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, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 31, 2022, 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 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, 2022, 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, 2022, based on those criteria. 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. 75 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, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE We will provide information that is responsive to this Item 10 in our definitive proxy statement for our 2023 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2022. Such information is incorporated into this Item 10 by reference. ITEM 11. EXECUTIVE COMPENSATION We will provide information that is responsive to this Item 11 in our definitive proxy statement for our 2023 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2022. 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 12 in our definitive proxy statement for our 2023 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2022. 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 2023 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2022. 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 2023 Annual Meeting of Stockholders or in an amendment to this Annual Report on Form 10-K not later than 120 days after December 31, 2022. Such information is incorporated into this Item 14 by reference. 76 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 Common Stock Certificate S-3 333-267889 4.1 October 14, 2022 4.2 Form of Indenture S-3 333-267889 4.3 October 14, 2022 4.3 Specimen Warrant Certificate S-1 333-234180 4.2 October 11, 2019 4.4 Warrant Agreement, dated October 31, 2019, between Continental Stock Transfer & Trust Company and Osprey Technology Acquisition Corp. 8-K 001-39113 4.4 November 5, 2019 4.5 Description of Securities X 4.6 Form of Warrant 8-K 001-39113 4.1 March 9, 2023 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 X 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+ Offer Letter from BlackSky Holdings Inc. to Brian O’Toole, dated August 18, 2021 8-K 001-39113 10.1 August 18, 2021 10.13+ Offer Letter from BlackSky Holdings Inc. to Johan Broekhuysen, dated August 18, 2021 8-K 001-39113 10.2 August 18, 2021 10.14+ Offer Letter from BlackSky Holdings Inc. to Henry Dubois, dated August 18, 2021 8-K 001-39113 10.3 August 18, 2021 10.15+ Offer Letter from BlackSky Holdings Inc. to Chris Lin, dated August 18, 2021 8-K 001-39113 10.4 August 18, 2021 77 Exhibit No. Exhibit Description Form SEC File No. Exhibit No. Filing Date Filed or Furnished Herewith 10.16+ Transition and Consulting Agreement from BlackSky Holdings Inc. to Brian Daum, dated August 18, 2021 8-K 001-39113 10.5 August 18, 2021 10.17 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 10.18 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 10.19 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 10.20 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 10.21 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 10.22 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 10.23 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 10.24 BlackSky HQ Lease Agreement S-1 333-260458 10.25 October 25, 2021 10.25+ 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 10.26+ Form of Stock Option Agreement under the BlackSky 2021 Equity Incentive Plan S-8 333-261778 4.4 December 20, 2021 10.27+ Form of Restricted Stock Unit Agreement under the BlackSky 2021 Equity Incentive Plan S-8 333-261778 4.5 December 20, 2021 10.28+ Form of Stock Appreciation Right Agreement under the BlackSky 2021 Equity Incentive Plan S-8 333-261778 4.7 December 20, 2021 10.29+ 2014 Equity Incentive Plan S-8 333-261778 4.8 December 20, 2021 10.30+ Spaceflight, Inc. Amended and Restated 2011 Equity Incentive Plan Assumed by Spaceflight Industries and forms of agreements thereunder S-8 333-261778 4.9 December 20, 2021 10.31+ Form of Restricted Stock Award Agreement S-8 333-261778 4.6 December 20, 2021 10.32+ Form of Restricted Stock Unit Agreement under the BlackSky 2014 Equity Incentive Plan S-8 333-261778 4.4 March 4, 2022 10.33+ 2022 Executive Incentive Compensation Plan 10-K 001-39113 10.34 March 31, 2022 10.34+ Separation Agreement and Release, by and between Johan Broekhuysen and BlackSky Technology Inc., dated June 14, 2022 10-Q 001-39113 10.3 August 10, 2022 10.35+ Amendment to Offer Letter from BlackSky Holdings Inc. to Henry Dubois, dated June 10, 2022 10-Q 001-39113 10.2 August 10, 2022 10.36† NRO Contract, dated May 23, 2022, by and between the National Reconnaissance Office and BlackSky Technology Inc. 10-Q 001-39113 10.1 August 10, 2022 10.37 Open Market Sale Agreement, dated December 15, 2022, by and between BlackSky Technology Inc. and Jefferies LLC 8-K 001-39113 1.1 December 15, 2022 78 Exhibit No. Exhibit Description Form SEC File No. Exhibit No. Filing Date Filed or Furnished Herewith 10.38 Form of Securities Purchase Agreement, dated as of March 6, 2023 by and among the Company and the Investors 8-K 001-39113 10.1 March 9, 2023 10.39 Form of Registration Rights Agreement, dated as of March 6, 2023 by and among the Company and the Investors 8-K 001-39113 10.2 March 9, 2023 16.1 Letter from Marcum LLP to the SEC, dated September 14, 2021 8-K 001-39113 16.1 September 15, 2021 21.1 List of Subsidiaries X 23.1 Consent of Deloitte & Touche 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, Henry Dubois , 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, Henry Dubois , 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. † Certain portions of this exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish an unredacted copy of the exhibit to the SEC upon request. * The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. ITEM 16. FORM 10-K SUMMARY None. 79 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 23, 2023 BlackSky Technology Inc. By: /s/ Brian E. O’Toole Brian E. O'Toole Chief Executive Officer and Director (Principal Executive Officer) By: /s/ Henry Dubois Henry Dubois Chief Financial Officer (Principal Financial Officer) By: /s/ Tracy Ward Tracy Ward Vice President and Controller (Principal Accounting Officer) 80 POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Brian O’Toole, Henry Dubois, and Tracy Ward, 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 thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, 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 23, 2023 Brian O’Toole /s/ Henry Dubois Chief Financial Officer (Principal Financial Officer) March 23, 2023 Henry Dubois /s/ Tracy Ward Vice President and Controller (Principal Accounting Officer) March 23, 2023 Tracy Ward /s/ Magid Abraham Director March 23, 2023 Magid Abraham /s/ David DiDomenico Director March 23, 2023 David DiDomenico /s/ Susan Gordon Director March 23, 2023 Susan Gordon /s/ Timothy Harvey Director March 23, 2023 Timothy Harvey /s/ William Porteous Director March 23, 2023 William Porteous /s/ James Tolonen Director March 23, 2023 James Tolonen 81 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' Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-8 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, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 23, 2023 We have served as the Company's auditor since 2015. F-2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BLACKSKY TECHNOLOGY INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) December 31, December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 34,181 $ 165,586 Restricted cash 2,835 2,518 Short-term investments 37,982 — Accounts receivable, net of allowance of $ 0 and $ 39 , respectively 3,112 2,629 Prepaid expenses and other current assets 4,713 6,264 Contract assets 5,706 1,678 Total current assets 88,529 178,675 Property and equipment - net 71,584 70,551 Operating lease right of use assets - net 3,586 — Goodwill 9,393 9,393 Investment in equity method investees 5,285 4,002 Intangible assets - net 1,918 2,480 Satellite procurement work in process 50,954 40,102 Other assets 2,841 560 Total assets $ 234,090 $ 305,763 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued liabilities $ 14,368 $ 10,837 Amounts payable to equity method investees 3,728 5,613 Contract liabilities - current 6,783 11,266 Other current liabilities 2,048 2,819 Total current liabilities 26,927 30,535 Liability for estimated contract losses 714 6,054 Long-term contract liabilities 109 568 Operating lease liabilities 3,132 — Derivative liabilities 5,113 16,925 Long-term debt - net of current portion 76,219 71,408 Other liabilities 2 653 Total liabilities 112,216 126,143 Commitments and contingencies (Note 24) Stockholders’ equity: Class A common stock, $ 0.0001 par value-authorized, 300,000 shares; issued, 121,938 and 117,160 shares; outstanding, 119,508 shares and 114,452 shares as of December 31, 2022 and 2021, respectively. 12 11 Additional paid-in capital 666,973 650,518 Accumulated deficit ( 545,111 ) ( 470,909 ) Total stockholders’ equity 121,874 179,620 Total liabilities and stockholders’ equity $ 234,090 $ 305,763 See notes to consolidated financial statements F-3 BLACKSKY TECHNOLOGY INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share amounts) Years Ended December 31, 2022 2021 Revenue Imagery & software analytical services $ 47,415 $ 15,365 Professional & engineering services 17,935 18,720 Total revenue 65,350 34,085 Costs and expenses Imagery & software analytical service costs, excluding depreciation and amortization 14,462 13,013 Professional & engineering service costs, excluding depreciation and amortization 21,365 21,735 Selling, general and administrative 79,672 86,655 Research and development 739 112 Depreciation and amortization 35,661 14,306 Satellite impairment loss — 18,407 Operating loss ( 86,549 ) ( 120,143 ) Gain on debt extinguishment — 4,059 Gain on derivatives 11,812 23,885 Income on equity method investment 2,087 1,027 Interest income 1,116 — Interest expense ( 5,426 ) ( 5,165 ) Other income (expense), net 2,081 ( 147,656 ) Loss before income taxes ( 74,879 ) ( 243,993 ) Income tax (expense) benefit — — Loss from continuing operations ( 74,879 ) ( 243,993 ) Discontinued operations: Gain (loss) from discontinued operations 707 ( 1,650 ) Income tax (expense) benefit — — Gain (loss) from discontinued operations, net of income taxes 707 ( 1,650 ) Net loss ( 74,172 ) ( 245,643 ) Other comprehensive income — — Total comprehensive loss $ ( 74,172 ) $ ( 245,643 ) Basic and diluted loss per share of common stock: Loss from continuing operations $ ( 0.64 ) $ ( 3.37 ) Gain (loss) from discontinued operations, net of income taxes 0.01 ( 0.02 ) Net loss per share of common stock $ ( 0.63 ) $ ( 3.39 ) See notes to consolidated financial statements F-4 BLACKSKY TECHNOLOGY INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands) Year Ended December 31, 2022 Common Stock Additional Paid-In Accumulated Total Stockholders' Shares Amount Capital Deficit Equity Balance as of January 1, 2022 114,452 $ 11 $ 650,518 $ ( 470,909 ) $ 179,620 Stock-based compensation — — 21,477 — 21,477 Issuance of common stock upon exercise of stock options 709 — 47 — 47 Issuance of common stock upon vesting of restricted stock awards 200 — — — — Issuance of common stock upon vesting of restricted stock units 6,728 1 — — 1 Withholding of stock units to satisfy tax withholding obligations upon the vesting of restricted stock units and exercise of stock options ( 2,566 ) — ( 5,069 ) — ( 5,069 ) Repurchase and retirement of common stock ( 15 ) — — ( 30 ) ( 30 ) Net loss — — — ( 74,172 ) ( 74,172 ) Balance as of December 31, 2022 119,508 $ 12 $ 666,973 $ ( 545,111 ) $ 121,874 Year Ended December 31, 2021 Common Stock Additional Paid-In Accumulated Total Stockholders' Equity Shares Amount Capital Deficit (Deficit) 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, inclusive of preferred stock warrants exercised then converted to common stock in connection with the merger 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 See notes to consolidated financial statements F-5 BLACKSKY TECHNOLOGY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 74,172 ) $ ( 245,643 ) Gain (loss) from discontinued operations, net of income taxes 707 ( 1,650 ) Loss from continuing operations ( 74,879 ) ( 243,993 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 35,661 14,306 Operating lease right of use assets amortization 1,640 — Gain on debt extinguishment — ( 4,059 ) Bad debt (recovery) expense ( 22 ) 58 Stock-based compensation expense 20,025 42,571 Loss on issuance of 2021 convertible Bridge Notes — 99,669 Issuance costs for derivative liabilities and debt carried at fair value — 48,009 Amortization of debt discount and issuance costs 1,805 1,807 Income on equity method investment ( 2,087 ) ( 1,027 ) Loss on disposal of property and equipment — 24 Gain on derivatives ( 11,812 ) ( 23,885 ) Satellite impairment loss — 18,407 Interest income ( 656 ) — Other, net 106 — Changes in operating assets and liabilities: Accounts receivable ( 461 ) 216 Contract assets - current and long-term ( 5,996 ) 2,118 Prepaid expenses and other current assets 1,413 ( 5,207 ) Other assets ( 12 ) ( 309 ) Accounts payable and accrued liabilities ( 74 ) 2,543 Other current liabilities ( 1,180 ) ( 2,680 ) Contract liabilities - current and long-term ( 4,942 ) ( 5,262 ) Liability for estimated contract losses ( 5,340 ) ( 198 ) Other liabilities 2,355 3,020 Net cash used in operating activities ( 44,456 ) ( 53,872 ) Cash flows from investing activities: Purchase of property and equipment ( 11,677 ) ( 1,266 ) Satellite procurement work in process ( 32,385 ) ( 62,643 ) Purchase of short-term investments ( 50,343 ) — Proceeds from maturities of short-term investments 13,000 — Purchase of domain name — ( 7 ) Proceeds from equity method investment 804 302 Cash flows used in investing activities - continuing operations ( 80,601 ) ( 63,614 ) Cash flows used in investing activities - discontinued operations ( 978 ) — Net cash used in investing activities ( 81,579 ) ( 63,614 ) 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 Shares — ( 291 ) Proceeds from issuance of debt — 58,573 Proceeds from options exercised 47 130 Proceeds from warrants exercised — 163 Capital lease payments — ( 2 ) Debt payments — ( 22,198 ) Payments for deferred offering costs ( 31 ) — Payments for debt issuance costs — ( 6,238 ) Withholding tax payments on vesting of restricted stock units ( 5,069 ) — Net cash (used in) provided by financing activities ( 5,053 ) 275,017 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 131,088 ) 157,531 Cash, cash equivalents, and restricted cash – beginning of year 168,104 10,573 Cash, cash equivalents, and restricted cash – end of period $ 37,016 $ 168,104 See notes to consolidated financial statements F-6 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, 2022 2021 Cash and cash equivalents $ 34,181 $ 165,586 Restricted cash 2,835 2,518 Total cash, cash equivalents, and restricted cash $ 37,016 $ 168,104 Years Ended December 31, 2022 2021 (in thousands) Supplemental disclosures of cash flow information: Cash paid for interest $ 5 $ 378 Supplemental disclosures of non-cash financing and investing information: Property and equipment additions accrued but not paid $ 6,455 $ 5,222 Capitalized stock-based compensation 1,470 11 Capitalized interest for property and equipment placed into service 220 620 Accretion of short-term investments' discounts and premiums 640 — Repurchase and retirement of common stock 30 — Equity issuance costs accrued but not paid 491 — Issuance of common stock due to Bridge Notes, net of issuance costs — 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 Increase of debt principal for paid-in-kind interest 3,006 2,889 See notes to consolidated financial statements F-7 BLACKSKY TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 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 revisit rates 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 artificial intelligence ("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, 2022, BlackSky had 14 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 less than 20 %, as equity method investments (Note 7). The Company made two disclosures related to 2021 that were previously undisclosed. The first relates to a supplemental cash flow disclosure on the paid-in-kind interest on a loan. The second relates to payments made to Thales Alenia Space in the FN 22 – Related Party Transactions. The Company believes both disclosures are immaterial to the 2021 consolidated financial statements. 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 equity method investments and a corresponding increase or decrease to its investment, with recorded losses F-8 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. Effective January 1, 2022, the Company reorganized its captions on the consolidated statements of operations and comprehensive loss to better align the Company’s broad portfolio. As a result, for the year ended December 31, 2021, the amounts presented to reflect the impact of the reorganization have been recasted. This resulted in a $ 9.7 million reclassification between imagery & software analytical services revenue and professional & engineering services revenue and an $ 8.5 million reclassification between imagery & software analytical service costs, excluding depreciation and amortization and professional & engineering service costs, excluding depreciation and amortization in the Company's consolidated statements of operations and comprehensive loss. Effective January 1, 2022, we adopted Accounting Standards Codification (ASC) Topic 842, " Leases" ("ASC 842") (Note 3). The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-K. 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. F-9 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 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 include, but are not limited 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 $ 0 and $ 39 thousand as of December 31, 2022 and 2021, 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. Investments In May 2022, we began investing a portion of our cash and cash equivalents in short-term investments, which generally consist of A-1, or higher, rated corporate debt and governmental securities. Our investments are F-10 classified as held-to-maturity and have a stated maturity date of one year or less from the balance sheet date. Any investments with original maturities less than three months are considered cash equivalents. As of December 31, 2022 and 2021, the Company’s short-term investments had a carrying value of $ 38.0 million and $ 0 , respectively, which represents amortized cost, and an aggregate fair value of $ 37.9 million and $ 0 , respectively. The gross unrecognized holding losses as of December 31, 2022 and 2021 was $ 134 thousand and $ 0 , respectively; there were not any gross unrecognized holding gains as of December 31, 2022 or 2021. 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. The estimated useful lives are as follows: Estimated useful lives-years Satellites 3 Computer equipment and software 3 Site and other equipment 2 - 5 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 internal-use software, which consist primarily of costs related to design, coding, and testing. Internal costs include salaries and allocations of fringe and stock-based compensation. 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. Costs incurred prior to and after the application development stage are charged to expense. 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 F-11 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. 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 Leases The Company leases office space under various non-cancellable operating leases with varying lease expiration dates through 2033. We determine whether a contract is or contains a lease and whether the lease should be classified as an operating or finance lease at contract inception. The Company determines if an arrangement is a lease at inception of the contract. Operating leases are included in operating lease right-of-use ("ROU") assets, current portion of operating lease liabilities, and long-term operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use underlying assets for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable. For leases where the rate is not determinable, the Company determines the incremental borrowing rate. We do not recognize a ROU asset and a F-12 lease liability for leases with an initial term of 12 months or less; we recognize lease expense for these leases on a straight-line basis over the lease term. Many of the Company’s lease agreements contain incentives for tenant improvements. For tenant improvement incentives received, if the incentive is determined to be a leasehold improvement owned by the lessee, the Company generally records the incentives as a reduction to the ROU asset, which reduces rent expense over the lease term. For these lease incentives, the Company uses the date of initial possession as the commencement date, which is generally when the Company is given the right of access to the space and begins to make improvements in preparation for intended use. Finance leases are not material to our consolidated financial statements and the Company is not a lessor in any material arrangements. We do not have any material restrictions or covenants in our lease agreements, sale-leaseback transactions, land easements or residual value guarantees. 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 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 F-13 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 professional and engineering services. Imagery and software analytical services revenue includes imagery, data, software, and analytics. This revenue is recognized from services rendered under non-cancellable subscription order agreements or variable not-to-exceed purchase orders. Professional and engineering services revenue is generated from both time and materials basis contracts and firm fixed price service solutions contracts and firm fixed price long-term engineering and construction contracts. The Company generates revenue primarily through contracts with government agencies. Some 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. In accordance with Accounting Standards Update No. 2014-09, “ Revenue from Contracts with Customers (Topic 606) ” (“ASC 606”), the Company uses the five-step model of identifying the performance obligations contained in a contract, determining transaction price, allocating transaction price, and determining when F-14 performance obligations are satisfied can require the application of significant judgment, as further discussed below. 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 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, 2022. Imagery & Software Analytical Services Revenue Imagery Imagery services include imagery delivered from the Company’s satellites in orbit via our Spectra AI platform and in limited cases directly uploaded to certain customers. Customers can directly task our proprietary satellite constellation to collect and deliver imagery over specific locations, sites and regions that are critical to their operations. We offer customers several service level options that include basic plans for on-demand tasking or multi-year assured access programs, where customers can secure priority access and imaging capacity at a premium over a region of interest on a take or pay basis. Imagery revenue is recognized ratably over the subscription period or at the point in time the customer receives access to the imagery. Data, Software, and Analytics The Company leverages proprietary AI and 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 offers services related to object, change and anomaly detection, site monitoring, and enhanced analytics, through which the Company can detect key pattern of life changes in critical locations such as ports, airports, and construction sites; retail activity; commodities stockpiles; and other sites that contain critical commodities and supply chain information . Our analytics services are also offered on a subscription or consumption basis and provide customers with access to our site monitoring, event monitoring and global data services. Software analytical services revenue derived from data, software, and analytics is recognized from the rendering of analytical and monitoring services over time on a firm fixed price, or at the point in time the customer receives access to an analytic product. Professional and Engineering Services Revenue The Company 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. For firm fixed price professional service contracts, the Company recognizes revenue using total estimated costs to complete the performance obligation, ("Estimate at Completion" or "EAC"). A performance obligation’s EAC includes all direct costs such as labor, materials, subcontract costs and overhead. 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 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. The Company also 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 F-15 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 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. 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. 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, 2022, the Company recognized $ 2.3 million of unfavorable cumulative adjustments to revenue directly from estimated cost increases on two professional and engineering services contracts (Note 6). All, or a portion, of this cumulative adjustment will be recognized in future revenue as the percentage of completion increases over time. During the year ended December 31, 2021, the Company recognized a $ 4.6 million unfavorable impact to revenue attributable to changes in estimates for two professional and engineering services contracts. During the year ended December 31, 2022, there was no revenue recognized from performance obligations satisfied in previous period s . Imagery and Software Analytical Service and Professional and Engineering Service Costs Imagery and software analytical service costs primarily include internal labor to support the ground station network and space operations, third-party data and imagery, 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 these services to support customer-based programs, the stock-based compensation expense is classified under imagery and software analytical services costs. Professional and engineering service costs primarily include the cost of internal labor for design and engineering in support of long-term development contracts for launch vehicle, satellite, and payload systems, as well as subcontract direct materials and external labor costs to build and test specific components, such as the communications system, payload demands, and sensor integration. In addition, we also recognize internal labor costs and external subcontract labor costs for our customer-centric software service solutions. We recognize stock-based compensation expense for those employees who provide professional and engineering services support to customers, under professional and engineering service costs, excluding depreciation and amortization. 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, 2022 and 2021, advertising costs were $ 1.3 million and $ 1.1 million, respectively. F-16 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 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, 2022 and 2021. 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 Company has granted restricted stock awards ("RSAs") and grants restricted stock units ("RSUs") to certain employees, for which the grant date fair value is equal to the trading price fair value of the Class A common stock on the date of grant. 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 the classification of each employees’ cash compensation. 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 F-17 granted was estimated as of the date of grant. The Company granted options in the year ended December 31, 2022. The Company uses the following inputs when applying the Black-Scholes option pricing model: 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 guideline comparable 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 and 2022, 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. Common Stock Repurchases and Retirements The Company may repurchase common stock from employees or former employees and recognizes any excess of the repurchase price over the fair value of the instruments repurchased as additional compensation cost. Further, when that same common stock is retired, the excess is charged entirely to retained earnings. During the year ended December 31, 2022, the Company repurchased and retired 14,603 shares of common stock. The Company recorded $ 30 thousand to retained earnings in the consolidated balance sheets as of December 31, 2022 and $ 18 thousand to stock-based compensation as part of selling, general, and administrative expense in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022. 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. F-18 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”). 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, 2022. The Sponsor Shares are adjusted to fair value at each reporting period and the change in fair value is recognized in gain on derivatives in the Company’s consolidated statements of operations and comprehensive loss. 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 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 Shares were expensed. Deferred Offering Costs Offering costs consist of legal fees, accounting fees, underwriting fees, and other third-party costs that are directly related to the Company’s future equity offering(s) and will be charged to additional paid in capital upon the completion of the applicable future transaction. During the year ended December 31, 2022 the Company incurred offering costs of $ 0.5 million, which are included in other assets in the Company's consolidated balance sheets as of December 31, 2022; there were no deferred offering costs capitalized as of December 31, 2021. 3. Accounting Standards Updates (“ASU”) Accounting Standards Recently Adopted Effective January 1, 2022, the Company adopted ASC 842. The amendments in this update required the recognition of lease assets and lease liabilities on the balance sheet, as well as certain qualitative disclosures regarding leasing arrangements. The Company adopted ASC 842 using the modified retrospective method, with the cumulative effect of initially applying these updates recognized at the date of initial application. The adoption of this standard is reflected in the amounts and disclosures set forth in this Form 10-K. Upon adoption, the Company recognized operating lease ROU assets of $ 3.6 million, current operating lease liabilities of $ 530 thousand and long-term operating lease liabilities of $ 3.1 million, respectively in its consolidated balance sheets. There were no material impacts to the consolidated statements of operations and comprehensive loss or consolidated statements of cash flows. Effective January 1, 2022, the Company adopted 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 was applied on a prospective basis. There were no material impacts to the consolidated financial statements upon adoption. F-19 Accounting Standards Recently Issued But Not Yet Adopted 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 will adopt this guidance as of January 1, 2023 and we do not expect this guidance will materially impact the Company. 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 F-20 in accumulated deficit in the consolidated balance sheets and consolidated statements of changes in 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. 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 professional and engineering services. The Company’s management primarily disaggregates revenue as follows: (i) imagery; (ii) data, software and analytics; and (iii) professional and engineering services. This disaggregation allows the Company to evaluate market trends in certain imagery and software analytical services and professional and engineering services. These offerings currently have both recurring and non-recurring price attributes, particularly the professional and engineering services offerings. F-21 The following table disaggregates revenue by type for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 (in thousands) Imagery $ 34,242 $ 8,648 Data, software and analytics 13,173 6,717 Engineering services 9,372 9,039 Professional services 8,563 9,681 Total revenue $ 65,350 $ 34,085 The approximate revenue based on geographic location of customers is as follows for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 (in thousands) North America $ 54,052 $ 29,557 Middle East 3,459 2,661 Asia 6,246 1,300 Other 1,593 567 Total revenue $ 65,350 $ 34,085 Revenue from significant customers for the years ended December 31, 2022 and 2021 is as follows: Years Ended December 31, 2022 2021 (in thousands) U.S. federal government and agencies $ 53,186 $ 29,382 International governments 11,375 4,102 Commercial and other 789 601 Total revenue $ 65,350 $ 34,085 As of December 31, 2022 and 2021, accounts receivable consisted of the following: December 31, December 31, 2022 2021 (in thousands) U.S. federal government and agencies $ 2,540 $ 2,576 International government 261 76 Commercial and other 311 16 Allowance for doubtful accounts — ( 39 ) Total accounts receivable $ 3,112 $ 2,629 Backlog Backlog represents the future sales we expect to recognize on firm orders received by the Company and is equivalent to the Company’s remaining performance obligations at the end of each period. It comprises both F-22 funded backlog (firm orders for which funding is authorized and appropriated) and unfunded backlog. The Company's backlog excludes unexercised contract options. As of December 31, 2022, the Company had $ 259.4 million of backlog, which represents the transaction price of executed contracts less inception to date revenue recognized. The Company expects to recognize revenue relating to our backlog, of which a portion is recorded in deferred revenue in the consolidated balance sheets, of $ 63.0 million, $ 28.5 million, and $ 167.9 million in the fiscal year 2023, 2024, and thereafter, respectively. 6. Contract Assets and Liabilities The components of contract assets and contract liabilities consisted of the following: December 31, December 31, 2022 2021 (in thousands) Contract assets - current Unbilled revenue $ 5,706 $ 788 Contract assets — 890 Total contract assets - current $ 5,706 $ 1,678 Contract assets - long-term Unbilled revenue - long-term $ 1,287 $ — Contract assets - long-term 681 — Total contract assets - long-term (1) $ 1,968 $ — Contract liabilities - current Deferred revenue - short-term $ 6,783 $ 11,082 Other contract liabilities - short-term — 184 Total contract liabilities - current $ 6,783 $ 11,266 Deferred revenue - long-term — 568 Other contract liabilities - long-term 109 — Total contract liabilities - long-term $ 109 $ 568 (1) Total contract assets - long term is included in other assets in the consolidated balance sheets. 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. F-23 Changes in short-term and long-term contract assets and contract liabilities for the year ended December 31, 2022 were as follows: Contract Assets Contract Liabilities (in thousands) Balance on January 1, 2022 $ 1,678 $ 11,834 Billings or revenue recognized that was included in the beginning balance ( 788 ) ( 10,576 ) Changes in contract assets or contract liabilities, net of reclassification to receivables 6,992 2,317 Cumulative catch-up adjustment arising from changes in estimates to complete — 2,778 Cumulative catch-up adjustment arising from contract modification — 614 Changes in costs to fulfill and amortization of commission costs ( 208 ) — Changes in contract commission costs — ( 75 ) Balance on December 31, 2022 $ 7,674 $ 6,892 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, 2022 or 2021; the Company received distributions of $ 0.8 million and $ 0.3 million during the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company remitted $ 28.0 million and $ 19.3 million, respectively, of payments to LeoStella for satellite manufacturing and satellite software development. LeoStella's revenue from related parties was $ 26.1 million and $ 46.2 million for the years ended December 31, 2022 and 2021, respectively. The Company had differences between the carrying value of its equity method investments and the underlying equity in the net assets of the investees of $ 2.6 million and $ 2.9 million as of December 31, 2022 and 2021, respectively. The difference is the result of the elimination of upstream intra-entity profits from the sale of satellites. 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, 2022, the Company's interest in X-Bow was less than 20 %. F-24 The following tables present summarized financial information for the Company’s equity method investments as of December 31, 2022 and December 31, 2021 and for the years ended December 31, 2022 and 2021. December 31, December 31, Summarized balance sheets 2022 2021 (in thousands) Current assets $ 61,473 $ 60,652 Non-current assets 10,308 5,798 Total assets $ 71,781 $ 66,450 Current liabilities $ 35,695 $ 39,612 Noncurrent liabilities 2,642 706 Total liabilities $ 38,337 $ 40,318 Years Ended December 31, Summarized statements of operations 2022 2021 (in thousands) Revenue $ 41,668 $ 61,802 Net (loss) income ( 6,000 ) 6,540 Current assets of the Company’s equity method investees primarily consisted of cash of $ 30.5 million and $ 25.8 million as of December 31, 2022 and 2021, respectively. Total liabilities of the Company’s equity method investees primarily consisted of customer advances of $ 29.2 million and $ 35.2 million as of December 31, 2022 and 2021, respectively. 8. Discontinued Operations On June 12, 2020, the Company completed the sale of 100 % of its equity interests in Spaceflight to M&Y Space. Under a transition services agreement that ended in March 2022, the Company provided 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. Settlement Arrangement for the Sale of 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. 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 September 2021. As a result, the Company recorded a reduction to the accrued liability and a reduction to satellite procurement in the consolidated balance sheet as of December 31, 2021. On February 9, 2022, the Company received an indemnification claim notice regarding certain collection and tax payments related to the Share Purchase Agreement dated as of January 31, 2020 among BlackSky Holdings, Inc., Spaceflight, and M&Y Space. On October 21, 2022, the parties agreed to the framework for a global settlement of such indemnification claims, to include a settlement payment by the Company of $ 1.0 million and a holdback amount of $ 0.1 million subject to M&Y Space Co.’s ability to collect against certain receivables. As a result, we reduced our existing contingent liability by $ 0.7 million, which was recorded as a gain from discontinued operations in the year ended December 31, 2022. F-25 The following summarizes the components of the gain (loss) 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 million during the year ended December 31, 2021 primarily related to a potential shortfall in accounts receivable in the closing balance sheet delivered to M&Y Space. Years Ended December 31, 2022 2021 (in thousands) Major classes of line items constituting loss from discontinued operations: Revenue - launch services $ — $ — Total operating costs and expenses — — Operating loss — — Loss from discontinued operations, before income taxes — — Gain (loss) on disposal of discontinued operations 707 ( 1,650 ) Total gain (loss) from discontinued operations, net of income taxes 707 ( 1,650 ) 9. Property and Equipment - net The following summarizes property and equipment - net as of: December 31, December 31, 2022 2021 (in thousands) Satellites $ 116,219 $ 93,709 Software 8,503 — Software development in process 2,942 — Computer equipment 1,996 1,372 Office furniture and fixtures 674 744 Other equipment 631 682 Site equipment 2,558 1,504 Total 133,523 98,011 Less: accumulated depreciation ( 61,939 ) ( 27,460 ) Property and equipment — net $ 71,584 $ 70,551 Depreciation of property and equipment from continuing operations was $ 35.1 million and $ 12.9 million for the years ended December 31, 2022 and 2021, respectively. The Company disposed of property and equipment, which consisted of site equipment, furniture and ground station equipment of $ 0.6 million and $ 2.9 million, during the years ended December 31, 2022 and 2021, respectively, for a loss of $ 0 and $ 24 thousand for the years ended December 31, 2022 and 2021, respectively. 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. There was no impairment for the year ended December 31, 2022. F-26 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, 2022. 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, 2022. As of December 31, 2022, 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 realizes 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, 2022 December 31, 2021 (in thousands) Gross carrying amount $ 9,393 $ 9,393 Accumulated impairment losses — — Net carrying value of goodwill $ 9,393 $ 9,393 Intangible Assets The components of intangible assets were as follows: December 31, 2022 December 31, 2021 (in thousands) Gross carrying amount $ 6,530 $ 6,530 Accumulated amortization ( 4,612 ) ( 4,050 ) Net carrying amount (1) $ 1,918 $ 2,480 (1) For the years ended December 31, 2022 and 2021, the net carrying amount of intangible assets was made up entirely of customer relationships. For the years ended December 31, 2022 and 2021, amortization expense related to intangible assets was $ 0.6 million and $ 1.4 million, respectively. 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: For the years ending December 31: (in thousands) 2023 $ 561 2024 561 2025 561 2026 235 Total $ 1,918 F-27 11. Accounts Payable and Accrued Liabilities The components of accounts payable and accrued liabilities were as follows: December 31, December 31, 2022 2021 (in thousands) Accounts payable $ 2,421 $ 1,723 Accrued payroll 6,127 4,089 Accrued professional services, legal, and other general and administrative 3,040 2,043 Accrued cost of goods sold and other expenses 2,780 2,982 Total accounts payable and accrued liabilities $ 14,368 $ 10,837 12. Other Current Liabilities The components of other current liabilities were as follows: December 31, December 31, 2022 2021 (in thousands) Other current liabilities $ 256 $ 324 Accrued interest 1,176 — Current portion of capital lease — 49 Operating lease right-of-use liabilities 530 — Contingent liability 86 761 Working capital liability — 1,685 Total other current liabilities $ 2,048 $ 2,819 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, 2022 and 2021, the 401(k) employer match expense was $ 0.9 million and $ 0.6 million, respectively, for continuing operations. 14. Income Taxes The Company's consolidated effective income tax rate from continuing operations for the years ended December 31, 2022 and 2021 was 0.0 %. The Company's provision for income taxes from continuing operations for the years ended December 31, 2022 and 2021 is as follows: F-28 Years Ended December 31, 2022 2021 (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. Income tax (benefit) expense 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, 2022 and 2021: Years Ended December 31, 2022 2021 (in thousands) Tax benefit at federal statutory rate $ ( 15,725 ) $ ( 51,673 ) Non-deductible compensation ( 1,092 ) 4,431 State tax, net of federal benefit ( 3,227 ) ( 3,296 ) Valuation allowance 18,834 25,631 Shortfall of stock compensation deduction 3,190 — Non-deductible interest — 21,715 Non-taxable warrants ( 2,481 ) ( 5,016 ) Uncertain tax position — 8,449 Other 501 ( 241 ) Income tax (expense) benefit $ — $ — The income tax (expense) benefit as of December 31, 2022 and 2021 was $ 0 . 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. F-29 Deferred tax assets and liabilities as of December 31, 2022 and 2021, consisted of the following: December 31, 2022 2021 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 54,892 $ 45,181 Sec. 163(j) carryforward 7,741 6,414 Accruals and reserves 1,613 2,359 Deferred revenue 271 778 Capital loss carryforward 3,919 3,689 Section 174 - research expenditures 6,238 — Other deferred tax assets 6,385 3,631 Total deferred tax assets 81,059 62,052 Valuation allowance ( 80,137 ) ( 61,460 ) Total net deferred tax assets 922 592 Deferred tax liabilities Basis difference in intangibles ( 468 ) ( 588 ) Other deferred tax liabilities ( 454 ) ( 4 ) Total deferred tax liabilities ( 922 ) ( 592 ) 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. In the year ended December 31, 2022, the Company performed a historic ownership change analysis and concluded that $ 1.5 million of federal net operating loss carryforward pre-tax attributes were subject to limitations, as defined by the Internal Revenue Code Sections 382 and 383. Tax Effected Expiration (in thousands) Federal net operating loss (“NOL”) carryforward $ 7,966 2033-2036 Federal NOL carryforward 45,122 Indefinite Federal capital loss carryforward 3,919 2025 State NOL carryforwards 1,804 2037-2042 At December 31, 2022 and 2021 the Company had $ 252.8 million and $ 213.9 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 $ 37.9 million will expire, if unused, between 2033-2036. 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, 2022, the Company had $ 214.9 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-30 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 2014-2021 remain open for examination. Below is a tabular reconciliation of the total amounts of unrecognized tax benefits: 2022 2021 (in thousands) Unrecognized tax benefits - January 1 $ 8,443 $ — Gross increase - tax positions in current period — 8,443 Gross increase - tax positions in prior period 563 — Unrecognized tax benefits - December 31 $ 9,006 $ 8,443 The majority of the unrecognized tax benefits as of the year ended December 31, 2022 is from the valuation of guaranteed incentives shares issued for SVB guarantors. The balance of unrecognized tax benefits as of December 31, 2022 and 2021, 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, 2022 2021 (in thousands) Current portion of long-term debt $ — $ — Non-current portion of long-term debt 77,132 74,126 Total long-term debt 77,132 74,126 Unamortized debt issuance cost ( 913 ) ( 2,718 ) Outstanding balance $ 76,219 $ 71,408 The outstanding debt was solely comprised of loans from related parties with effective interest rates of 7.41 % to 8.00 % and a maturity date of October 31, 2024. Under the Company’s loan agreements, minimum required maturities are as follows: For the years ending December 31, (in thousands) 2023 — 2024 77,132 Total outstanding $ 77,132 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 F-31 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 on the class A common stock exchange ratio. As of December 31, 2022 and 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. All of the Consent Fees were settled for cash at the closing of the Merger. 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. F-32 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 9 % until October 31, 2023 and 10 % from November 1, 2023 to the maturity date of October 31, 2024. 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. Fair Value of Debt The estimated fair value of all of the Company’s outstanding long-term debt was $ 73.2 million and $ 76.1 million as of December 31, 2022 and December 31, 2021, respectively, which is different than the historical costs of such long-term debt as reflected in the Company’s consolidated balance sheets. The fair value of the long-term debt was 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, 2022, 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, 2022. 16. Equity Warrants Classified as Derivative Liabilities Equity warrants that are classified as d erivative 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 in the Company's 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). In the year ended December 31, 2022, the Company's derivative liabilities were made up of only the equity warrants and the Sponsor Shares. In the year ended December 31, 2021, the Company's derivative liabilities included warrants, Consent Fees from the Bridge Notes (see Note 15), and Legacy BlackSky preferred stock warrants. 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, 2022: Number of Shares Exercise Price Redemption Price Expiration Date Classification Gain in value for the year ended December 31, 2022 Fair Value at December 31, 2022 (in thousands) (in thousands) Public Warrants 15,813 $ 11.50 $ 18.00 9/9/2026 Liability $ 6,600 $ 2,097 Private Placement Warrants 4,163 $ 11.50 $ 18.00 9/9/2026 Liability 1,623 874 Private Placement Warrants 4,163 $ 20.00 $ 18.00 9/9/2026 Liability 541 458 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. F-33 17. Other (Expense) Income Years Ended December 31, 2022 2021 (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 ) Proceeds from earn-out payment 2,000 — Other 81 22 $ 2,081 $ ( 147,656 ) In the year ended December 31, 2022, performance on an earn-out condition within the Share Purchase Agreement dated as of January 31, 2020 among BlackSky Holdings, Inc., Spaceflight, and M&Y Space was met and thus, the Company received payment of $ 2.0 million. 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 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. Legacy BlackSky incurred and expensed $ 47.6 million in debt issuance costs 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. Stockholders’ Equity Class A Common Stock As of December 31, 2022, 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, 2022 consisted of 121.9 million and 119.5 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-34 The Company had reserved shares of Class A common stock for issuance in connection with the following: December 31, December 31, 2022 2021 (in thousands) Common stock warrants (exercisable for class A common stock) treated as equity 1,770 1,770 Stock options outstanding 8,641 5,022 Restricted stock units outstanding 7,854 10,959 Public Warrants (exercisable for class A common stock) treated as liability 15,813 15,813 Private Placement Warrants (exercisable for class A common stock) treated as liability 8,325 8,325 Shares available for future grant 135,645 140,951 Total class A common stock reserved 178,048 182,840 The Company has approximately 2.4 million Sponsor 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, 2022 and December 31, 2021, the Company's derivative liabilities in the consolidated balance sheets included Sponsor Shares of $ 1.7 million and $ 4.7 million, respectively. The Company recorded a $ 3.0 million gain on derivatives in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2022 related to the fair value adjustments of these Sponsor Shares. The Sponsor Shares have the following provisions: Terms Contractual Life Seven years from the closing date of the Merger Release Provision Exactly half of the Sponsor 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 ten 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 Shares have not met the Release provisions, the Sponsor Shares will automatically forfeit and be cancelled. F-35 19. Net Loss 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, 2022 2021 (in thousands except per share information) Loss from continuing operations $ ( 74,879 ) $ ( 243,993 ) Gain (loss) from discontinued operations 707 ( 1,650 ) Net loss available to common stockholders $ ( 74,172 ) $ ( 245,643 ) Basic and diluted net loss per share - continuing operations $ ( 0.64 ) $ ( 3.37 ) Basic and diluted net gain (loss) per share - discontinued operations 0.01 ( 0.02 ) Basic and diluted net loss per share $ ( 0.63 ) $ ( 3.39 ) Shares used in the computation of basic and diluted net loss per share 117,821 72,462 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, 2022 and 2021. Years Ended December 31, 2022 2021 (in thousands) Restricted class A common stock 57 335 Common Stock warrants 1,770 1,770 Stock options 8,641 5,022 Restricted stock units 7,854 10,959 Public Warrants (exercisable for class A common stock) treated as liability 15,813 15,813 Private Placement Warrants (exercisable for class A common stock) treated as liability 8,325 8,325 Sponsor Shares 2,372 2,372 20. 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 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, 2022, the Company had 41 thousand and 1.4 million options outstanding, respectively, under the 2011 and 2014 Plans. F-36 The stock-based compensation expense attributable to continuing operations is included in the consolidated statements of operations and comprehensive loss as indicated in the table below. Effective January 1, 2022, the Company reorganized its captions on the consolidated statements of operations and comprehensive loss to better align the Company’s broad portfolio. As a result, for the year ended December 31, 2021, the amounts presented to reflect the impact of the reorganization have been recasted. This resulted in a $ 2.3 million reclassification of stock compensation expense between imagery & software analytical service costs, excluding depreciation and amortization and professional & engineering service costs, excluding depreciation and amortization in the Company's consolidated statements of operations and comprehensive loss. Years Ended December 31, 2022 2021 (in thousands) Imagery & software analytical service costs, excluding depreciation and amortization $ 553 $ 1,824 Professional & engineering service costs, excluding depreciation and amortization 1,341 2,297 Selling, general and administrative 18,131 38,450 Total stock-based compensation expense $ 20,025 $ 42,571 The stock-based compensation expense recorded for the RSUs during the year ended December 31, 2021 included a cumulative adjustment for service completed from the grant date to the close of the Merger as the result of a vested performance condition. Additionally, the Company recorded stock-based compensation related to capitalized internal labor for software development activities of $ 1.5 million and $ 11 thousand during the years ended December 31, 2022 and 2021, respectively. These amounts are included in property, plant, and equipment - net in the consolidated balance sheets. Stock Options Following the Merger, the outstanding stock options issued under the 2011 Plan and 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. A summary of the weighted-average assumptions used by the Company is presented below: Years Ended December 31, 2022 2021 Fair value per common share $ 2.06 - $ 2.15 $ 5.40 Weighted-average risk-free interest rate 3.20 % - 4.72 % 1.44 % Volatility 33.90 % - 41.10 % 33.40 % Expected term (in years) 7.63 8.00 Dividend rate 0 % 0 % 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 F-37 incremental fair value has been recognized as stock-based compensation expense over the remaining vesting period. A summary of the Company’s stock option activity under the Plans during the year ended December 31, 2022 is presented below: Options Weighted-Average Exercise Price Weighted Average Contractual Term Aggregate Intrinsic Value (in thousands) (in years) (in thousands) Outstanding - January 1, 2022 5,022 $ 4.49 Granted 5,305 2.14 Exercised ( 709 ) 0.07 Forfeited ( 977 ) 7.21 Outstanding - December 31, 2022 8,641 3.10 8.68 $ 1,868 Exercisable - December 31, 2022 1,898 2.73 6.15 1,333 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, 2022 and 2021 was $ 1.8 million and $ 7.1 million, respectively. The total fair value of options vested during the years ended December 31, 2022 and 2021 was $ 1.2 million and $ 0.9 million, respectively. As of December 31, 2022, there was $ 6.6 million of total unrecognized compensation cost, which is expected to be recognized over a weighted-average period of 3.4 years. Restricted Stock Awards During 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. A summary of the Company’s nonvested RSA activity during the year ended December 31, 2022 is presented below: Restricted Stock Awards Weighted-Average Grant-Date Fair Value (in thousands) Nonvested - January 1, 2022 335 $ 0.01 Vested ( 200 ) 0.01 Canceled ( 78 ) 0.01 Nonvested - December 31, 2022 57 0.01 The Company has not granted any RSAs since 2020. As of December 31, 2022, there was $ 1 thousand of total unrecognized compensation cost related to nonvested RSAs granted under the Plan, which is expected to be recognized over a weighted-average period of 1.7 years. The total grant date fair value of shares vested during the year ended December 31, 2022 was $ 2 thousand. F-38 Restricted Stock Units The Company granted an aggregate of 4.6 million RSUs to certain employees and service providers during the year ended December 31, 2022 under the 2021 Plan. The general vesting provisions are that 25 % will vest on the one -year anniversary of the vesting commencement date and 75 % 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. During March 2022, 155 thousand RSUs were granted with a different vesting schedule, whereby 50 % will vest annually on the anniversary of the vesting commencement date and during September 2022, 419 thousand RSUs were granted whereby 100% of such RSUs will vest at the earlier of (i) the one-year anniversary of the grant date or (ii) the date of the next annual meeting following the grant date. A summary of the Company’s nonvested RSU activity during the year ended December 31, 2022 is presented below: Restricted Stock Units Weighted-Average Grant-Date Fair Value (in thousands) Nonvested - January 1, 2022 10,959 $ 6.77 Granted 4,558 2.06 Vested ( 6,728 ) 6.92 Canceled ( 935 ) 5.36 Nonvested - December 31, 2022 7,854 4.08 A significant portion of the pre-Merger RSU grants vested in accordance with the vesting schedule of 180 days subsequent to the Merger. During the year ended December 31, 2022, 2.6 million of the vested RSUs were withheld to satisfy payroll tax withholding obligations, which was recorded to additional paid-in capital totaling $ 5.1 million. Unrecognized compensation costs related to nonvested restricted stock units totaled $ 18.0 million as of December 31, 2022, which is expected to be recognized over a weighted-average period of 2.5 years. 21. Leases Total Lease Cost As described in Note 3, effective January 1, 2022, we adopted ASC 842 using the optional transition method. We did not recast the prior period consolidated financial statements and all prior period amounts and disclosures are presented under ASC Topic 840, " Leases" . The components of rent expense, which are included in selling, general and administrative expenses in the Company's consolidated statements of operations and comprehensive loss, were as follows: Year Ended December 31, 2022 (in thousands) Operating lease expense $ 1,861 Variable lease expense 960 Short-term lease expense 127 Sublease income ( 127 ) Total rent expense $ 2,821 F-39 Supplemental Balance Sheet Information Supplemental operating lease balance sheet information consists of the following: As of December 31, 2022 (in thousands) Operating lease right of use assets - net $ 3,586 Other current liabilities 530 Operating lease liabilities 3,132 Total operating lease liabilities $ 3,662 Other Supplemental Information Other supplemental operating lease information consists of the following for the year ended December 31, 2022: Operating cash flows for operating leases (in thousands) $ 1,771 ROU assets obtained in exchange for new lease liabilities (in thousands) $ 5,225 Weighted average remaining lease term (in years) 9.36 Weighted average discount rate 10.95 % 22. Related Party Transactions A summary of the Company’s related party transactions during the year ended December 31, 2022 is presented below: Amount Due to Related Party as of December 31, December 31, 2022 2021 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. $ 20,787 $ 19,977 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. 56,345 54,149 F-40 Amount Due to Related Party as of Total Payments in the year ended December 31, December 31, December 31, Nature of Relationship 2022 2021 2022 2021 Name Description of the Transactions (in thousands) LeoStella Joint Venture Design, development and manufacture of multiple satellites. $ 28,042 $ 19,257 $ 3,728 $ 8,381 X-Bow Equity Method Investee In 2017, the Company received stock in X-Bow. As of December 31, 2022, the Company had a less than 20 % 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. 900 1,865 — — 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. The Company has a non-cancelable operational commitment with Ursa Space Systems. 583 809 — 83 Thales Alenia Space Shareholder and Parent of Wholly-owned Subsidiary, Seahawk (Debt Issuer) Design, development and manufacture of telescopes. 11,388 6,050 693 — In January 2023, the Company finalized a settlement agreement with LeoStella whereby the Company agreed to pay certain outstanding invoices of $ 1.4 million and LeoStella agreed to purchase certain customer satellite equipment from the Company for $ 1.0 million. The net amount due from the Company of $ 0.4 million was paid to LeoStella in February 2023. As a result of the agreement, as of December 31, 2022, the Company accrued for the proceeds from the sale of the equipment as a reduction in the amounts owed to LeoStella and reduced professional & engineering service costs, excluding depreciation and amortization for the year ended December 31, 2022. Interest on the term loan facility is accrued and compounded annually. No significant interest payments were made in the years ended December 31, 2022 or 2021. The Company had interest due to related parties of $ 1.2 million, included in other current liabilities as of December 31, 2022, and $ 0.5 million included in other liabilities as of December 31, 2021. 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 . F-41 23. Fair Value of Financial Instruments The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 and indicate the fair value hierarchy level of the valuation techniques and inputs that the Company utilized to determine such fair value: December 31, 2022 Quoted Prices in Active Markets Significant Other Observable Input Significant Other Unobservable Inputs (Level 1) (Level 2) (Level 3) (in thousands) Liabilities Public Warrants $ 2,097 $ — $ — Private Placement Warrants — — 1,332 Sponsor Shares — — 1,684 $ 2,097 $ — $ 3,016 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 The carrying values of the following financial instruments approximated their fair values as of December 31, 2022 and December 31, 2021 based on their maturities: cash and cash equivalents, restricted cash, short-term investments, 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, 2022 or 2021. Changes in the fair value of the Level 3 liabilities during the year ended December 31, 2021 of $ 3.4 million included the Bridge Notes, Private Placement Warrants, Sponsor Shares, Class A common stock warrants, Legacy BlackSky preferred stock warrants, and Consent Fees. The following is a summary of changes in the fair value of the Level 3 liabilities during the year ended December 31, 2022: Sponsor Shares Private Placement Warrants (in thousands) Balance, January 1, 2022 $ 4,732 $ 3,496 Gain from changes in fair value ( 3,048 ) ( 2,164 ) Balance, December 31, 2022 $ 1,684 $ 1,332 F-42 24. Commitments and Contingencies Leases The Company leases office space under various non-cancellable operating leases with varying lease expiration dates through 2033. Future minimum lease payments under non-cancellable office leases as of December 31, 2022 are as follows: (in thousands) For the years ending December 31, 2023 $ 604 2024 889 2025 475 2026 489 2027 504 Thereafter 3,303 Total lease payments 6,264 Less: imputed interest ( 2,602 ) Present value of lease liabilities $ 3,662 As of December 31, 2022, the Company has approximately $ 149 thousand of commitments for an office space lease that has not yet commenced. The lease commenced in January 2023 with a lease term of 4 years. Ground Station Services The Company has purchase commitments for ground station services to be performed by third-parties subsequent to December 31, 2022. Future purchase commitments under non-cancellable ground station service contracts as of December 31, 2022 are as follows: (in thousands) For the years ending December 31, 2023 $ 619 2024 443 2025 298 2026 125 $ 1,485 Legal Proceedings From time to time, we may become involved in various claims and legal proceedings arising in the ordinary course of business, which, by their nature, are inherently unpredictable. We are not currently a party to any material claims or legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate, have a material adverse effect on our business, financial condition or results of operations. Regardless of outcome, litigation and other legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. 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-43 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. As a result of this correspondence, the Company has updated its liability including interest and penalties based on its best estimate as of December 31, 2022. The following table summarizes the estimated indirect tax liability activity during the year ended December 31, 2022: (in thousands) Balance, January 1, 2022 $ 737 Payments ( 504 ) Adjustment to Expense ( 146 ) Balance, December 31, 2022 $ 87 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 a commitment for launch and integration services with a launch services provider. As of December 31, 2022, the Company had a commitment for one launch, to include up to two satellites at a future estimated launch date for $ 1.7 million. The terms of the arrangement also allow 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. In addition, we have various other operational commitments for the next several years totaling $ 9.8 million as of December 31, 2022. 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, 2022 and 2021, revenue from customers representing 10% or more of the consolidated revenue from continuing operations was $ 27.3 million and $ 15.4 million, respectively. Accounts receivable related to these customers as of December 31, 2022 and 2021 was $ 0 and $ 1.3 million, respectively. Revenue from the U.S. federal government and agencies was $ 53.2 million and $ 29.4 million for the years ended December 31, 2022 and 2021, respectively. Accounts receivable related to U.S. federal government and agencies was $ 2.5 million and $ 2.6 million as of December 31, 2022 and 2021, 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, 2022 and 2021, 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 facts and circumstances of collectability on each outstanding account, and did not have a significant reserve for uncollectible account. F-44 26. Subsequent Events On March 8, 2023, the Company completed the closing of a private placement whereby the Company issued 16,403,677 shares of the Company’s Class A common stock and warrants to purchase up to an additional 16,403,677 shares of Common Stock. The purchase price of each share and associated warrant was $ 1.79 . The aggregate gross proceeds to the Company from the private placement were approximately $ 29.5 million, before deducting the placement agent fees and other offering expenses payable by the Company. The Company intends to use the net proceeds from the private placement for general corporate purposes, including working capital. The warrants have an exercise price of $ 2.20 per share of common stock, and are exercisable beginning on September 8, 2023 until September 8, 2028. The warrants issued in the private placement provide that a holder of warrants will not have the right to exercise any portion of its warrants if such holder, together with its affiliates, would beneficially own in excess of 4.99 % of the number of shares of common stock outstanding immediately after giving effect to such exercise; provided, however, that each holder may increase or decrease the beneficial ownership limitation by giving notice to the Company; but not to any percentage in excess of 9.99 %. F-45