporting date, and the reported amounts of revenue and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results could materially differ from these estimates. Significant estimates made by the Company relate to revenue and associated cost recognition, the collectability of accounts receivable, the recoverability and useful lives of property and equipment, the valuation of equity warrants and warrant liabilities, fair value estimates, the recoverability of goodwill and intangible assets, the provision for income taxes, and stock-based compensation. Cash and Cash Equivalents Cash and cash equivalents are comprised of cash in banks and highly liquid investments with original maturities of three months or less. Restricted Cash The Company classifies cash as restricted when the cash is unavailable for withdrawal or usage for general operations. Restricted cash represents certificates of deposits held by a bank as a compensating balance for letters of credit that facilitate certain contracts with customers and cash collateral for leasing arrangements. Accounts Receivable - net Accounts receivable are customer obligations due to the Company under normal trade terms. The majority of the Company's sales are with U.S. federal government and agencies, which limits uncollectible accounts receivable. The Company performs continuing credit evaluations on each customer’s financial condition and reviews accounts receivable on a periodic basis to determine if any accounts receivable will potentially be uncollectible. The Company reserves for any accounts receivable balances that are determined to be uncollectible in the allowance for doubtful accounts. After all attempts to collect an accounts receivable balance have failed, the accounts receivable balance is written off against the allowance for doubtful accounts. The Company assessed all existing accounts receivable and recorded an allowance for doubtful accounts of $ 39 thousand and $ 0 as of December 31, 2021 and 2020, respectively. Prepaid Expenses and Other Current Assets Prepaid expenses are advance payments made in the ordinary course of business and are amortized on a straight-line basis over the period of benefit. Other current assets consist primarily of non-trade receivables. Property and Equipment - net Property and equipment are stated at cost, less accumulated depreciation. Depreciation expense is recognized in the consolidated statements of operations and comprehensive loss on a straight-line basis over the estimated useful life of the related asset to its residual value. F-10 Table of Contents The estimated useful lives are as follows: Estimated useful lives-years Satellites 3 Computer equipment and software 3 Site and other equipment 3 - 5 Ground station equipment 2 Office furniture and fixtures 5 Leasehold improvements shorter of useful life or remaining lease term Capitalized satellite costs include material costs, labor costs incurred from the start of the pre-acquisition stage through the construction stage, insurance, and the costs incurred to launch the satellite into orbit for its intended use. Labor costs incurred prior to and after the pre-acquisition and construction stages are charged to expense. Once the satellite has reached orbit and makes contact with the Company's network, the Company commences depreciation. The designated useful life of the Company's satellites is estimated to be three years , and depreciation is recognized using the straight-line method. Subsequent to launch, the Company's satellites must meet certain performance and operational criteria to be deemed commercially viable. If the criteria are not met, the Company assesses the satellite for impairment. The Company capitalizes internal and external costs incurred to develop and implement software, which consist primarily of costs related to design, coding, and testing. When the software is ready for its intended use, capitalization ceases and such costs are amortized on a straight-line basis over the estimated life to either depreciation or cost of sales depending on the nature of the software. We regularly review our capitalized software projects for impairment. Goodwill, Intangible Assets - net, and Other Long-Lived Assets Goodwill Goodwill represents the excess of purchase price over the fair value of the identifiable assets acquired less the liabilities assumed in the acquisition of a business. Goodwill is tested annually for impairment at October 1, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. Goodwill is tested for impairment at the reporting unit level by first taking a qualitative approach to determine whether it is more likely than not that a reporting unit's fair value is less than its carrying value. If the Company determines that it is more likely than not that a reporting unit's fair value is less than its carrying amount, the Company compares the reporting unit’s carrying amount to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. In testing for goodwill impairment, the Company may utilize a mix of income and market approaches that include the use of comparable multiples of publicly traded companies whose services are comparable to ours. The Company continuously evaluates whether indicators of impairment exist to determine whether it is necessary to perform a quantitative goodwill impairment test. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include (a) a significant decline in the Company's common stock value; (b) a significant decline in the Company's expected future cash flows; (c) a significant adverse change in legal factors or in the business climate; (d) unanticipated competition; (e) the testing for recoverability of a significant asset group within a reporting unit; or (f) slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on the consolidated financial statements. F-11 Table of Contents Long-Lived Assets and Finite-Lived Intangible Assets The Company reviews long-lived assets, including finite-lived intangible assets, property and equipment, satellite procurement work in process and other long-term assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Significant judgments in this area involve determining whether a triggering event has occurred and determining the future cash flows for assets involved. In conducting this analysis, the Company compares the undiscounted cash flows expected to be generated from the long-lived assets (or asset group) to the related net book values. If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired. If the net book value exceeds the undiscounted cash flows, an impairment charge is measured and recognized based upon the difference between the carrying value of long-lived assets (or asset group) and their fair value. Intangible assets subject to amortization include customer backlog and relationships, distribution agreements, and technology. Such intangible assets, excluding customer-related intangibles, are amortized on a straight-line basis over their estimated useful lives. Customer-related intangible assets are amortized on either a straight-line or accelerated basis, depending upon the pattern in which the economic benefits of the intangible asset are utilized. The estimated useful lives of the Company's finite-lived intangible assets are as follows: Estimated useful lives-years Distribution agreements 2 Customer backlog and relationships 1 - 10 Technology 3 - 5 Equity Method Investments Investments where the Company has the ability to exercise significant influence, but not control, are accounted for under the equity method of accounting and are included in investment in equity method investees on the Company's consolidated balance sheets. Significant influence typically exists if the Company has a 20% to 50% ownership interest in the investee or retains a voting seat on the investee's board of directors. Under this method of accounting, the Company's share of the net earnings or losses of the investee are included in the Company's consolidated statements of operations and comprehensive loss. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. Intra-entity profits arising from the sale of assets from the equity method investments to the Company are eliminated and deferred if those assets are still held by the Company at the end of the reporting period. The intra-entity profits will be recognized as the assets are consumed. Satellite Procurement Work in Process Satellite procurement work in process primarily represents deposits paid to (a) LeoStella for the progress payments associated with the engineering, long lead procurement of satellite components, and manufacturing of the Company's satellites and (b) launch service vendors for the costs associated with launching the Company's satellites. Satellite procurement work in process capitalized, but not yet paid, is recognized as the Company has the rights to the in-process assets that LeoStella is engineering on the Company's behalf or a refund of amounts paid to date, less certain costs. At launch, these costs, and other costs incurred to put a satellite into service, are aggregated and reclassified as property and equipment, subject to depreciation (Note 9). Contingent Liabilities F-12 Table of Contents The Company may become involved in litigation or other financial claims in the normal course of its business operations. The Company periodically analyzes currently available information relating to these claims, assesses the probability of loss, and provides a range of possible outcomes when it believes that sufficient and appropriate information is available. The Company accrues a liability for those contingencies where the occurrence of a loss is probable and the amount can be reasonably estimated. If a loss is probable and a range of amounts can be reasonably estimated but no amount within the range is a better estimate than any other amount in the range, then the minimum of the range is accrued. We do not accrue a liability when the likelihood that the liability has been incurred is believed to be probable but the amount cannot be reasonably estimated or when the likelihood that a liability has been incurred is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is reasonably possible and the impact could potentially be material, we disclose the nature of the contingency and, where feasible, an estimate of the possible loss or range of loss. Debt Issuance Costs and Debt Discount Debt issuance costs are capitalized and amortized to interest expense using the effective interest method over the life of the related debt. In prior years, a debt discount was recorded upon the issuance of detachable warrants, which were granted in conjunction with the issuance of debt and calculated at fair market value. The debt discount was amortized to interest expense using the effective interest method over the life of the related debt. Short-term and long-term debt are presented net of the unamortized debt issuance costs and debt discount in the consolidated balance sheets. Fair Value of Financial Instruments The Company accounts for certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The process for analyzing the fair value measurement of certain financial instruments on a recurring, or non-recurring, basis includes significant judgment and estimates of inputs including, but not limited to, share price, volatility, discount for lack of marketability, application of an appropriate discount rate, and probability of liquidating events. The Company utilizes the market valuation methodology and specific option pricing methodology, such as the Monte Carlo simulation, method to value the more complex financial instruments and the Black-Scholes option-pricing model to value standard common stock warrants and common stock options. The framework for measuring fair value specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: Level 1 Inputs. Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Level 2 Inputs. Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. Level 3 Inputs. Inputs are unobservable inputs which reflect the Company’s own assumptions on what assumptions market participants would use in pricing the asset or liability based on the best available information. Revenue Recognition The Company generates revenue from the sale of imagery and software analytical services and engineering and systems integration. Imagery and software analytical services revenue includes imagery, data, software, and F-13 Table of Contents analytics, including professional services. This revenue is recognized from services rendered under cost-plus-fixed-fee contracts, firm fixed price contracts, or on a time and materials basis. Engineering and systems integration revenue is from fixed price long-term construction contracts. The Company adopted the provisions of the new revenue recognition standard, Accounting Standards Update No. 2014-09, “ Revenue from Contracts with Customers (Topic 606) ” (“ASC 606”), for the fiscal year beginning January 1, 2020 using the modified retrospective adoption method for the contracts that were not completed at the date of initial application. Concurrent with the adoption of the new standard, the Company has updated its revenue recognition policy in accordance with the five-step model set forth under ASC 606. The Company generates revenue primarily through contracts with government agencies. Most of the fixed price contracts include multiple promises, which are generally separated as distinct performance obligations. The Company allocates the transaction price to each performance obligation based on the relative standalone selling prices using observable sales transactions where applicable. Identifying the performance obligations contained in a contract, determining transaction price, allocating transaction price, and determining when performance obligations are satisfied can require the application of significant judgment, as further discussed below. Identifying the performance obligations in a contract. The Company's contracts typically include multiple promises which are accounted for as separate performance obligations. Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit or loss recorded in each period. Classification of Revenue. Revenue is classified in the consolidated statements of operations and comprehensive loss based on the predominant attributes of the performance obligations. Determination of and Allocation of Transaction Price. Each customer purchase order sets forth the transaction price under the arrangement. For contracts with multiple performance obligations, the Company evaluates whether the stated selling prices represent their standalone selling prices. When it is necessary to allocate the transaction price to multiple performance obligations, the expected cost plus a reasonable profit margin is typically used to estimate the standalone selling price of each product or service. The Company also sells standard products or services as a percentage markup of an underlying baseline product. Determination of when Performance Obligations are Satisfied. Revenue from imagery is recognized at the point-in-time the customer receives access to the imagery, or ratably over the subscription period. In certain firm fixed price contracts that contain imagery where it is probable the Company will receive the full contract amount or the customer prepays for future services, which may expire unused, the Company’s accounting policy for unexercised performance obligations is to recognize the estimated breakage amount as revenue over time in proportion to the historical pattern of rights exercised by the customer. The unrecognized amount is recorded within contract liabilities on the Company’s consolidated balance sheets. Revenue from data, software, and analytics, including professional service solutions, is recognized from the rendering of services over time on a cost-plus-fixed-fee, firm fixed price, or a time and materials basis. Engineering and systems integration revenue is primarily generated from fixed price long-term engineering and integration construction contracts. Due to the long-term nature of these contracts, the Company generally recognizes revenue over time using a cost-to-cost measure of progress because it best depicts the transfer of control to the customer as the Company incurs costs on the contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation(s) ("EAC"). The estimation of total estimated costs at completion is subject to many variables and requires judgment. The Company recognizes changes in contract estimates on a cumulative catch-up basis in the period in which the changes are identified. If at any time, the estimate of contract profitability indicates a probable anticipated loss on the contract, the total loss is recognized as and when known. Revenue is measured at the fair value of consideration received or receivable and net of discounts. The Company applies a policy election to exclude transaction taxes collected from customer sales when the tax is both imposed on and concurrent with a specific revenue-producing transaction. The Company estimates any F-14 Table of Contents variable consideration, and whether the transaction price is constrained, upon execution of each contract. The Company did not have any active contracts with significant variable consideration as of December 31, 2021. The estimation of total revenue and costs at completion for fixed price projects is subject to many variables and requires judgment. The Company typically recognizes changes in contract estimates on a cumulative catch-up basis in the period in which the changes are identified. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period. Changes in contract estimates may also result in the reversal of previously recognized revenue, if the current estimate differs from the previous estimate. If at any time, the estimate of profitability for a performance obligation indicates a probable anticipated loss, the Company recognizes the total loss for the performance obligation in the period it is identified. Changes in estimates related to contracts accounted for using the cost-to-cost measure of progress are recognized in the period in which such changes are made for the inception-to-date effect of the changes. For the year ended December 31, 2021, the Company recognized $ 4.6 million of unfavorable cumulative adjustments to revenue reflecting estimated cost increases on two engineering and systems integration contracts (Note 5). During the year ended December 31, 2020, the Company’s recognized $ 4.0 million of unfavorable cumulative adjustments to revenue reflecting estimated cost increases on the same contracts. During the years ended December 31, 2021 and 2020, there was no revenue recognized from performance obligations satisfied in previous periods. Imagery & Software Analytical Services Imagery Imagery services include imagery delivered from the Company’s satellites in orbit via its Spectra AI platform and in limited cases directly uploaded to certain customers. Imagery performance obligations are recognized as revenue at the point-in-time when the Company delivers images to the Spectra AI platform or, in limited circumstances, ratably over the subscription period when the customer has a right to access the Spectra AI platform for unlimited images. In certain firm fixed price contracts that contain imagery where it is probable the Company will receive the full contract amount or the customer prepays for future services that may not be completely satisfied, the Company’s accounting policy for unexercised performance obligations is to recognize the estimated breakage amount as revenue over time in proportion to the historical pattern of rights exercised by the customer. We recognized $ 1.9 million and $ 0.0 million of estimate breakage in the years ended December 31, 2021 and 2020, respectively. The unrecognized amount is recorded within contract liabilities on the Company’s consolidated balance sheets. Data, Software, and Analytics The Company leverages proprietary artificial intelligence ("AI") and machine learning ("ML") algorithms to analyze data coming from both the Company’s proprietary sensor network and third-party space and terrestrial sources to provide hard-to-get data, insights, and analytics for customers. The Company continues to integrate and enhance its offerings by performing contract development, while retaining the intellectual property rights. The Company also provides technology enabled professional service solutions to support customer-specific software development requests, integration, testing, and training. The Company uses system engineers to support customer efforts to manage mass quantities of data. The Company also offers professional service solutions related to object detection, site monitoring, and enhanced analytics, through which the Company can detect key objects in critical locations such as ports, airports, and construction sites; monitor changes at, damages to or other anomalies in key infrastructure; and analyze stockpiles or other critical inventory . Imagery and software analytical services revenue from data, software, and analytics contracts is recognized from the rendering of services over time on a cost-plus-fixed-fee, firm fixed price, or time and materials basis as well as, at the point-in-time the customer receives access to an analytic product. For firm fixed price contracts, the Company recognizes revenue using an EAC. A performance obligation’s EAC includes all direct costs such as labor, materials, subcontract costs, overhead and an allocatable portion of general and administrative costs. In addition, an EAC of a performance obligation includes future losses estimated to be incurred on contracts, as and when known. For contracts structured as cost-plus-fixed-fee or on a time and materials basis, the Company generally recognizes revenue based on the right-to-invoice when practically expedient, as the Company is F-15 Table of Contents contractually able to invoice the customer based on the control transferred to the customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. Engineering and Systems Integration The Company develops and delivers advanced launch vehicle, satellite and payload systems for a limited number of customers that leverage the Company’s capabilities in mission systems engineering and operations, ground station operations, and software and systems development. These systems are sold to government customers under fixed price contracts. The Company generally recognizes revenue over time using the cost-to-cost method to measure progress, pursuant to which the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total EAC. Imagery and Software Analytical Service and Engineering and Systems Integration Costs Imagery and software analytical service costs primarily include internal aerospace and geospatial software development labor, third-party data and imagery, internal labor to support the ground stations and space operations, and cloud computing and hosting services. The Company recognizes stock-based compensation expense for those employees whose work supports the imagery and software analytical service costs we provide to customers, under imagery and software analytical service costs, excluding depreciation and amortization. For those employees who provide engineering and systems support to customers, the stock-based compensation expense will be classified under engineering and systems integration costs. For the remaining employees who generally support the Company and its business, the stock-based compensation expense is recognized under selling, general and administrative expense in the consolidated statements of operations and comprehensive loss. Engineering and systems integration costs primarily include the cost of internal labor for product design, integration and engineering in support of long-term development contracts for launch vehicle, satellite and payload systems. The Company also incurs subcontract direct materials and external labor costs to build and test specific components such as the communications system, payload demands and sensor integration. Costs are expensed as incurred except for incremental costs to obtain or fulfill a contract, which are capitalized and amortized on a systematic basis consistent with the transfer of goods and services. Fringe costs incurred within or allocated to the Company’s customers are classified as overhead (included in imagery and software analytical services and engineering and systems integration costs based on the nature of the contract). The Company does not have any contracts that are subject to U.S. Government Cost Accounting Standards. Research and Development Costs The Company primarily incurs research and development costs, which are expensed as incurred, for data science modeling and algorithm development related to its geospatial analytical platform. In addition, the Company recognizes costs incurred before the technological feasibility stage for internal projects, such as aerospace and other satellite developments, as research and development costs. Advertising Costs Advertising costs are expenses associated with promoting the Company’s services and products. Advertising costs are expensed as incurred and included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. For the years ended December 31, 2021 and 2020, advertising costs were $ 1.1 million and $ 0.5 million, respectively. Income Taxes The Company accounts for income taxes following the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted F-16 Table of Contents tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. The Company measures deferred tax assets based on the amount that the Company believes is more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including reversals of existing taxable temporary differences, tax-planning strategies, and historical results of recent operations. In evaluating the objective evidence that historical results provide, the Company considers three trailing years of cumulative operating income or loss. Valuation allowances are provided, if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. A full valuation allowance was recorded against the deferred tax assets as of December 31, 2021 and 2020. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company's effective tax rate in the future. The Company believes that its tax positions comply with applicable tax law. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company's income tax expense or benefit, liability and/or receivable, deferred tax assets and liabilities, and liabilities for uncertain tax benefits reflect management’s best assessment of estimated current and future taxes to be paid or received. Stock-Based Compensation Restricted Stock Awards and Restricted Stock Units The estimated fair value of RSAs and RSUs are measured based on the grant date fair value of the Company’s Class A common stock. In order to determine the fair value of its Class A common stock on the date of grant and prior to the Merger, Legacy BlackSky historically performed a valuation analysis using a combination of market and income approaches. Subsequent to the Merger, the Company uses the New York Stock Exchange (“NYSE”) trading price as the fair value of the Class A common stock for valuation purposes. For all awards for which vesting is only subject to a service condition, including those subject to graded vesting, the Company has elected to use the straight-line method to recognize the fair value as compensation cost over the requisite service period. Certain of the Company’s outstanding RSUs had performance vesting conditions that were triggered upon the consummation of the Merger. Therefore, since the performance conditions attributable to these RSUs had been met, the Company commenced recording the associated compensation expense, inclusive of a catch-up amount for the service period between their grant date and satisfaction of the performance condition, as of the closing of the Merger. The fair value of the RSUs that include a performance condition is recognized as compensation expense over the requisite service period using the accelerated attribution method, which accounts for RSUs with discrete vesting dates as if they were a separate award. Expense related to stock-based payments is classified in the consolidated statements of operations and comprehensive loss based upon employees’ cash compensation. The Company recognized stock-based compensation expense in imagery and software analytical service costs, excluding depreciation and amortization, and selling, general and administrative expense in the consolidated statements of operations and comprehensive loss. Stock Options The Company uses the Black-Scholes option pricing model to value all options and the straight-line method to recognize the fair value as compensation cost over the requisite service period. The fair value of each option granted was estimated as of the date of grant. The Company granted options to a homogenous pool of executive employees during the year ended December 31, 2021 under the 2021 Plan. The Company did not grant options in the year ended December 31, 2020. The Company's uses the following inputs when applying the Black-Scholes option pricing model: F-17 Table of Contents Expected Dividend Yield . The Black-Scholes valuation model requires an expected dividend yield as an input. The dividend yield is based on historical experience and expected future changes. The Company currently has no plans to pay dividends on its Class A common stock. Expected Volatility . The Company does not have enough historical share price history, therefore, the expected volatility was estimated based upon the historical share price volatility of comparable publicly traded companies. Risk-free Interest Rate . The yield on actively traded non-inflation indexed U.S. Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants. Expected Term. For options granted in 2021, since there is not a history of option exercises as a public company, the Company considered the option vesting terms and contractual period, as well as the demographics of the holders, in estimating the expected term. For options granted prior to 2021, the expected term was the estimated duration to a liquidation event based on a weighted average consideration of the most likely exit prospects for that stage of development. Legacy BlackSky was privately funded and, accordingly, the lack of marketability was factored into the expected term of options granted. The Company will review its estimate in the future and adjust it, if necessary, due to changes in the Company’s historical exercises. The most significant assumption used to determine the fair value of the Legacy BlackSky equity-based awards was the estimated fair value of the Class A common stock on the grant date. In order to determine the fair value of its Class A common stock on the date of grant and prior to the Merger, Legacy BlackSky historically performed a valuation analysis using a combination of market and income approaches. Subsequent to the Merger, the Company uses the NYSE trading price as the fair value of the Class A common stock for valuation purposes. Legacy BlackSky historically adjusted the exercise price of certain outstanding stock options. For each award with an adjusted exercise price, Legacy BlackSky calculated the incremental fair value, which was the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. The incremental fair value was recognized as stock-based compensation expense immediately to the extent that the modified stock option already had vested, and for stock options that were not yet vested, the incremental fair value has been recognized as stock-based compensation expense over the remaining vesting period. Segment Information The Company’s Chief Operating Decision Maker (as defined under GAAP), who is the Company’s Chief Executive Officer, has determined the allocation of resources and assessed performance based upon the consolidated results of the Company. Accordingly, the Company is currently deemed to be comprised of only one operating segment and one reportable segment. This segment, which comprises the continuing operations of the Company’s single operating and reportable segment, provides geospatial intelligence, imagery and related data analytic products and services, and mission systems that include the development, integration, and operation of satellite and ground systems to government and commercial customers. Debt - Application of the Fair Value Option During the year ended December 31, 2021, the Company issued three tranches of subordinated, unsecured convertible promissory notes (collectively, the “Bridge Notes”) (refer to the discussion included in Note 15). The Company elected to account for the Bridge Notes under the fair value option. In accordance with the application of the fair value option, the Company (i) recorded the Bridge Notes at their fair values as of the dates of issuance and (ii) remeasured the fair value of the Bridge Notes at each balance sheet date and at the conversion date, which was the date of the Merger. Both the initial and subsequent measurement of the fair value of the Bridge Notes contemplated all of their terms and all of the notes’ features. Accordingly, when the fair value option was applied, the Company did not separately evaluate the Bridge Notes for the existence of embedded features that would require bifurcation as embedded derivatives under other accounting guidance. Changes to the fair value of the Bridge Notes between balance sheet dates are reported within other (expense) income, net in the consolidated statements of operations and comprehensive loss if such changes are attributable F-18 Table of Contents to base market risk. Until settlement, changes to the fair value of the Bridge Notes were reported in other comprehensive loss in the consolidated statements of operations and comprehensive loss if such changes were attributable to instrument-specific credit risk. All debt issuance costs incurred in connection with Bridge Notes accounted for pursuant to the fair value option were expensed as incurred. The Company did not separately report interest expense attributable to the Bridge Notes accounted for pursuant to the fair value option in the consolidated statements of operations and comprehensive loss. Accrued interest, which did not become due until maturity of the Bridge Notes, was included in the determination of the fair value of the Bridge Notes and changes thereto. These Bridge Notes converted at the closing of the Merger (Note 15) and as of December 31, 2021, the Company did not have any Bridge Notes outstanding. Upon conversion of the Bridge Notes, amounts previously reported in other comprehensive loss to account for changes in the fair value of the Bridge Notes were reclassified and reported in gain on debt extinguishment in the consolidated statements of operations and comprehensive loss. Warrant Liability The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “ Distinguishing Liabilities from Equity ” (“ASC 480”) and ASC 815, “ Derivatives and Hedging ” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments that would require classification as a liability under ASC 480, as well as whether the warrants qualify for equity classification or require liability classification after consideration of the guidance and criteria outlined in ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions that impact classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and remeasured at fair value as of each balance sheet date thereafter. The Company accounted for the warrants issued in connection with the Bridge Notes in accordance with the guidance contained in ASC 815-40-15-7D, under which the warrants did not meet the criteria for equity treatment and were recorded as liabilities. Accordingly, the Company classified the warrants as liabilities at their fair value and remeasured the warrants at fair value at each reporting period and at the time of exercise; any change in fair value was recognized in gain (loss) on derivatives in the Company’s consolidated statements of operations and comprehensive loss. At the consummation of the Merger, all of the outstanding Legacy BlackSky class A common stock warrants issued in connection with the Bridge Notes and accounted for as liabilities were automatically net exercised into Legacy BlackSky class A common shares and then exchanged for 3.9 million BlackSky common shares based upon the Class A common stock exchange ratio. As such, these warrants issued in connection with the Bridge Notes are no longer presented in the Company’s consolidated balance sheets as of December 31, 2021. As of December 31, 2021, the Company’s consolidated balance sheets included certain liability classified warrants, reported as derivative liabilities, that were issued at the time of Osprey’s initial public offering (the “IPO”) and remained unexercised subsequent to the Merger. The fair value of the redeemable warrants sold as part of the units issued upon consummation of Osprey’s IPO (the “Public Warrants”), and which the Company has recorded as a long-term liability, was estimated as of the date of the Merger and as of December 31, 2021 using the Public Warrants’ quoted market price. The non-redeemable private placement warrants (“Private Placement Warrants”) were valued using a Black-Scholes option pricing model for initial and subsequent measurements and were also recorded as a long-term liability in the Company's consolidated balance sheets. The liabilities associated with the Public Warrants and the Private Placement Warrants are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in gain (loss) on derivatives in the Company’s consolidated statements of operations and comprehensive loss. F-19 Table of Contents Sponsor Shares Osprey pre-Merger class B common shares were exchanged for the Company’s class A common shares upon the consummation of the merger (“Sponsor Shares”). A portion of these shares are subject to specific lock-up provisions and potential forfeitures depending upon the post-Merger performance of the Company's Class A common stock (“Sponsor Earn-Out Shares”). Variable-settled equity instruments that do not meet all of the criteria for equity classification are required to be recorded at their initial fair value on the date of issuance, and remeasured at fair value as of each balance sheet date thereafter. The Company accounted for the Sponsor Shares in accordance with the guidance contained in ASC 815-40, under which the Sponsor Shares did not meet the criteria for equity treatment and were recorded as derivative liabilities in the Company’s consolidated balance sheets as of December 31, 2021. The Sponsor Shares are adjusted to fair value at each reporting period and the change in fair value is recognized in gain (loss) on derivatives in the Company’s consolidated statements of operations and comprehensive loss. The estimated fair value of the Sponsor Shares is determined by a Monte Carlo simulation using a distribution of potential outcomes. Transaction Costs Transaction costs consist of legal fees, accounting fees, underwriting fees, and other third-party costs related directly to the Reverse Recapitalization. As a reverse recapitalization transaction between a private operating company and a public shell company that had cash on its balance sheet and that was accounted for as the issuance of equity by Legacy BlackSky for the cash of the shell company, the transaction costs incurred by Legacy BlackSky were permitted to be charged directly to equity. Upon the closing of the Merger, $ 19.2 million of transaction costs that had been incurred by Legacy BlackSky, inclusive of amounts that previously had been capitalized as other assets prior to the closing of the Merger, were recorded as a reduction to additional paid-in capital in the consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit) and consolidated balance sheets, and as a reduction to proceeds from the transaction in the consolidated statements of cash flows. The transaction costs of $ 0.3 million related to the Sponsor Earn-Out Shares were expensed. There were no deferred transaction costs capitalized as of December 31, 2021 and 2020. 3. Accounting Standards Updates (“ASU”) Accounting Standards Recently Adopted In August 2018, the FASB issued ASU No. 2018-15, “ Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ” The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update requires an entity to determine which implementation costs to capitalize as an asset related to the service contract and subsequently expense over the term of the hosting arrangement, versus which costs to expense as activities are performed. In addition, the update provides specific guidance regarding the income statement, cash flow statement, and balance sheet presentation of amounts recognized for, payments of, and prepayments attributable to capitalized implementation costs, respectively. This ASU can be applied on a prospective or retrospective basis. The guidance is effective for all public business entities for fiscal years beginning after December 15, 2019, including interim periods therein. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2020, and for interim periods beginning after December 15, 2021. The update also permits early adoption, including adoption in any interim period. The Company adopted the guidance on January 1, 2021. Adoption of the standard did not have a material impact to the consolidated financial statements. Accounting Standards Recently Issued But Not Yet Adopted In February 2016, the FASB issued ASU 2016-02 “ Leases ” . The amendments in this update require the recognition of lease assets and lease liabilities on the balance sheet, as well as certain qualitative disclosures regarding leasing arrangements. The guidance requires the use of the modified retrospective method, with the F-20 Table of Contents cumulative effect of initially applying these updates recognized at the date of initial application. The guidance was effective for public business entities for annual periods, including interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022, with early adoption permitted. As of December 31, 2021, the Company holds emerging growth company status, as such it is permitted to present the impact of the new guidance in its annual statement as of December 31, 2022 and interim statements thereafter. The Company is currently in the process of evaluating the adoption impact but expects the adoption of the standard to have a material impact to the consolidated balance sheets, since the Company will be required to report operating leases in the consolidated balance sheets for the first time. The Company is in the early stages of its adoption efforts and cannot yet reasonably estimate the impact to the consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ”. The amendments in this update are primarily for entities holding financial assets and net investment leases measured under an incurred loss impairment methodology. A new methodology must be adopted to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates, which would include losses on trade accounts receivable. This ASU requires modified retrospective application. The guidance is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2019, including interim periods therein. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2022, including interim periods therein. The Company is currently in the planning stage and will adopt the guidance on January 1, 2023. The Company has not yet determined the potential impact, if any, that this guidance will have on its consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): “ Simplifying the Accounting for Income Taxes ”. The amendments in this update are intended to simplify various aspects related to accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU can be applied on a retrospective, modified retrospective or prospective basis. The guidance is effective for all public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022. Early adoption is also permitted. As of December 31, 2021, the Company holds emerging growth company status, as such it is permitted to present the impact of the new guidance in its annual statement as of December 31, 2022 and interim statements thereafter. The Company is currently in the process of evaluating the adoption impact and has not yet determined the potential impact, if any, that this guidance will have on its consolidated financial statements. In August 2020, the FASB issued ASU No. 2020-06, “ Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity ”. The amendments in this update address issues identified as a result of the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. This ASU can be applied on a prospective basis. The guidance is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods therein, with early adoption permitted. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The Company is currently in the planning stage and expects to adopt the guidance on January 1, 2024. The Company has not yet determined the potential impact, if any, that adoption will have on its consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, “ Earnings per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) ” , which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified upon modification or exchange. This ASU is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the F-21 Table of Contents effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted this guidance as of January 1, 2022 and this guidance is not expected to impact the Company unless it modifies or exchanges freestanding financial instruments within the scope of the guidance subsequent to adoption. 4. Reverse Recapitalization As described in Note 1, the Merger between Osprey and Legacy BlackSky closed on September 9, 2021. In connection with the Merger: • A number of parties agreed to purchase an aggregate of 18.0 million shares of Osprey class A common stock (the “PIPE Shares”), for a purchase price of $ 10.00 per share, and an aggregate purchase price of $ 180.0 million, pursuant to the subscription agreements dated February 17, 2021. While executed pre-Merger, the sale of PIPE Shares was consummated substantially concurrently with the closing of the Merger and participants received shares of BlackSky Class A common stock. • As part of a strategic partnership, Palantir Technologies Inc. (“Palantir”) agreed to purchase an aggregate of 0.8 million shares of Osprey class A common stock for a purchase price of $ 10.00 per share and an aggregate purchase price of $ 8.0 million pursuant to a subscription agreement entered into on August 31, 2021, which contained substantially similar terms as the PIPE subscription agreement described above. The Palantir subscription agreement closed on September 13, 2021, two business days subsequent to the closing of the Merger, and Palantir received 0.8 million shares of BlackSky Class A common stock. • 79.0 million shares of Osprey class A common stock were issued for all of the issued and outstanding equity interests of Legacy BlackSky, inclusive of shares of Osprey’s class A common stock issued in exchange for Legacy BlackSky’s (1) issued and outstanding class A common stock, (2) issued and outstanding preferred stock, (3) shares of common stock issued upon the conversion of Legacy BlackSky’s convertible promissory notes (inclusive of interest accrued thereon), as if each had converted into Legacy BlackSky class A common stock immediately prior to the Merger, and (4) shares of preferred stock and common stock issued upon the manual or automatic exercise of certain warrants immediately prior to the Merger. Both outstanding preferred stock shares and preferred stock share activity related to all of Legacy BlackSky’s redeemable convertible preferred stock have been retrospectively adjusted for the exchange and included as equity in the Company’s consolidated balance sheets and statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit) from the beginning of the earliest period presented in order to reflect the Company’s equity structure for all reporting periods. • Outstanding Legacy BlackSky RSUs, RSAs, options, and common stock warrants that were neither exercised nor forfeited immediately prior to the Merger were exchanged, based on the exchange ratio applicable to shares of Legacy BlackSky’s class A common stock, for RSUs, RSAs, options, and warrants, respectively, that vest into or become exercisable for the Company’s Class A common stock. Upon exchange, these awards remained subject to the same vesting and exercise terms and conditions as were applicable to the awards pre-Merger. • 21.4 million shares of Osprey class A common stock were redeemed by Osprey pre-Merger public shareholders. The price paid in excess of the pro-rata portion of additional paid-in capital was recorded in accumulated deficit in the consolidated balance sheets and consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit) as of and for the year ended December 31, 2021. • 7.9 million shares of Osprey class B common stock that were outstanding immediately prior to the Merger were converted to 7.9 million shares of Osprey class A common stock, inclusive of 2.4 million shares that are subject to (1) up to a seven year lockup period, with release terms that are based upon the performance of the Company’s common stock or a change in control event and (2) potential forfeiture. F-22 Table of Contents The following table reconciles the elements of the Merger to the consolidated statements of cash flows and the consolidated statement of changes in stockholder's equity (deficit) for the year ended December 31, 2021 (in thousands): Cash – Osprey’s trust and cash (net of redemptions) $ 103,049 Cash - PIPE financings (PIPE Shares and Palantir) 188,000 Gross Merger proceeds $ 291,049 Less: fees paid to Osprey IPO underwriters ( 11,173 ) Less: other Osprey transaction costs ( 15,831 ) Less: BlackSky transaction costs ( 19,165 ) Proceeds from Reverse Recapitalization, net payment of BlackSky equity issuance costs $ 244,880 Less: non-cash assets and warrant liabilities assumed from Osprey ( 43,963 ) Net impact from Reverse Recapitalization to BlackSky's equity $ 200,917 The number of shares of Company Class A common stock originally issued by Osprey prior to Merger and the recapitalization of the Class A common stock following the Merger are as follows: Number of Shares (in thousands) Osprey class A common stock, outstanding prior to Merger 31,625 Less: redemption of Osprey class A common stock ( 21,375 ) Total Osprey class A common stock pre-Merger 10,250 Osprey Founder class A common stock 5,534 Class A common stock issued in PIPE and Palantir financing 18,800 Total Merger, PIPE, and Palantir financing class A common stock 34,584 5. Revenue Disaggregation of Revenue The Company earns revenue through the sale of imagery and software analytical services and engineering and systems integration. The Company’s management primarily disaggregates revenue as follows: (i) imagery; (ii) data, software and analytics; and (iii) engineering and integration. This disaggregation allows the Company to evaluate market trends in certain imagery and software analytical services and engineering and systems integration services. These offerings currently have both recurring and non-recurring price attributes, particularly the engineering and systems integration offerings. The following table disaggregates revenue by type of imagery and software analytical services and engineering and integration for the years ended December 31, 2021 and 2020: Years Ended December 31, 2021 2020 (in thousands) Imagery $ 8,648 $ 3,005 Data, software and analytics 16,398 15,732 Engineering & integration 9,039 2,398 Total revenue $ 34,085 $ 21,135 F-23 Table of Contents The approximate revenue based on geographic location of customers is as follows for the years ended December 31, 2021 and 2020: Years Ended December 31, 2021 2020 (in thousands) US $ 29,557 $ 17,239 Middle East 2,661 3,185 Asia 1,300 668 Other 567 43 Total revenue $ 34,085 $ 21,135 Revenue from significant customers for the years ended December 31, 2021 and 2020 is as follows: Years Ended December 31, 2021 2020 (in thousands) U.S. federal government and agencies $ 29,382 $ 17,050 Commercial and other 4,703 4,085 Total revenue $ 34,085 $ 21,135 As of December 31, 2021 and 2020, accounts receivable consisted of the following: December 31, December 31, 2021 2020 (in thousands) U.S. federal government and agencies 2,576 $ 1,335 Commercial and other 92 1,568 Allowance for doubtful accounts ( 39 ) — Total accounts receivable $ 2,629 $ 2,903 Remaining Performance Obligations As of December 31, 2021, the Company had $ 31.9 million of remaining performance obligations, which represents the transaction price of executed contracts less inception to date revenue recognized. Remaining performance obligations exclude unexercised contract options. The Company expects to recognize revenue relating to remaining funded contractual performance obligations, of which a portion is recorded in deferred revenue in the consolidated balance sheets, of $ 29.5 million, $ 2.3 million, and $ 136 thousand in fiscal years 2022, 2023, and thereafter, respectively. F-24 Table of Contents 6. Contract Assets and Liabilities The components of contract assets and contract liabilities consisted of the following: December 31, December 31, 2021 2020 (in thousands) Contract assets - current Unbilled revenue $ 788 $ 749 Contract assets 890 3,047 Total contract assets - current $ 1,678 $ 3,796 Contract liabilities - current Deferred revenue - short-term $ 11,082 $ 14,030 Other contract liabilities 184 507 Total contract liabilities - current $ 11,266 $ 14,537 Contract liabilities - long-term $ — $ — Deferred revenue - long-term 568 2,559 Total contract liabilities - long-term $ 568 $ 2,559 Deferred revenue and other contract liabilities are reported as contract liabilities in the accompanying consolidated balance sheets. Contract liabilities include payments received and billings made in advance of the satisfaction of performance obligations under the contract and are realized when the associated revenue is recognized under the contract. Contract assets include (i) unbilled revenue, which is the amount of revenue recognized in excess of the amount billed to customers, where the rights to payment are not just subject to the passage of time; and (ii) costs incurred to fulfill contract obligations. Other contract assets and other contract liabilities primarily relate to contract commissions on customer contracts. Changes in short-term and long-term contract assets and contract liabilities reported as of January 1, 2021 were as follows: Contract Assets Contract Liabilities (in thousands) Balance on January 1, 2021 3,796 $ 17,096 Billings or revenue recognized that was included in the beginning balance ( 740 ) ( 12,641 ) Cash received in advance and not recognized as revenue — 3,060 Changes in contract assets, net of reclassification to receivables 780 — Cumulative catch-up adjustment arising from changes in estimates to complete — 4,624 Cumulative catch-up adjustment arising from contract modification — 18 Changes in costs to fulfill and amortization of commission costs ( 2,158 ) — Changes in contract commission costs ( 323 ) Balance on December 31, 2021 $ 1,678 $ 11,834 7. Equity Method Investments LeoStella The Company accounts for its investment in LeoStella as an equity method investment. The Company did not make any additional capital investments in LeoStella during the years ended December 31, 2021 or 2020; F-25 Table of Contents the Company received a distribution of $ 0.3 million during 2021. During the years ended December 31, 2021 and 2020, respectively, the Company remitted $ 19.3 million and $ 8.2 million of payments to LeoStella for satellite manufacturing and satellite software development. X-Bow In 2017, the Company entered into a stock subscription and technology transfer agreement with X-Bow, whereby the Company assigned and transferred certain intellectual property rights owned by the Company to X-Bow in exchange for 13.5 million shares of X-Bow, a strategic investment in a space technology company specializing in additive manufacturing of solid rocket motors. As of December 31, 2021, the Company's interest in X-Bow was 17.5 % . The following tables present summarized financial information for the Company’s equity method investments as of December 31, 2021 and 2020 and for the years ended December 31, 2021 and 2020. December 31, December 31, Summarized balance sheets 2021 2020 (in thousands) Current assets $ 60,652 $ 64,355 Non-current assets 5,798 7,468 Total assets $ 66,450 $ 71,823 Current liabilities $ 39,612 $ 57,040 Non-current liabilities 706 6,589 Total liabilities $ 40,318 $ 63,629 Years Ended December 31, Summarized statements of operations 2021 2020 (in thousands) Revenue $ 61,802 $ 14,917 Gross margin $ 12,410 $ 2,636 Net income (loss) $ 6,540 $ ( 1,873 ) Current assets of the Company’s equity method investees primarily consisted of inventories of $ 17.0 million and $ 47.3 million as of December 31, 2021 and 2020, respectively. Total liabilities of the Company’s equity method investees primarily consisted of customer advances from related parties of $ 35.2 million and $ 51.4 million as of December 31, 2021 and 2020, respectively. The revenue related to equity method investments attributable to related parties was $ 55.5 million and $ 14.9 million for the years ended December 31, 2021 and 2020, respectively. The Company has differences between the carrying value of its equity method investments and the underlying equity in the net assets of the investees of $ 2.9 million as of December 31, 2021 and $ 0.5 million as of December 31, 2020. The difference is the result of the elimination of upstream intra-entity profits from the sale of satellites. 8. Discontinued Operations On June 12, 2020, the Company completed the sale of 100 % of its equity interests in Spaceflight to M&Y Space for a final purchase price of $ 31.6 million. In connection with the sale, a bridge loan of $ 26.0 million, plus unpaid, accrued interest of $ 0.2 million, was extinguished and deducted from the net proceeds. Accrued interest of $ 0.5 million was also forgiven in accordance with the terms of the bridge loan. Under a transition services agreement, the Company provides, post-closing transition services to Spaceflight, including, but not limited to, the sublease of the Company’s office facility in Seattle, Washington and common area maintenance fees related to the sublease. F-26 Table of Contents Settlement Arrangement for the Sale of the Spaceflight On March 30, 2021, the Company settled certain disputes with respect to the purchase price in the total amount of $ 6.8 million, which was accrued as a liability as of December 31, 2020 (Note 12). The Company paid the settlement amount in two tranches—(i) $ 2.0 million on April 1, 2021 and (ii) the remaining $ 4.8 million was triggered at the closing of the Merger. In April 2021, the Company also terminated a launch arrangement with Spaceflight and, as agreed upon by the parties, offset the amount due to M&Y Space with a contractual refund of $ 3.9 million of which the net amount of $ 819 thousand was settled for cash in the year ended December 31, 2021. As a result, the Company recorded a reduction to the accrued liability and a reduction to satellite procurement in the consolidated balance sheets. The following summarizes the components of the (loss) gain from discontinued operations, net of income taxes, that the Company has reported in the consolidated statements of operations and comprehensive loss. The Company recognized an unfavorable working capital adjustment of $ 1.7 millions primarily related to a potential shortfall in accounts receivable in the closing balance sheet delivered to M&Y Space. Years Ended December 31, 2021 2020 (in thousands) Major classes of line items constituting gain from discontinued operations: Revenue - launch services $ — $ 26,925 Total operating cost and expenses — 29,393 Operating loss — ( 2,468 ) Loss from discontinued operations, before income taxes — ( 2,487 ) (Loss) gain on disposal of discontinued operations ( 1,650 ) 30,672 Total (loss) gain from discontinued operations, net of income taxes ( 1,650 ) 28,185 9. Property and Equipment - net The following summarizes property and equipment - net as of: December 31, December 31, 2021 2020 (in thousands) Satellites $ 93,709 $ 32,340 Computer equipment and software 1,372 1,315 Office furniture and fixtures 744 1,388 Other equipment 682 434 Site equipment 1,393 1,311 Ground station equipment 111 1,415 Total 98,011 38,203 Less: accumulated depreciation ( 27,460 ) ( 17,351 ) Property and equipment — net $ 70,551 $ 20,852 On May 15, 2021, a rocket carrying two of the Company's satellites suffered a failure during flight, resulting in the loss of both satellites. This resulted in the total carrying value of $ 18.4 million being impaired in the second quarter of 2021. The $ 18.4 million includes satellite procurement, launch, shipping, launch support and other associated costs. Of this amount, $ 8.4 million was included in satellite procurement work in progress in the consolidated balance sheets as of December 31, 2020. There was no impairment for the year ended December 31, 2020. F-27 Table of Contents Depreciation of property and equipment from continuing operations during the years ended December 31, 2021 and 2020 was $ 12.9 million and $ 8.5 million, respectively. During the year ended December 31, 2021, the Company disposed of $ 2.9 million of property and equipment, which consisted of site equipment, furniture and ground station equipment, for a loss of $ 24 thousand. 10. Goodwill and Intangible Assets Goodwill The Company performed an annual qualitative goodwill assessment of the goodwill held related to the BlackSky reporting unit as of October 1, 2021. The Company determined that no triggering events occurred that would require the Company to quantitatively test goodwill for impairment during the year ended December 31, 2021. As of December 31, 2021, the Company believes that the estimated fair values of the BlackSky reporting unit is still in excess of its respective carrying value and therefore is not at-risk of being impaired. To the extent this reporting unit realizes actual operating results in the future below forecasted results, or realize decreases in forecasted results as compared to previous forecasts or, in the event the estimated fair value of the reporting unit decreases (as a result, among other things, of changes in market capitalization, including further declines in the stock price), the Company may incur goodwill impairment charges in the future. Goodwill was as follows: December 31, 2021 December 31, 2020 (in thousands) Gross carrying amount $ 9,393 $ 9,393 Accumulated impairment losses — — Net carrying value of goodwill $ 9,393 $ 9,393 Intangible Assets Intangible assets consisted of the following: Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) December 31, 2021 Customer relationships $ 6,530 $ ( 4,050 ) $ 2,480 Distribution agreements 326 ( 326 ) — Technology and domain name 4,054 ( 4,054 ) — Total intangible assets at December 31, 2021 $ 10,910 $ ( 8,430 ) $ 2,480 December 31, 2020 Customer relationships $ 6,530 $ ( 3,489 ) $ 3,041 Distribution agreements 326 ( 326 ) — Technology and domain name 4,047 ( 3,257 ) 790 Total intangible assets at December 31, 2020 $ 10,903 $ ( 7,072 ) $ 3,831 For each of the years ended December 31, 2021 and 2020, amortization expense related to intangible assets was $ 1.4 million. These amounts were included in depreciation and amortization expense in the consolidated statements of operations and comprehensive loss. The Company estimates that it will have the following amortization expense for the future periods indicated below: F-28 Table of Contents For the years ending December 31: (in thousands) 2022 561 2023 561 2024 561 2025 561 2026 236 Total 2,480 11. Accounts Payable and Accrued Liabilities The components of accounts payable and accrued liabilities were as follows: December 31, December 31, 2021 2020 (in thousands) Accounts payable $ 1,723 $ 4,177 Accrued payroll 4,089 2,577 Accrued professional services, legal, and other general and administrative 2,043 919 Accrued cost of goods sold and other expenses 2,982 293 Total accounts payable and accrued liabilities $ 10,837 $ 7,966 12. Other Current Liabilities The components of other current liabilities were as follows: December 31, December 31, 2021 2020 (in thousands) Warrant liability $ — $ 558 Other current liabilities 324 28 Current portion of capital lease 49 48 Contingent liability 761 — Working capital liability 1,685 6,805 Total other current liabilities $ 2,819 $ 7,439 The contingent liability represents a liability for estimated indirect taxes, previously classified as long-term. Refer to Note 24 for more information. The working capital liability as of December 31, 2020 was reduced by payments of $ 2.8 million and a contractual refund of $ 3.9 million for a terminated launch services agreement for which a right of setoff exists and increased by a working capital adjustment related to a potential shortfall in accounts receivable in the Spaceflight closing balance sheet of $ 1.0 million. Refer to Note 8 for more information. 13. Employee Benefit Plan The Company has a 401(k) savings plan. Eligible employees may voluntarily contribute a percentage of their compensation to their 401(k) account. The Company provides a 401(k) employer match of 50 % of the first 6 % of the employee’s salary contribution. The benefit vests over a five-year period beginning 90 days after the employee’s date of hire. For the years ended December 31, 2021 and 2020, the 401(k) employer match expense was $ 0.6 million and $ 0.5 million, respectively, for continuing operations. 14. Income Taxes F-29 Table of Contents The Company's consolidated effective income tax rate from continuing operations for the years ended December 31, 2021 and 2020 was 0.0 %. The Company's provision for income taxes from continuing operations for the years ended December 31, 2021 and 2020 is as follows: Years Ended December 31, 2021 2020 (in thousands) Current: Federal $ — $ — State — — Total current $ — $ — Deferred: Federal — — State — — Total deferred $ — $ — Total provision for income taxes $ — $ — The Company’s operations are domestically located and therefore, the Company is not subject to tax in foreign jurisdictions. The provision (benefit) for income taxes differed from the amount computed by applying the federal statutory income tax rate of 21% to loss before income taxes due to the following items for the years ended December 31, 2021 and 2020: Years Ended December 31, 2021 2020 (in thousands) Tax benefit at federal statutory rate $ ( 51,673 ) $ ( 10,022 ) Non-deductible compensation 4,431 449 State tax, net of federal benefit ( 3,296 ) ( 499 ) Valuation allowance 25,631 9,666 Non-deductible interest 21,715 — Non-taxable warrants ( 5,016 ) 117 Uncertain tax position 8,449 — Other ( 241 ) 289 Income tax (benefit) expense $ — $ — The income tax expense as of December 31, 2021 and 2020 was $ 0.0 million . The tax benefits associated with losses generated by the consolidated group have been reduced by a full valuation allowance as the Company does not believe it is more-likely-than-not that the losses will be utilized. Other major drivers include non-deductible interest and an uncertain tax position related to the valuation of guaranteed incentives shares issued for SVB guarantors. F-30 Table of Contents Deferred tax assets and liabilities as of December 31, 2021 and 2020, consisted of the following: December 31, 2021 2020 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 45,181 $ 24,764 Sec. 163(j) carryforward 6,414 4,661 Accruals and reserves 2,359 2,155 Deferred revenue 778 539 Capital loss carryforward 3,689 3,368 Other deferred tax assets 3,631 1,284 Total deferred tax assets 62,052 36,771 Valuation allowance ( 61,460 ) ( 35,874 ) Total net deferred tax assets 592 897 Deferred tax liabilities Basis difference in intangibles ( 588 ) ( 895 ) Other deferred tax liabilities ( 4 ) ( 2 ) Total deferred tax liabilities ( 592 ) ( 897 ) Net deferred tax liabilities $ — $ — The Company continues to provide for a full valuation allowance on its net deferred tax assets as the Company does not believe it is more-likely-than-not that the losses will be utilized after evaluation of all significant positive and negative evidence including, but not limited to, historical cumulative losses over the prior three-year period, as adjusted for permanent items, insufficient sources of taxable income in prior carryback periods and unavailability of prudent and feasible tax-planning strategies. Below is a summary of the Company's estimated loss and tax credit carryforwards. The Company’s tax attributes are subject to limitations on utilization due to historic ownership changes and may be subject to future limitations upon subsequent change of control, as defined by the Internal Revenue Code Sections 382 and 383. Tax Effected Expiration (in thousands) Federal net operating loss (“NOL”) carryforward $ 8,638 2033-2037 Federal NOL carryforward $ 36,283 Indefinite Federal capital loss carryforward 3,689 2025 State NOL carryforwards 261 2037-2040 At December 31, 2021 and 2020 the Company had $ 213.9 million and $ 117.2 million of net operating loss (“NOL”) carryforwards for U.S. federal tax purposes, respectively. U.S. federal tax NOL carryforwards generated prior to 2018 of $ 41.1 million will expire, if unused, between 2033-2037. Under the Tax Cuts and Jobs Act of 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act, federal NOL carryforwards generated in tax years beginning after December 31, 2017 may be carried forward indefinitely. As of December 31, 2021, the Company had $ 172.8 million of NOL carryforwards generated after 2017 for U.S. federal tax purposes, which may be used to offset 80% of its taxable income annually. F-31 Table of Contents The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. Tax years 2014-2020 remain open for examination. Below is a tabular reconciliation of the total amounts of unrecognized tax benefits: 2021 2020 (in thousands) Unrecognized tax benefits - January 1 $ — $ 4,840 Gross decrease - tax positions in current period — ( 4,840 ) Gross increase - tax positions in current period 8,443 — Unrecognized tax benefits - December 31 $ 8,443 $ — The increase in unrecognized tax benefits in the year ended December 31, 2021 is due to the valuation of guaranteed incentives shares issued for SVB guarantors. The balance of unrecognized tax benefits as of December 31, 2021 and 2020, if recognized, would not affect our effective tax rate and would result in adjustments to other tax accounts, primarily deferred tax assets and the net operating loss carry forward. 15. Debt and Other Financing The carrying value of the Company’s outstanding debt consisted of the following amounts: December 31, December 31, 2021 2020 (in thousands) Current portion of long-term debt $ — $ 16,798 Non-current portion of long-term debt 74,126 86,637 Total long-term debt 74,126 103,435 Unamortized debt issuance cost ( 2,718 ) ( 1,827 ) Outstanding balance $ 71,408 $ 101,608 Under the Company’s loan agreements, minimum required maturities are as follows: For the years ending December 31, (in thousands) 2022 $ — 2023 — 2024 74,126 Total outstanding $ 74,126 F-32 Table of Contents The ending balance of the Company’s outstanding debt as of December 31, 2021 and 2020, consisted of the following: December 31, December 31, Name of Loan Effective Interest Rate 2021 2020 (in thousands) Loans from related parties 7.41 % - 8.00 % $ 74,126 $ 83,737 Small Business Administration Loan (Paycheck Protection Program) 1.86 % — 3,600 Line of credit 3.65 % — 16,098 Total $ 74,126 $ 103,435 Bridge Notes and Related Transactions On February 2, 2021, Legacy BlackSky amended its omnibus agreement dated June 27, 2018 (the “2021 Omnibus Amendment”). As a result of the amendment, Legacy BlackSky was permitted to enter into additional indebtedness by issuing new subordinated, unsecured convertible promissory notes, the Bridge Notes, between February 2, 2021 and June 30, 2021, for up to an aggregate principal amount of $ 60 million. During the period from February 2, 2021 through February 3, 2021, Legacy BlackSky completed the closing of its initial tranche of the Bridge Notes from existing stockholders. The aggregate principal amount of the Bridge Notes issued in the initial tranche was $ 18.1 million. All investors participating in the initial tranche also received incentive equity equal to seven shares of class A common stock of Legacy BlackSky for each dollar invested. Certain investors participating in the initial tranche additionally received warrants exercisable for shares of Legacy BlackSky class A common stock in amounts ranging from 0.14 % of Legacy BlackSky’s fully-diluted share capital for each dollar invested divided by $ 1.0 million to 3.5 % of Legacy BlackSky’s fully-diluted share capital (Note 16). On February 18, 2021, the Company completed the closing of a second tranche of the Bridge Notes, raising an aggregate principal amount of $ 40.0 million from an existing stockholder and from new investors. Participants in the second tranche did not receive shares of Legacy BlackSky class A common stock or warrants to purchase Legacy BlackSky class A common stock. Upon the closing of the two previously mentioned tranches, $ 1.9 million of Bridge Notes remained available to be offered to certain shareholders under terms similar to the initial tranche pursuant to a rights offering (“Rights Offering”). The Company subsequently completed the Rights Offering in June 2021 with a total of $ 0.5 million additional investment, resulting in final aggregate proceeds of $ 58.6 million in principal investments pursuant to the Bridge Notes. As the terms of the Rights Offering were substantially identical to those offered in the initial tranche of the Bridge Notes, participants received seven shares of the Legacy BlackSky's class A common stock for each dollar invested, as well as warrants. The Bridge Notes, in all three tranches, bore interest at a rate of 10 % and had a maturity date of April 30, 2025. There were no covenants in the Bridge Notes that were tied to financial metrics. The Company made an irrevocable election to carry the Bridge Notes at fair value. In connection with the Merger, all of the Company’s issued and outstanding Bridge Notes were converted into Legacy BlackSky class A common stock at a conversion price of 80 % of the deemed value of a single Legacy BlackSky class A common share and, immediately thereafter, those Legacy BlackSky class A common shares were exchanged for Osprey class A common shares based the class A common stock exchange ratio. As of December 31, 2021, the Company had no convertible Bridge Notes outstanding. In connection with the 2021 Omnibus Amendment, the investors guaranteeing the Silicon Valley Bank (“SVB”) line of credit further reaffirmed their guarantees and received a one-time issuance of seven shares of Legacy BlackSky class A common stock for every dollar guaranteed. Additionally, Legacy BlackSky agreed to pay a fee to each of its senior secured lenders (“Consent Fees”). The Consent Fees were payable in either cash or shares of Legacy BlackSky’s class A common stock at the choice of the lender. The Consent Fees were considered variable share-settled liabilities and were recorded at fair value (Note 23). All of the Consent Fees were settled for cash at the closing of the Merger. F-33 Table of Contents The following table summarizes the additional shares of Legacy BlackSky class A common stock and warrants to purchase Legacy BlackSky class A common stock issued as a result of the Bridge Notes. Legacy BlackSky Class A Common Stock (1) Legacy BlackSky Class A Common Stock Warrants (1) (in thousands) Issued to SVB guarantors 8,485 — Issued in connection with the initial tranche of Bridge Notes 11,544 3,873 Issued as incentive shares and as incentive warrants, in connection with the Rights Offering 314 51 Total 20,343 3,924 1. Issuance of class A common stock and class A common stock warrants has been retroactively restated to give effect to the reverse recapitalization. In connection with the Merger, all issued and outstanding Legacy BlackSky Bridge Notes and class A common stock warrants granted in accordance with the Bridge Notes were automatically exercised into Legacy BlackSky class A common stock and those shares were exchanged for the Company's common shares at the exchange rate applicable to the Company’s common stock. In connection with the Merger, the Company repaid $ 21.4 million in outstanding loans due to the settlement of the SVB line of credit of $ 16.1 million, the small business administration paycheck protection program loan of $ 3.5 million and $ 1.8 million in required payments on certain related party loans, inclusive of accrued interest. As a result of these repayments, the Company recorded a loss on debt extinguishment of $ 12 thousand. Loans from Related Parties After the Merger, the Company’s primary debt (and its sole secured debt) consists of its amended and restated loan and security agreement dated October 31, 2019, as amended or modified from time to time, with Intelsat Jackson Holdings SA (“Intelsat”) and Seahawk SPV Investment LLC (“Seahawk”). Interest accrues on the amounts outstanding under this facility at a fixed rate of 4 % until October 31, 2022, 9 % from November 1, 2022 to October 31, 2023, and 10 % from November 1, 2023 to the maturity date of October 31, 2024. During the 4 % interest period, the amount of accrued interest is added, on a pro-rata basis, to the outstanding principal amount of each lender’s advances on October 31, 2020, October 31, 2021, and October 31, 2022. Thereafter, interest is payable in cash semi-annually in arrears commencing on May 1, 2023. This facility is secured by substantially all of the Company’s assets, is guaranteed by the Company’s subsidiaries, and contains customary covenants and events of default. There are no covenants tied to financial metrics. Subsequent to the Merger, the Company also had remaining debt in the form of unsecured notes owed to Legacy BlackSky”s founders (“Founders”) for $ 10.0 million, which accrued interest at 6 % per annum, were non-convertible and matured upon a change of control or event of default. In the year ended December 31, 2021, the Company executed a settlement agreement with the Founders and fully extinguished the $ 10.0 million of outstanding debt, along with accrued interest of $ 2.2 million, in exchange for issuing 958,082 shares of Class A common stock. As a result, the Company recorded a gain on debt extinguishment of $ 4.1 million. Fair Value of Debt The estimated fair value of all of the Company’s outstanding long-term debt, excluding the SVB line of credit that was outstanding as of December 31, 2020, was $ 76.1 million and $ 79.7 million as of December 31, 2021, and December 31, 2020, respectively, which is different than the historical costs of such long-term debt as reflected in the Company’s consolidated balance sheets. As of December 31, 2020, the carrying value of the SVB line of credit of $ 16.1 million approximated its fair value. The fair value of the long-term debt was F-34 Table of Contents estimated using Level 3 inputs, based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements and credit rating. Compliance with Debt Covenants As of December 31, 2021, all debt instruments contain customary covenants and events of default. There are no covenants tied to financial metrics and the Company was in compliance with all non-financial covenants as of December 31, 2021. 16. Warrants Legacy BlackSky Class A Common Stock Warrant Liabilities As part of the Bridge Notes discussed in Note 15, the Company issued warrants to purchase Legacy BlackSky class A common stock which had an exercise price of $ 0.11 (after adjustment for the common stock exchange ratio) and a contractual life of ten years . The number of shares of Legacy BlackSky class A common stock for which the warrants were exercisable was not fixed and adjusted based on the fully diluted capitalization of the Company, as defined in the warrant agreements, at the time of exercise. The Company analyzed the provisions of the respective warrant agreements, which requires a multi-step approach to evaluate whether an equity-linked financial instrument has features that require treatment as a derivative liability. Based upon the fact that the number of shares of class A common stock that the warrants were exercisable for was not fixed and was subject to changes based on the Company’s capital structure, the warrants were not considered to be indexed to Legacy BlackSky’s stock. Therefore, the warrants met the criteria for derivative liability treatment and, as such, were initially recorded as other current liabilities in the consolidated balance sheets. In connection with the Merger, all outstanding warrants granted with the Bridge Notes were automatically exercised into Legacy BlackSky class A common stock and those shares were exchanged for Osprey class A common stock. Therefore, the derivative liability for these financial instruments was zero as of December 31, 2021. Public Warrants and Private Placement Warrant Liabilities The Public Warrants and Private Placement Warrants issued by Osprey are governed by the terms of the warrant agreement, dated October 31, 2019 (the “Warrant Agreement”) and the Sponsor Support Agreement entered into on February 17, 2021. In connection with Osprey’s IPO, Osprey issued 15,812,500 Public Warrants, each providing a right to purchase one share of common stock at an exercise price of $ 11.50 per share. The Public Warrants were not exercisable until October 9, 2021. Simultaneously, with the consummation of the Osprey IPO, Osprey issued 8,325,000 Private Placement Warrants to Osprey’s sponsor, of which 4,162,500 are exercisable beginning on October 9, 2021, at a price of $ 11.50 per share, and 4,162,500 became exercisable when the Company’s common stock reaches a trading price of $ 20.00 per share. In addition to the exercise prices, once the Public Warrants become exercisable, the Company may call the warrants for redemption: • at a price of $ 0.01 per whole warrant; and • if, and only if, the closing price of the Company’s Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like) for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. The Private Placement Warrants are identical to the Public Warrants except that the Private Placement Warrants: (i) may be exercised for cash or on a cashless basis, (ii) may not be transferred, assigned or sold until thirty days after the closing date of the Merger and (iii) shall not be redeemable by the Company. If the Company calls the Public Warrants for redemption, the board of directors will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the Warrant Agreement. F-35 Table of Contents The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of stock splits, stock dividends, recapitalization, reorganization, merger or consolidation. In addition, the Company had the right to issue additional common shares or securities convertible into or exercisable/exchangeable for shares of common stock in connection with the closing of the Merger at an issue or effective price of less than $ 9.20 . In connection with the Merger, the Company did not exercise this option. As of December 31, 2021, all of the Public Warrants and 4,162,500 of the Private Placement Warrants, that have an exercise price of $ 11.50 , are exercisable. Subsequent Accounting for Warrant Liabilities Derivative liabilities must be measured at fair value upon issuance and re-valued at the end of each reporting period through expiration and are included in derivative liabilities on the consolidated balance sheets. Any change in fair value between the respective reporting dates is recognized as an unrealized gain or loss in the accompanying consolidated statements of operations and comprehensive loss (Note 23). The following table is a summary of the number of shares of the Company’s Class A common stock issuable upon exercise of warrants at December 31, 2021: Number of Shares (in thousands) Exercise Price Redemption Price Expiration Date Classification Gain (loss) in value from September 9, 2021 (close of the Merger) to December 31, 2021 (in thousands) Fair Value at December 31, 2021 (in thousands) Public Warrants 15,813 $ 11.50 $ 18.00 9/9/2026 Liability $ 20,398 $ 8,697 Private Placement Warrants 4,163 $ 11.50 $ 18.00 9/9/2026 Liability 8,908 2,497 Private Placement Warrants 4,163 $ 20.00 $ 18.00 9/9/2026 Liability 2,498 999 In addition, the Company has 1.8 million Class A common stock warrants outstanding which have an exercise price of $ 0.11 and expiration dates from June 27, 2028 to October 31, 2029. These warrants are equity classified and are included in additional paid-in capital in the Company’s consolidated balance sheets. 17. Other (Expense) Income For The Years Ended December 31, 2021 2020 (in thousands) Loss on issuance of Bridge Notes tranche one $ ( 84,291 ) $ — Loss on issuance of Bridge Notes tranche two ( 12,185 ) — Loss on issuance of Bridge Notes Rights Offering ( 3,193 ) — Debt issuance costs expensed for debt carried at fair value ( 47,718 ) — Transaction costs associated with derivative liabilities ( 291 ) — Other 22 103 $ ( 147,656 ) $ 103 In February 2021, Legacy BlackSky issued Bridge Notes in two tranches (Note 15). The first tranche of the Bridge Notes were issued at par to several existing investors at a principal amount of $ 18.1 million and a fair value of $ 24.2 million. Additionally, certain investors in the first tranche of Bridge Notes received 11.5 million shares of Legacy BlackSky class A common stock with a fair value of $ 59.8 million and warrants to purchase 3.9 million shares of Legacy BlackSky class A common stock with a fair value of $ 18.4 million. The transaction involved investments primarily by the existing Legacy BlackSky investors at that time. Legacy BlackSky, which had an external valuation performed on the Bridge Notes, Legacy BlackSky class A common stock, and Legacy BlackSky warrants, determined that the fair value of the financial instruments issued exceeded the cash F-36 Table of Contents proceeds received. Since no unstated rights and/or privileges were identified with the first tranche of the Bridge Notes, Legacy BlackSky recorded a loss on issuance of $ 84.3 million. The second tranche of the Bridge Notes were issued at par to several new investors and an existing investor at a principal amount of $ 40.0 million and a fair value of $ 52.2 million, resulting in a loss on issuance of $ 12.2 million. In June 2021, Legacy BlackSky offered eligible stockholders an opportunity to invest in a portion of the Bridge Notes as part of a rights offering on substantially the same terms as offered to investors in the initial tranche of the Bridge Notes. The aggregate principal amount and fair value of the Bridge Notes issued to the participating shareholders in the rights offering were $ 0.5 million and $ 0.6 million, respectively. Additionally, the investors received 0.3 million incentive shares of Legacy BlackSky class A common stock with a fair value of $ 2.6 million and 51 thousand incentive warrants exercisable for Legacy BlackSky class A common stock with a fair value of $ 0.5 million. No unstated rights and/or privileges were identified with respect to the Bridge Notes issued in connection with the rights offering, and Legacy BlackSky recorded a loss on issuance of $ 3.2 million. Legacy BlackSky incurred and expensed $ 47.6 million in debt issuance cost related to the Bridge Notes issued in February 2021 and the modification of existing debt arrangements at that time. These debt issuance costs consisted of 8.5 million shares of Legacy BlackSky class A common stock valued at $ 43.9 million that were issued to certain guarantors in conjunction with modification of Legacy BlackSky’s SVB line of credit and $ 3.7 million paid to third-parties in cash. Additionally, the Company incurred $ 0.1 million in debt issuance costs related to the rights offering, which was expensed. The debt issuance costs were expensed because the Bridge Notes were being carried on the balance sheet at fair value. The modification of existing debt did not qualify as a troubled debt restructuring, nor did it result in the extinguishment of the debt. 18. Redeemable Convertible Preferred Stock In connection with the Merger, all shares of Legacy BlackSky issued and outstanding redeemable convertible preferred stock were exchanged for Osprey class A common stock. For presentation purposes, the exchange for class A common stock is deemed to have occurred in 2020. 19. Stockholders’ Equity Class A Common Stock As of December 31, 2021, the Company was authorized to issue 300.0 million shares of Class A common stock and 100.0 million shares of preferred stock. Issued and outstanding stock as of December 31, 2021 consisted of 117.2 million and 114.5 million shares of Class A common stock, respectively. The par value of each share of the class A common stock is $ 0.0001 per share. F-37 Table of Contents The Company had reserved shares of Class A common stock for issuance in connection with the following: December 31, December 31, 2021 2020 (in thousands) Common stock warrants (exercisable for class A common stock) treated as equity 1,770 12,312 Stock options outstanding 5,022 3,489 Restricted stock units outstanding 10,959 — Public Warrants (exercisable for class A common stock) treated as liability 15,813 — Private Placement Warrants (exercisable for class A common stock) treated as liability 8,325 — Shares available for future grant 140,951 13,787 Total class A common stock reserved 182,840 29,588 The Company has approximately 2.4 million Sponsor Earn-Out Shares that are subject to specific lock-up provisions and potential forfeitures depending upon the post-Merger performance of the Company’s Class A common stock, and therefore, are required to be recorded as derivative liabilities at their fair value and adjusted to fair value at each reporting period. As a result, as of December 31, 2021 and 2020, the Company's consolidated balance sheets included a derivative liability of $ 4.7 million and $ 0 , respectively. The Company recorded $ 12.9 million in gain (loss) on derivatives in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 related to the fair value adjustments of these Sponsor Earn-Out Shares. The Sponsor Earn-Out Shares have the following provisions: Terms Contractual Life Seven years from the closing date of the Merger Release Provision Exactly half of the Sponsor Earn-Out Shares have a release provision ("Release") at such time that the volume weighted average price ("VWAP") is equal to, or greater than, $ 15.00 per share for ten of any twenty consecutive trading days. The remaining Sponsor Shares Release at such time that the VWAP is equal to, or greater than, $ 17.50 per share for the of any twenty consecutive trading days. There is an additional provision for acceleration of the Release upon a defined change in control. Forfeiture Provision If, within the seven year period, the Sponsor Earn-Out Shares have not met the Release provisions, the Sponsor Earn-Out Shares will automatically forfeit and be cancelled. F-38 Table of Contents 20. Net (Loss) Income Per Share of Class A Common Stock The following table includes the calculation of basic and diluted net (loss) income per share: Years Ended December 31, 2021 2020 (in thousands except per share information) Loss from continuing operations $ ( 243,993 ) $ ( 47,720 ) (Loss) gain from discontinued operation ( 1,650 ) 28,185 Net loss available to common stockholders $ ( 245,643 ) $ ( 19,535 ) Basic and diluted net loss per share - continuing operations $ ( 3.37 ) $ ( 1.45 ) Basic and diluted net (loss) income per share - discontinued operations ( 0.02 ) 0.85 Basic and diluted net loss per share $ ( 3.39 ) $ ( 0.60 ) Shares used in the computation of basic and diluted net loss per share 72,462 33,009 The potentially dilutive securities listed below were not included in the calculation of diluted weighted average common shares outstanding, as their effect would have been anti-dilutive during the years ended December 31, 2021 and 2020. BlackSky’s Form S-1 registration statement filed with the SEC registered approximately 24.1 million shares underlying the Public Warrants and Private Placement Warrants outlined below, which equates to less than 16 % of the total fully diluted outstanding common shares of BlackSky. While the Public Warrants and certain of the Private Placement Warrants are now exercisable, the exercise prices (of either $ 11.50 per share or $ 20 per share, depending on the class of warrant) both currently exceed the trading price for BlackSky’s common stock. Shares issued to Legacy BlackSky stockholders as part of the Merger consideration remain locked up pursuant to BlackSky’s bylaws through at least the middle of the first quarter of 2022. Years Ended December 31, 2021 2020 (in thousands) Restricted class A common stock 335 891 Restricted stock units 10,959 — Common Stock warrants 1,770 12,312 Public Warrants (exercisable for class A common stock) treated as liability 15,813 — Private Placement Warrants (exercisable for class A common stock) treated as liability 8,325 — Sponsor earn-out shares 2,372 — Stock options 5,022 3,489 21. Stock-Based Compensation The Company adopted two equity incentive plans in prior years. Legacy BlackSky issued equity and equity-based awards under its 2014 stock incentive plan (the “2014 Plan”) and 2011 stock incentive plan (the “2011 Plan”, together with the 2014 Plan, collectively the “Plans”), which are now administered by the Company’s board of directors. The Plans are no longer active; however, outstanding awards granted under these Plans will not be affected. Both Plans allowed the board of directors to grant stock options, designated as incentive or nonqualified, and stock awards to employees, officers, directors, and consultants. Stock options F-39 Table of Contents were granted with an exercise price per share equal to at least the estimated fair value of the underlying class A common stock on the date of grant. The vesting period was determined through individual award agreements and was generally over a four-year period. Awards generally expired 10 years from the date of grant. As of December 31, 2021, the Company had 41 thousand and 2.2 million options outstanding, respectively, under the 2011 and 2014 Plans. As part of the Merger, Osprey’s shareholders approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) and the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which are administered by the Company’s board of directors. Under the 2021 Plan, the number of shares initially subject to issuance is 15.0 million, with automatic increases beginning in 2022. Additionally, up to 13.1 million shares can be added to the 2021 Plan pursuant to assumed awards granted under the 2011 Plan and 2014 Plan that are subsequently forfeited or fail to vest. Grants made under this plan generally vest over a period of 3 - 4 years and have a contractual life of 10 years. Under the 2021 ESPP, the maximum number of shares made available for sale is 3.0 million, with automatic increases beginning in 2022. The stock-based compensation expense attributable to continuing operations was included in imagery and software analytical service costs, excluding depreciation and amortization and selling, general and administrative expense in the consolidated statements of operations and comprehensive loss as follows: Years Ended December 31, 2021 2020 (in thousands) Imagery & software analytical service costs, excluding depreciation and amortization $ 4,121 $ — Selling, general and administrative 38,450 1,982 Total stock-based compensation expense $ 42,571 $ 1,982 The stock-based compensation expense recorded for the RSUs during the years ended December 31, 2021 included a cumulative catch-up adjustment for service completed from the grant date to the close of the Merger. This cumulative catch-up adjustment was required as the performance condition attributable to the RSUs was not deemed probable until occurrence of the Merger as the Merger was not within the control of Legacy BlackSky. Additionally, as of December 31, 2021 and 2020, the Company’s consolidated balance sheets included $ 11.0 thousand and $ 0 , respectively, of stock-based compensation related to capitalized internal labor for software development activities recorded in property, plant, and equipment - net on the consolidated balance sheets. Stock Options Following the Merger, the outstanding stock options issued under the 2014 Plan may be exercised (subject to their original vesting, exercise and other terms and conditions) to purchase a number of shares of class A common stock equal to the number of shares of Legacy BlackSky class A common stock, as adjusted for the common stock exchange ratio, subject to the same terms and conditions as were applicable to such Legacy BlackSky stock option (each an “Assumed Company Stock Option”). The exercise price per share of each Assumed Company Stock Option was equal to the quotient obtained by dividing the exercise price per share applicable to such Legacy BlackSky stock option by the common stock exchange ratio. The Black-Scholes option pricing model is used to determine the fair value of options granted. The Company utilized assumptions concerning expected term, a risk-free interest rate, and expected volatility to determine such values. In December 2021, the Company granted an award to a homogenous pool of executive employees with an exercise price 48 % over the stated market price at the grant date. A summary of the weighted-average assumptions is presented below: F-40 Table of Contents Years Ended December 31, 2021 2020 Fair value per common share $ 5.40 $ 0.0121 Weighted-average risk-free interest rate 1.44 % 0.81 % Volatility 33.40 % 65.00 % Expected term (in years) 8.0 2.5 Dividend rate 0 % 0 % A summary of the Company’s stock option activity under the Plans during the year ended December 31, 2021 is presented below: For The Year Ended December 31, 2021 Options Weighted-Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) (in thousands) Outstanding - January 1, 2021 3,489 $ 0.2160 Granted 2,760 7.9700 Exercised ( 1,045 ) 0.1248 Forfeited ( 182 ) 0.1466 Outstanding - December 31, 2021 5,022 4.4914 8.74 $ 9,599 Exercisable - December 31, 2021 1,321 0.3962 7.07 5,410 The following summarizes information about the Company's option grants: Years Ended December 31, 2021 2020 Number of options granted (in thousands) 2,760 2,226 Weighted-average grant-date fair value $ 1.5100 $ 0.0121 For options exercised, intrinsic value is calculated as the difference between the estimated fair value on the date of exercise and the exercise price. The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 7.1 million and $ 0.7 million, respectively. The total fair value of options vested during the years ended December 31, 2021 and 2020, was $ 0.9 million and $ 1.0 million, respectively. As of December 31, 2021 and 2020, there was $ 4.3 million and $ 1.4 million, respectively, of total unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 3.6 years and 1.9 years respectively. Restricted Stock Awards In the year ended December 31, 2020, the Company granted RSAs, which vest based upon the individual award agreements and generally vest over a three to four-year period. These shares are deemed issued as of the date of grant, but not outstanding until they vest. The Company intends to settle the RSAs in stock, and the Company has the shares available to do so. F-41 Table of Contents A summary of the Company’s nonvested RSA activity during the year ended December 31, 2021 is presented below: Year Ended December 31, 2021 Restricted Stock Awards Weighted-Average Grant-Date Fair Value (in thousands) Nonvested - January 1, 2021 891 $ 0.0121 Granted — — Vested ( 546 ) 0.0121 Canceled ( 10 ) 0.0121 Nonvested - December 31, 2021 335 0.0121 During the year ended December 31, 2020, the Company granted 3,486 RSAs with a weighted-average grant-date fair value of $ 0.0121 . As of December 31, 2021, there was $ 41 thousand of total unrecognized compensation cost related to nonvested RSAs granted under the Plans, which is expected to be recognized over a weighted-average period of 0.3 years. The total grant date fair value of shares vested during the year ended December 31, 2021 was $ 7 thousand. Restricted Stock Units F-42 Table of Contents The Company granted an aggregate of 11.2 million RSUs to certain employees and service providers during the year ended December 31, 2021 under the 2014 Plan as follows: Grant Date Number of Shares (in thousands) First Tranche Second Tranche Third Tranche February 2021 8,533 50 % of such RSUs will vest 180 days subsequent to consummation of the Merger 50 % of such units will vest ratably over eight consecutive quarters, on specified quarterly vesting dates with the first of such quarterly vesting dates occurring at least three months after the vesting of the initial 50 % of the RSUs N/A March 2021 229 50 % of such RSUs will vest 180 days subsequent to consummation of the Merger 50 % of such units will vest ratably over eight consecutive quarters, on specified quarterly vesting dates with the first of such quarterly vesting dates occurring at least three months after the vesting of the initial 50 % of the RSUs N/A March 2021 137 25 % vested immediately upon issuance 50 % of these RSUs vested on the date of the Merger The remaining 25 % of the RSUs will vest ratably over 12 months, on the same day of the month that the Merger closed, commencing as of the month following satisfaction of the performance condition June 2021 164 25 % of such RSUs will vest at the later of: a) 180 days subsequent to consummation of Merger or b) the one year anniversary of the vesting commencement date 75 % of such units will vest ratably over twelve consecutive quarters, on specified quarterly vesting dates with the first of such quarterly vesting dates occurring at least three months after the vesting of the initial 25 % of the RSUs N/A July 2021 285 25 % of such RSUs will vest at the later of: a) 180 days subsequent to consummation of the Merger or b) the one year anniversary of the vesting commencement date 75 % of such units will vest ratably over twelve consecutive quarters, on specified quarterly vesting dates with the first of such quarterly vesting dates occurring at least three months after the vesting of the initial 25 % of the RSUs N/A December 2021 1,670 25 % of such RSUs will vest at the one -year anniversary of the vesting commencement date 75 % of such units will vest ratably over twelve consecutive quarters, on specified quarterly vesting dates with the first of such quarterly vesting dates occurring at least three months after the vesting of the initial 25 % of the RSUs N/A December 2021 225 One-third (1/3rd) of the total number of RSUs will be scheduled to vest annually on the anniversary of the vesting commencement date N/A N/A Total 11,243 A summary of the Company’s nonvested RSU activity during the year ended December 31, 2021 is presented below: Year Ended December 31, 2021 Restricted Stock Units Weighted-Average Grant-Date Fair Value (in thousands) Nonvested - January 1, 2021 — $ — Granted 11,243 6.8004 Vested ( 111 ) 8.0407 Canceled ( 173 ) 8.0816 Nonvested - December 31, 2021 10,959 6.7675 Unrecognized compensation costs related to nonvested restricted stock units totaled $ 33.7 million as of December 31, 2021, which is expected to be recognized over a weighted-average period of 1.9 years. F-43 Table of Contents 22. Related Party Transactions Amount Due to Related Party as of December 31, December 31, 2021 2020 Name Nature of Relationship Description of the Transactions (in thousands) Seahawk Debt Issuer In 2019, the Company raised and converted $ 18.4 million from prior debt into new, outstanding debt and issued 13.5 million warrants to purchase Legacy BlackSky common stock. $ 19,977 $ 19,198 Intelsat Debt Issuer In 2019, the Company entered into a term loan facility for $ 50.0 million and issued 20.2 million warrants to purchase Legacy BlackSky common stock. 54,149 52,039 Jason and Marian Joh Andrews The former co-founders and employees of Legacy BlackSky In 2018, the Company executed the notes totaling $ 12.5 million to repurchase an aggregate of $ 11.5 million Legacy BlackSky common stock shares. The Andrews Notes were extinguished in the year ended December 31, 2021. The terms on the extinguishment were forgiveness on the existing principal balance of $ 10.0 million and accrued interest of $ 2.2 million in exchange for 958,082 shares. — 12,500 Amount Due to Related Party as of Total Payments in Years Ended December 31, December 31, 2021 2020 2021 2020 Name Nature of Relationship Description of the Transactions (in thousands) LeoStella Joint Venture Design, development and manufacture of multiple satellites $ 19,257 $ 8,205 $ 8,381 $ 8,012 X-Bow Equity Method Investee In 2017, the Company received stock in X-Bow. As of December 31, 2021, the Company had a 17.5 % investment in X-Bow and had one Board seat. As described in Note 7, the Company has engaged X-Bow to develop a rocket for the Company. 1,865 4,079 — 750 Palantir Technologies Strategic Partner Multi-year software subscription agreement for $ 8.0 million 750 — — — Ursa Space Systems Strategic Partner The chairman of the Company’s board of directors, Will Porteous, is also an investor and member of the board of directors of Ursa Space Systems. 809 — 83 — During the years ended December 31, 2021 and 2020, the Company received $ 0.3 million and $ 1.4 million respectively from CACI International Inc. (“CACI”), of which one of the Company's board members is also a board member of CACI. Accounts receivable related to CACI as of December 31, 2021 and 2020 was $ 0 . Interest on the term loan facility is accrued and compounded annually. No significant interest payments were made in the year ended December 31, 2021 or 2020. The Company has interest due to related parties in the amount of $ 0.5 million as of December 31, 2021, which has been recorded as accrued interest. In February 2021, in connection with the Bridge Notes, the Company agreed to pay Consent Fees of $ 2.5 million to Intelsat and Seahawk, which were settled for cash at the closing of the Merger (Note 15). During the first half of 2021, the Company paid $ 2.5 million to the Founders towards the principal balance, along with a $ 25 thousand interest payment. In December 2021, the Company issued Class A common stock in exchange for the outstanding principal and accrued interest totaling $ 12.1 million (Note 15). The total number of Class A common stock exchanged to settle the outstanding debt was 958,082 . 23. Fair Value of Financial Instruments Recurring basis F-44 Table of Contents The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of December 31, 2021 and 2020, as well as indicate the fair value hierarchy level of the valuation techniques and inputs that the Company utilized to determine such fair value: December 31, 2021 Quoted Prices in Active Markets Significant Other Observable Input Significant Other Unobservable Inputs (Level 1) (Level 2) (Level 3) (in thousands) Liabilities Public Warrants 8,697 — — Private Placement Warrants — — 3,496 Sponsor Shares — — 4,732 $ 8,697 $ — $ 8,228 December 31, 2020 Quoted Prices in Active Markets Significant Other Observable Input Significant Other Unobservable Inputs (Level 1) (Level 2) (Level 3) (in thousands) Liabilities Series B Preferred Stock Warrants $ — $ — $ 508 Series C Preferred Stock Warrants — — 50 $ — $ — $ 558 The carrying values of the following financial instruments approximated their fair values as of December 31, 2021 and 2020 based on their maturities: cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, leases payable and other current liabilities. There were no transfers into or out of any of the levels of the fair value hierarchy during the years ended December 31, 2021 or 2020. The following is a summary of changes in the fair value of the Level 3 liabilities during the year ended December 31, 2021: Bridge Notes Consent Fee Liability Sponsor Shares Private Placement Warrants Class A Common Stock Warrants Preferred Stock Warrant Series B and C (in thousands) Balance, January 1, 2021 $ — $ — $ — $ — $ — $ 558 Issuance of financial instruments carried at fair value — — — — 18,800 Liability recorded at fair value 77,033 2,715 17,659 14,902 — — Loss (gain) from changes in fair value 64 ( 251 ) ( 12,927 ) ( 11,406 ) 19,529 1,568 Settlement (1) ( 77,097 ) ( 2,464 ) — — ( 38,329 ) ( 2,126 ) Balance, December 31, 2021 $ — $ — $ 4,732 $ 3,496 $ — $ — 1. Bridge Notes were converted to class A common stock, Consent fees were settled for cash and all warrants were exercised. F-45 Table of Contents 24. Commitments and Contingencies The Company entered into long-term operating lease agreements for office space and capital leases for equipment. The minimum fixed commitments related to all non-cancellable leases are as follows: Operating Leases Capital Leases (in thousands) For the years ending December 31, 2022 $ 2,680 $ 51 2023 1,595 3 2024 946 1 2025 298 — 2026 125 — Total minimum lease payments $ 5,644 55 Less: amount representing interest ( 2 ) Present value of minimum lease payments 53 Less: current obligation ( 49 ) Long-term obligations under capital lease $ 4 Building leases for the Company's headquarters in Virginia and for the primary satellite operations center and a secondary office space for employees in Washington expire in August 2024 and February 2023, respectively. During the years ended December 31, 2021 and 2020, the Company entered into capital lease arrangements for $ 0 and $ 8.7 thousand, respectively. Rent expense for the years ended December 31, 2021 and 2020 was $ 3.7 million and $ 3.2 million, respectively. Legal Proceedings In the normal course of business, the Company may become involved in various legal proceedings which, by their nature, may be inherently unpredictable and which could have a material effect in the consolidated financial statements, taken as a whole. Prior to the Merger closing, Osprey received six demands from putative Osprey stockholders (together, the “Demands”) and had a derivative lawsuit filed against it in the Supreme Court of the State of New York by a purported Osprey stockholder: Luster v. Osprey Technology Acquisition Corp., et al., Index No. 653633/2021 (Sup. Ct. N.Y. Cnty.). In addition, the Osprey board of directors also received six demands from putative stockholders of Osprey (together, the “Demands”). Prior to closing, Osprey reached agreements with Luster and the six putative stockholders that Osprey’s supplement disclosures and a modification to the authorized share count fairly resolved their claims. Osprey did not reach agreements with these stockholders on attorneys’ fees and BlackSky inherited this task post-closing. In the year ended December 31, 2021, the Company paid $ 0.7 million to settle the Demands and recorded $ 0.3 million in reimbursement proceeds from an insurance claim. Both amounts were recorded in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss. As of December 31, 2021, with the exception of the items above, the Company was not aware of any additional pending, or threatened, governmental actions or legal proceedings to which the Company is, or will be, a party that, if successful, would result in a material impact to its business or financial condition or results of operations. Other Contingencies The Company analyzed its unique facts and circumstances related to potential obligations in a certain state jurisdiction, including the delivery nature of its prior year intercompany services, payroll and other benefits- F-46 Table of Contents related services, current shared services between the parent and subsidiaries, and changing state laws and interpretations of those laws, and has determined that the Company may have an indirect tax obligation. The Company has continued correspondence with the applicable authorities in an effort toward identifying a taxpayer-favorable resolution of the potential liabilities. The Company has recognized a liability including interest and penalties based on its best estimate as of December 31, 2021. The following table summarizes the estimated indirect tax liability activity during the year ended December 31, 2021: (in thousands) Balance, January 1, 2021 $ 921 Payments ( 162 ) Adjustment to Expense ( 22 ) Balance, December 31, 2021 $ 737 The Company continues to analyze the additional obligations it may have, if any, and it will adjust the liability accordingly. Other Commitments The Company has commitments for multi-launch and integration services with launch services providers. As of December 31, 2021, the Company has commitments for 2 launches to include up to 4 satellites at estimated launch dates totaling an amount of $ 6.9 million with options for additional launches. The terms of the arrangements also allow for the Company to remanifest the satellites if significant delays in excess of 365 days or other inexcusable delays occur with the provider. Subsequent to remanifest efforts four months after the 365 days, the Company can request a refund of all recoverable costs. Payment terms are 15 days from invoice date. As of December 31, 2021, the Company has a remaining commitment of $ 8.4 million on its satellite purchase contract with LeoStella. In addition, the Company entered into a non-refundable commitment to acquire additional satellite components from LeoStella for $ 2.2 million. The delivery schedule for the components are not specified and is subject to certain engineering milestones. Payment terms are 15 days from invoice date. In addition, we entered into various operational commitments for the next several years totaling $ 10.0 million as of December 31, 2021. 25. Concentrations, Risks, and Uncertainties The Company maintains all cash and cash equivalents with one financial institution. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily accounts receivable and cash deposits. For the years ended December 31, 2021 and 2020, revenue from customers representing 10% or more of the consolidated revenue from continuing operations was $ 15.4 million and $ 15.6 million, respectively. Accounts receivable related to these customers as of December 31, 2021 and 2020 was $ 1.3 million and $ 2.0 million, respectively. Revenue from the U.S. federal government and agencies was $ 29.4 million and $ 17.1 million for the years ended December 31, 2021 and 2020, respectively. Accounts receivable related to U.S. federal government and agencies was $ 2.6 million and $ 1.3 million as of December 31, 2021 and 2020, respectively. The Company generally extends credit on account, without collateral. Outstanding accounts receivable balances are evaluated by management, and accounts are reserved when it is determined collection is not probable. As of December 31, 2021 and 2020, the Company evaluated the realizability of the aged accounts receivable, giving consideration to each customer’s financial history and liquidity position, credit rating and the F-47 Table of Contents facts and circumstances of collectability on each outstanding account, and concluded that no reserve for uncollectible account was required. 26. Subsequent Events The Company evaluated subsequent events through March 31, 2022 and determined that there have been no events that have occurred that would require adjustments to our disclosures or the consolidated financial statements. F-48