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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to
Commission file number 001-39128
Momentus Inc.
(Exact name of registrant as specified in its charter)
Delaware84-1905538
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3901 N. First Street
San Jose, California
95134
(Address of Principal Executive Offices)(Zip Code)
(650) 564-7820
Registrant's telephone number, including area code
Securities registered pursuant to section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stockMNTS
The Nasdaq Capital Market LLC
WarrantsMNTSW
The Nasdaq Capital Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyx
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o   No  x
The registrant had outstanding 84,149,721 shares of common stock as of November 4, 2022.
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TABLE OF CONTENTS
Page
Item 3. Quantitative and Qualitative Disclosures About Market Risk
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”), including, without limitation, statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Generally, statements that are not historical facts, including statements concerning Momentus Inc.’s (the “Company,” “Momentus,” “we,” “us,” or “our”) possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the words "believes," "estimates," "anticipates," "expects," "intends," "plans," "may," "will," "potential," "projects," "predicts," "continue," or "should," or, in each case, their negative or other variations or comparable terminology, but the absence of these words does not mean that a statement is not forward-looking. There can be no assurance that actual results will not materially differ from expectations.
The forward-looking statements contained in this Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, without limitation, the ability of the Company to obtain licenses and government approvals for its missions, which are essential to its operations; the ability of the Company to effectively market and sell satellite transport services and planned in-orbit services; the ability of the Company to protect its intellectual property and trade secrets; the development of markets for satellite transport and in-orbit services; the ability of the Company to develop, test and validate its technology, including its water plasma propulsion technology; delays or impediments that the Company may face in the development, manufacture and deployment of next generation satellite transport systems; the ability of the Company to convert backlog or inbound inquiries into revenue; changes in applicable laws or regulations and extensive and evolving government regulations that impact operations and business, including export control license requirements; the ability to attract or maintain a qualified workforce with the required security clearances and requisite skills; level of product service or product or launch failures or delays that could lead customers to use competitors’ services; investigations, claims, disputes, enforcement actions, litigation and/or other regulatory or legal proceedings; the effects of the COVID-19 pandemic on the Company’s business; the Company’s ability to comply with the terms of its National Security Agreement (the “NSA”) and any related compliance measures instituted by the director who was approved by the Committee on Foreign Investment in the United States (“CFIUS”) Monitoring Agencies (the “Security Director”); the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and/or other risks and uncertainties
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described under Part II, Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A. in our Annual Report on Form 10-K filed with the SEC on March 9, 2022. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. These risks and others described under Part II, Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A in our Annual Report on Form 10-K filed with the SEC on March 9, 2022, may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Form 10-Q. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Form 10-Q, those results or developments may not be indicative of results or developments in subsequent periods.
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ITEM 1. FINANCIAL STATEMENTS
MOMENTUS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
2022
December 31,
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$81,570 $160,036 
Restricted cash, current287 197 
Prepaids and other current assets10,939 9,431 
Total current assets92,796 169,664 
Property, machinery and equipment, net4,333 4,829 
Intangible assets, net343 349 
Operating right of use asset6,715 7,604 
Deferred offering costs309  
Restricted cash, non-current310 314 
Other non-current assets3,894 3,065 
Total assets$108,700 $185,825 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable$1,596 $1,911 
Accrued expenses7,881 9,785 
Loan payable, current10,844 20,907 
Contract liabilities, current1,226  
Operating lease liability, current1,140 1,189 
Stock repurchase liability10,000  
Other current liabilities110 5,075 
Total current liabilities32,797 38,867 
Contract liabilities, non-current1,178 1,554 
Loan payable, non-current5,583  
Warrant liability2,367 5,749 
Operating lease liability, non-current6,425 7,284 
Other non-current liabilities459 483 
Total non-current liabilities16,012 15,070 
Total liabilities48,809 53,937 
Commitments and Contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.00001 par value; 250,000,000 shares authorized and 83,984,571 issued and outstanding as of September 30, 2022; 250,000,000 shares authorized and 81,211,781 issued and outstanding as of December 31, 2021
1 1 
Additional paid-in capital339,576 340,570 
Accumulated deficit(279,686)(208,683)
Total stockholders’ equity59,891 131,888 
Total liabilities and stockholders’ equity$108,700 $185,825 
The accompanying notes are an integral part of these condensed consolidated financial statements
The balance sheet as of December 31, 2021 has been derived from the audited financial statements as of that date
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MOMENTUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Service revenue$129 $200 $179 $330 
Cost of revenue14 (184)26 (135)
Gross margin115 384 153 465 
Operating expenses:
Research and development expenses10,571 9,047 31,438 39,747 
Selling, general and administrative expenses11,184 12,057 38,898 35,802 
Total operating expenses21,755 21,104 70,336 75,549 
Loss from operations(21,640)(20,721)(70,183)(75,084)
Other income (expense):
Decrease in fair value of SAFE notes 26,924  209,291 
Decrease (increase) in fair value of warrants1,579 (2,712)3,382 9,826 
Realized loss on disposal of asset(45) (114) 
Interest income28  33 2 
Interest expense(1,261)(4,328)(4,166)(8,685)
SEC settlement   (7,000)
Other income (expense)41 (4,778)44 (4,965)
Total other income (expense)342 15,107 (821)198,469 
(Loss) Income before income taxes(21,298)(5,614)(71,004)123,385 
Income tax provision   1 
Net (loss) income$(21,298)$(5,614)$(71,004)$123,384 
Net (loss) income per share, basic $(0.26)$(0.09)$(0.88)$2.06 
Net (loss) income per share, diluted$(0.26)$(0.09)$(0.88)$1.92 
Weighted average shares outstanding, basic82,066,795 60,589,566 81,122,541 59,873,199 
Weighted average shares outstanding, diluted82,066,795 60,589,566 81,122,541 64,232,537 
The accompanying notes are an integral part of these condensed consolidated financial statements
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MOMENTUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
(in thousands, except share data)
Three and nine months ended September 30, 2022
Preferred stockFF Preferred stockCommon stock –
Class A
Common stock –
Class B
Common stock –
Class A
Additional paid in capitalAccumulated deficitTotal stockholders’ equity
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance, December 31, 2021— $— — $— — $— — $— 81,211,781$1 $340,570 $(208,683)$131,888 
Issuance of common stock upon exercise of stock options— — — — — — — — 170,751 — 48 — 48 
Issuance of common stock upon vesting of RSUs— — — — — — — — 113,710 — — — — 
Share repurchase related to Section 16 Officer tax coverage exchange— — — — — — — — (18,673)— (59)— (59)
Stock-based compensation— — — — — — — — — — 2,212 — 2,212 
Stock repurchase valuation adjustment— — — — — — — — — — (6,000)— (6,000)
Shares issued upon exercise of warrant    — — — — — — — — 278,146 — — — — 
Net loss— — — — — — — — — — — (26,834)(26,834)
Balance, March 31, 2022— $— — $— — $— — $— 81,755,715$1 $336,771 $(235,517)$101,255 
Issuance of common stock upon exercise of stock options— — — — — — — — 1,294,668 — 345 — 345 
Issuance of common stock upon vesting of RSUs— — — — — — — — 149,953 — — — — 
Issuance of common stock upon purchase of ESPP— — — — — — — — 77,162 — 190 — 190 
Share repurchase related to Section 16 Officer tax coverage exchange— — — — — — — — (12,666)— (38)— (38)
Stock-based compensation— — — — — — — — — — 3,105 — 3,105 
Stock repurchase valuation adjustment— — — — — — — — — — 220 — 220 
Net loss— — — — — — — — — — — (22,872)(22,872)
Balance, June 30, 2022— $— — $— — $— — $— 83,264,832$1 $340,593 $(258,389)$82,205 
Issuance of common stock upon exercise of stock options— — — — — — — — 482,551 — 124 — 125 
Issuance of common stock upon vesting of RSUs— — — — — — — — 326,758 — — — — 
Share repurchase related to Section 16 Officer tax coverage exchange— — — — — — — — (89,570)— (168)— (168)
Stock-based compensation— — — — — — — — — — 3,247 — 3,247 
Stock repurchase valuation adjustment— — — — — — — — — — (4,220)— (4,220)
Net loss— — — — — — — — — — — (21,298)(21,298)
Balance, September 30, 2022— $— — $— — $— — $— 83,984,571$1 $339,576 $(279,686)$59,891 
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Three and nine months ended September 30, 2021
Preferred stockFF Preferred stockCommon stock –
Class A
Common stock –
Class B
Common stock –
Class A
Additional paid in capitalAccumulated deficitTotal stockholders’ equity (deficit)
SharesAmountSharesAmountSharesAmountSharesAmountSharesAmount
Balance, December 31, 2020144,875,941 — 20,000,000 — 18,398,005 — 70,000,000 —  $ $39,866 $(329,338)$(289,472)
Retroactive application of recapitalization(144,875,941)— (20,000,000)— (18,398,005)— (70,000,000)— 62,510,6901 — — — 
Balance, December 31, 2020, as adjusted $—  $—  $—  $— 62,510,690$1 $39,866 $(329,338)$(289,472)
Issuance of common stock upon exercise of stock options— — — — — — — — 270,582 — 24 — 24 
Stock-based compensation— — — — — — — — — — 5,768 — 5,768 
Net income— — — — — — — — — — — 64,671 64,671 
Balance, March 31, 2021— $— — $— — $— — $— 62,781,272$1 $45,658 $(264,667)$(219,009)
Issuance of common stock upon exercise of stock options— — — — — — — — 39,515 — 11 — 11 
Stock-based compensation— — — — — — — — — — 2,344 — 2,344 
Stock repurchase— — — — — — — — (25,601,733)— (22,000)(22,000)
Net income— — — — — — — — — — — 64,327 64,327 
Balance, June 30, 2021— $— — $— — $— — $— 37,219,054$ $26,013 $(200,340)$(174,326)
Issuance of common stock upon exercise of stock options— — — — — — — — 966,827 — 245 — 245 
Stock-based compensation— — — — — — — — — — 3,075 — 3,075 
Warrant conversion upon exercise— — — — — — — — 638,125 — 6,999 — 6,999 
Shares issued upon conversion of SAFE Notes— — — — — — — — 12,403,469 — 136,001 — 136,001 
Stock repurchase— — — — — — — — — — (18,000)— (18,000)
Issuance of common stock and warrants, in connection with PIPE— — — — — — — — 11,000,000 — 75,114 — 75,114 
Issuance of common stock and warrants, net of transaction costs, upon merger— — — — — — — — 18,352,757 — 104,022 — 104,022 
Net loss— — — — — — — — — — — (5,614)(5,614)
Balance, September 30, 2021— $— — $— — $— — $— 80,580,232$ $333,471 $(205,954)$127,518 
The accompanying notes are an integral part of these condensed consolidated financial statements
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MOMENTUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended
September 30,
20222021
Cash flows from operating activities:
Net (loss) income$(71,004)$123,384 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization831 768 
Amortization of debt discount and issuance costs2,114 6,935 
Amortization of right-of-use asset889 971 
Decrease in fair value of warrants(3,382)(9,826)
Decrease in fair value of SAFE notes (209,291)
Impairment of prepaid launch costs 9,450 
Loss on disposal of fixed and intangible assets121  
Stock-based compensation expense8,564 11,187 
Changes in operating assets and liabilities:
Prepaids and other current assets(1,571)(15,350)
Other non-current assets(901)(677)
Accounts payable(328)4,357 
Accrued expenses(1,873)4,546 
Accrued interest92  
Other current liabilities(4,967)4,829 
Contract liabilities851 (1,071)
Lease liability(908)(115)
Other non-current liabilities(23)5 
Net cash used in operating activities(71,495)(69,897)
Cash flows from investing activities:
Purchases of property, machinery and equipment(618)(2,835)
Proceeds from sale of property, machinery and equipment7  
Purchases of intangible assets(30)(16)
Net cash used in investing activities(641)(2,852)
Cash flows from financing activities:
Proceeds from issuance of SAFE notes 30,853 
Proceeds from issuance of loan payable 25,000 
Proceeds from exercise of stock options517 278 
Proceeds from employee stock purchase plan190  
Repurchase of Section 16 Officer shares for tax coverage exchange(265) 
Payment of loan payable(6,686) 
Payment of debt issuance costs (144)
Payment of warrant issuance costs (31)
Payment for repurchase of common shares (40,000)
Proceeds from issuance of common shares in PIPE 110,000 
Payments of issuances costs related to PIPE (4,416)
Proceeds from issuance of common stock upon Business Combination 128,167 
Payments for issuance costs related to Business Combination (21,285)
Net cash (used in) provided by financing activities(6,244)228,421 
(Decrease) Increase in cash, cash equivalents and restricted cash(78,380)155,672 
Cash, cash equivalents and restricted cash, beginning of period160,547 23,520 
Cash, cash equivalents and restricted cash, end of period$82,167 $179,191 
Supplemental disclosure of non-cash investing and financing activities
Issuance of common stock related to conversion of SAFE notes$ $136,001 
Issuance of common stock related to exercise of warrant liabilities$ $6,999 
Reclassification of deferred offering costs$ $2,610 
Deferred offering costs in accounts payable and accrued expenses at period end$238 $ 
Assumption of merger warrants liability$ $31,225 
Operating lease right-of-use assets in exchange for lease obligations$ $8,501 
Stock repurchase liability fair value$10,000 $ 
Supplemental disclosure of cash flow information
Cash paid for income taxes$ $1 
Cash paid for interest$1,960 $1,750 
The accompanying notes are an integral part of these condensed consolidated financial statements
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MOMENTUS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations
The Company
Momentus Inc. (together with its consolidated subsidiaries “Momentus” or the “Company”) is a U.S. commercial space company that offers in-space infrastructure services, including in-space transportation, hosted payloads and in-orbit services. Momentus believes it can make new ways of operating in space possible with its planned in-space transfer and service vehicles that will be powered by an innovative water plasma-based propulsion system that is under development.
On May 4, 2022, the Company received a favorable determination from the Federal Aviation Administration (the “FAA”) of its application for payload review, which was the final regulatory milestone needed to support the Company’s inaugural flight of the Vigoride orbital service vehicle (Vigoride 3) in May 2022. The FAA favorable determination followed a license from the Federal Communications Commission (the “FCC”) received on April 28, 2022, and updates to existing licenses from the National Oceanic and Atmospheric Administration (the “NOAA”).
On May 25, 2022, the Company launched its first demonstration flight of the Vigoride spacecraft (Vigoride 3) to low-earth orbit aboard the SpaceX Transporter-5 mission. In addition to Vigoride, Momentus used a second port on the same SpaceX mission to fly a third-party deployer from a partner company. On May 25, 2022, Momentus used the third-party deployer to place its first customer satellite in orbit.
On May 26, 2022, upon establishing two-way contact between the Vigoride spacecraft in low-earth orbit and a ground station on Earth, Momentus discovered that the Vigoride spacecraft had experienced certain anomalies after its launch, primarily relating to its deployable solar arrays, which provide power to the spacecraft and its subsystems. Since that time, the Company has been working to address the anomalies, identify root causes and pursue solutions to be implemented in advance of future missions.
The Company has determined that the Vigoride spacecraft's deployable solar arrays, which are produced by a third party, and are folded and stowed during launch, did not operate as intended once in orbit. This resulted in low power and communications issues with the spacecraft. Meanwhile, the spacecraft's fixed, body-mounted solar panels appear to be working as intended and are providing some power to the spacecraft. The Company has been working closely with the producer of the solar arrays and has identified a mechanical issue as the root cause of the deployable arrays not operating as intended. The Company also believes that it has identified the root cause of the anomalies that it experienced with other spacecraft systems during the low-power state.
On May 28, 2022, Momentus was able to deploy two customer satellites from Vigoride 3 (of nine total customer satellites onboard Vigoride 3). The Company then continued efforts to deploy other customer satellites.
While Momentus initially established two-way communications with the Vigoride spacecraft, it has not been able to continue such two-way communication given the spacecraft's low-power state. Momentus has been using an unplanned frequency to work through the anomalies and applied for a 30-day Special Temporary Authority (“STA”) from the FCC to properly comply with the FCC’s radio frequency transmission requirements. On June 9, 2022, the Company received approval of a 30-day STA from the FCC as requested, which the FCC extended for an additional 30 days on July 13, 2022. Momentus has continued to apply for 30-day extensions for its STA, which the FCC has granted, most recently on October 20, 2022.
While Momentus has not been able to re-establish two-way communication with the Vigoride spacecraft, it has continued to broadcast commands to the spacecraft from ground stations on Earth, including commands to deploy customer satellites. Additionally, the Vigoride spacecraft is equipped with a mechanism designed to autonomously deploy customer satellites in the event that the spacecraft loses communications with ground stations.
During the third quarter of 2022, the Vigoride spacecraft deployed five additional customer satellites including two on July 17, 2022, two on July 29, 2022, and one at the end of August 2022. Momentus has now deployed a total of eight customer satellites in low-earth orbit, comprising seven satellites from Vigoride 3 and one satellite from the third-party deployer system.
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MOMENTUS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
While Momentus is continuing efforts to address the anomalies experienced by the Vigoride 3 spacecraft during its inaugural mission and to deploy the three remaining customer satellites, the Company’s level of confidence that it will be able to perform some planned operations of the vehicle on this test and demonstration mission has substantially declined. The Company is working to incorporate improvements identified during the current mission in advance of its planned follow-on missions.
The Company anticipates flying its second Vigoride vehicle to low-earth orbit on a third-party launch provider as early as December 2022. All future missions remain subject to the receipt of licenses and government approvals, and successful completion of our efforts to prepare our spacecraft for flight. The Company can offer no assurances that the vehicles that it plans to operate in future missions will be ready on time, or that they will operate as intended. Refer to “Risk Factors — We may not receive all required governmental licenses and approvals,” and Risk Factors — We are dependent on the successful development of our satellite vehicles and related technology,” under Part II, Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A in our Annual Report on Form 10-K filed with the SEC on March 9, 2022.
Background and Business Combination
On August 12, 2021, the Company consummated a merger pursuant to certain Agreement and Plan of Merger, dated October 7, 2020, and as amended on March 5, 2021, April 6, 2021, and June 29, 2021 (the “Merger Agreement”), by and among Stable Road Acquisition Corp (“SRAC”), Project Marvel First Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of SRAC (the “First Merger Sub”), and Project Marvel Second Merger Sub, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of SRAC (the “Second Merger Sub”), pursuant to which the First Merger Sub merged with and into Momentus Inc., a Delaware corporation (“Legacy Momentus”), with Legacy Momentus as the surviving corporation of the First Merger Sub, and immediately following which Legacy Momentus merged with and into the Second Merger Sub, with the Second Merger Sub as the surviving entity (the “Business Combination”). In connection with the closing of the Business Combination (the “Closing”), the Company changed its name from Stable Road Acquisition Corp. to Momentus Inc., and Legacy Momentus changed its name to Momentus Space, LLC.
The Business Combination was accounted for as a reverse recapitalization under ASC Topic 805, Business Combinations, ("ASC 805") in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, SRAC, who was the legal acquirer, is treated as the “acquired” company for financial reporting purposes and Legacy Momentus is treated as the accounting acquirer. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of a capital transaction in which Legacy Momentus issued stock for the net assets of SRAC, with no goodwill or other intangible assets recorded, and Legacy Momentus’ financial statements became those of the Company. Reported shares and earnings per share available to holders of the Company’s Common Stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination. See Note 3 for more information.
Pursuant to the Amended and Restated Certificate of Incorporation of the Company, at the Closing, each share of SRAC’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”), converted into one share of SRAC’s Class A Common Stock. After the Closing and following the effectiveness of the Second Amended and Restated Certificate of Incorporation of the Company, each share of Class A Common Stock was automatically reclassified, redesignated and changed into one validly issued, fully paid and non-assessable share of the Company’s Common Stock, par value $0.00001 per share (“Common Stock”), without any further action by the Company or any stockholder thereof.
Prior to the Business Combination, SRAC’s units, public shares, and public warrants were listed on the Nasdaq under the symbols “SRACU,” “SRAC,” and “SRACW,” respectively. On August 13, 2021, the Company's Common Stock and public warrants began trading on the Nasdaq, under the symbols “MNTS” and “MNTSW,” respectively.
On October 7, 2020 and July 15, 2021, SRAC entered into subscription agreements with certain investors (the “PIPE Investors”) to which such investors collectively subscribed for an aggregate of 11,000,000 shares of the Company’s Common Stock at $10.00 per share for aggregate gross proceeds of $110.0 million (the “PIPE Investment”). The PIPE Investors were also granted an equal number of private warrants to purchase the Company’s Common Stock at $11.50 per share. The warrants were recorded as a derivative liability under ASC Topic 815, Derivatives and
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MOMENTUS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Hedging, (“ASC 815”) and the warrant liability was initially valued at $30.5 million. See Note 11 for more information. The PIPE Investment was consummated concurrently with the closing of the Business Combination.
Note 2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The balance sheet as of December 31, 2021 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP for audited financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (the “FASB”).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position as of September 30, 2022 and December 31, 2021, the results of operations for the three and nine months ended September 30, 2022 and 2021, the statement of stockholders’ equity (deficit) for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. Such adjustments are of a normal and recurring nature. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022, or for any future period. These interim condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2021 and 2020, filed with the SEC in our Annual Report on Form 10-K filed by the Company on March 9, 2022.
Basis of Presentation
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, SRAC is treated as the acquired company and Momentus Inc. is treated as the acquirer for financial statement reporting purposes (the “Combined Company”). Momentus Inc. was determined to be the accounting acquirer as Momentus Inc.'s stockholders prior to the Merger had the greatest voting interest in the combined entity, Momentus Inc. comprises all of the ongoing operations, and Momentus Inc.'s senior management directs operations of the combined entity.
Accordingly, for accounting purposes, the financial statements of the Combined Company represent a continuation of the financial statements of Momentus with the acquisition being treated as the equivalent of Momentus issuing stock for the net assets of SRAC, accompanied by a recapitalization. The net assets of SRAC are recorded at historical cost, with no goodwill or other intangible assets recorded.
One-time direct and incremental transaction costs incurred by the Company were recorded based on the activities to which the costs relate and the structure of the transaction; cost allocated to the issuance of equity were recorded as a reduction of the amount of equity raised, presented in additional paid in capital, while all costs allocated to the liability classified warrants were charged to expense.
In connection with the Business Combination, outstanding units of Legacy Momentus were converted into Common Stock of the Company, par value $0.00001 per share, representing a recapitalization. Momentus is deemed to be the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the date of the Closing (the “Closing Date”) are those of Momentus. The shares and corresponding capital amounts and net (loss) income per share available to common stockholders, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.
Reclassifications
During the three months ended September 30, 2022, the Company reclassified certain cloud computing implementation costs from intangible assets to prepaid and other current assets, and other non-current assets to properly present the capitalized costs with their related subscription fees. In accordance with ASC 350 Intangibles,
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MOMENTUS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
the Company presents capitalized implementation costs for cloud computing arrangements within the same line item that the prepayment of these fees would be presented. The reclassification was determined to be immaterial and will be accounted for prospectively.
During the fourth quarter of 2021, we modified the presentation of cash flows related to the Business Combination. The presented impact of the issuance costs allocated to expense (described in Note 3), was moved into the issuance costs line. Additionally the presentation of capitalized issuance costs which were paid during the two quarters prior to the Business Combination was updated to present those expenditures within cash flows from financing activities, rather than cash flows from operations.
Certain other reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation. None of the reclassifications have changed the total assets, liabilities, stockholders’ equity (deficit), income, expenses or net losses previously reported.
Principles of Consolidation
The condensed consolidated financial statements include the financial statements of all the subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Management bases its estimates on historical experience and on various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Accordingly, actual results could differ from those estimates. Significant estimates inherent in the preparation of the financial statements include, but are not limited to, accounting for useful lives of property, machinery and equipment, net, intangible assets, net, accrued liabilities, income taxes including deferred tax assets and liabilities, impairment valuation, stock-based awards, Simple Agreement for Future Equity (“SAFE”) notes, warrant liabilities and repurchase liabilities.
COVID-19 Pandemic
As a result of the COVID-19 pandemic, the U.S. government and various states implemented quarantine requirements and travel restrictions. The extent of the impact of COVID-19 on the Company’s financial statements will depend on future developments, including the duration of the outbreak, resurgences and emergence of variants, all of which are highly uncertain and cannot be predicted. The potential impact of COVID-19 on the Company’s operations is inherently difficult to predict and could adversely impact the Company’s business, financial condition or results of operations.
Emerging Growth Company Status
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act and has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. The Company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of Common Stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which the Company after the consummation of the Business Combination has total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which the Company has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2024. The Company expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an
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MOMENTUS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, cash in bank with no restrictions, as well as highly liquid investments which are unrestricted as to withdrawal or use, and which have remaining maturities of three months or less when initially purchased.
Restricted Cash
Restricted cash primarily represents deposited cash that is restricted by financial institutions for two purposes. $0.3 million is restricted as collateral for a letter of credit issued to the Company’s landlord in accordance with the terms of a lease agreement entered into in December 2020, and is classified as a non-current asset as it will be returned to the Company upon the occurrence of future events which are expected to occur beyond one year from September 30, 2022. $0.3 million is restricted for expenditures related to the National Security Agreement (“NSA”). See Note 12.
Deferred Fulfillment and Prepaid Launch Costs
We prepay for certain launch costs to third party providers that will carry the transport vehicle to orbit. Prepaid costs allocated to the delivery of a customers’ payload are classified as deferred fulfillment costs and recognized as cost of revenue upon delivery of the customers’ payload. Prepaid costs allocated to our payload are classified as prepaid launch costs and are amortized to research and development expense upon the release of our payload. The allocation is determined based on the distribution between customer and our payload weight on each launch.
As of September 30, 2022, and December 31, 2021, the Company had $6.6 million and $3.0 million, respectively, of deferred fulfillment and prepaid launch costs recorded within prepaids and other current assets and other non-current assets in the accompanying consolidated balance sheets. On May 21, 2021, the Company received notification from one of its launch service providers that it was terminating two launch service agreements for flights scheduled during calendar year 2021 and that they considered the Company to be in default of prior payments totaling $8.7 million. The Company believed the prepayments would be non-recoverable as this was the third time the payload was rescheduled. As a result of the notification from one of its launch service providers, the Company recorded an impairment charge of $8.7 million of prepaid launch costs during the nine months ended September 30, 2021. There was an unrelated impairment of $0.8 million in the nine months ended September 30, 2021.
On October 12, 2021, the Company began discussions with the same launch service provider about reestablishing a future launch schedule. As a result of the discussion, the Company signed a Launch Services Agreement on October 19, 2021 that reserved space on a launch that occurred in May 2022. The Company determined that $2.7 million of the impaired deposits were potentially recoverable in connection with the reestablished schedule. The Company did not record any adjustments as a result of the discussions. See Note 4.
On May 4, 2022, the Company received a favorable determination from the Federal Aviation Administration (the “FAA”) of its application for payload review, which was the final regulatory milestone needed to support the Company’s inaugural flight of the Vigoride orbital service vehicle (Vigoride 3) in May 2022. The FAA favorable determination followed a license from the Federal Communications Commission (the “FCC”) received on April 28, 2022, and updates to existing licenses from the National Oceanic and Atmospheric Administration (the “NOAA”).
On May 25, 2022, the Company launched its first demonstration flight of the Vigoride spacecraft (Vigoride 3) to low-earth orbit aboard the SpaceX Transporter-5 mission. In addition to Vigoride, Momentus used a second port on the same SpaceX mission to fly a third-party deployer from a partner company. On May 25, 2022, Momentus used the third-party deployer to place its first customer satellite in orbit.
On May 26, 2022, upon establishing two-way contact between the Vigoride spacecraft in low-earth orbit and a ground station on Earth, Momentus discovered that the Vigoride spacecraft had experienced certain anomalies after its launch, primarily relating to its deployable solar arrays, which provide power to the spacecraft and its subsystems. Since that time, the Company has been working to address the anomalies, identify root causes and pursue solutions to be implemented in advance of future missions.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
The Company has determined that the Vigoride spacecraft's deployable solar arrays, which are produced by a third party, and are folded and stowed during launch, did not operate as intended once in orbit. This resulted in low power and communications issues with the spacecraft. Meanwhile, the spacecraft's fixed, body-mounted solar panels appear to be working as intended and are providing some power to the spacecraft. The Company has been working closely with the producer of the solar arrays and has identified a mechanical issue as the root cause of the deployable arrays not operating as intended. The Company also believes that it has identified the root cause of the anomalies that it experienced with other spacecraft systems during the low-power state.
On May 28, 2022, Momentus was able to deploy two customer satellites from Vigoride 3 (of nine total customer satellites onboard Vigoride 3). The Company then continued efforts to deploy other customer satellites.
While Momentus initially established two-way communications with the Vigoride spacecraft, it has not been able to continue such two-way communication given the spacecraft's low-power state. Momentus has been using an unplanned frequency to work through the anomalies and applied for a 30-day Special Temporary Authority (“STA”) from the FCC to properly comply with the FCC’s radio frequency transmission requirements. On June 9, 2022, the Company received approval of a 30-day STA from the FCC as requested, which the FCC extended for an additional 30 days on July 13, 2022. Momentus has continued to apply for 30-day extensions for its STA, which the FCC has granted, most recently on October 20, 2022.
While Momentus has not been able to re-establish two-way communication with the Vigoride spacecraft, it has continued to broadcast commands to the spacecraft from ground stations on Earth, including commands to deploy customer satellites. Additionally, the Vigoride spacecraft is equipped with a mechanism designed to autonomously deploy customer satellites in the event that the spacecraft loses communications with ground stations.
During the third quarter of 2022, the Vigoride spacecraft deployed five additional customer satellites including two on July 17, 2022, two on July 29, 2022, and one at the end of August 2022. Momentus has now deployed a total of eight customer satellites in low-earth orbit, comprising seven satellites from Vigoride 3 and one satellite from the third-party deployer system.
While Momentus is continuing efforts to address the anomalies experienced by the Vigoride 3 spacecraft during its inaugural mission and to deploy the three remaining customer satellites, the Company’s level of confidence that it will be able to perform some planned operations of the vehicle on this test and demonstration mission has substantially declined. The Company is working to incorporate improvements identified during the current mission in advance of its planned follow-on missions.
The Company anticipates flying its second Vigoride vehicle to low-earth orbit on a third-party launch provider as early as December 2022. All future missions remain subject to the receipt of licenses and government approvals, and successful completion of our efforts to prepare our spacecraft for flight. The Company can offer no assurances that the vehicles that it plans to operate in future missions will be ready on time, or that they will operate as intended. Refer to “Risk Factors — We may not receive all required governmental licenses and approvals,” and Risk Factors — We are dependent on the successful development of our satellite vehicles and related technology,” under Part II, Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A in our Annual Report on Form 10-K filed with the SEC on March 9, 2022.
In connection with the launch of Vigoride 3 and the third party deployer in May 2022, the Company amortized $1.2 million of prepaid launch costs. These costs were allocated proportionally based on payload weight. $12 thousand allocated to completed customer payload performance obligations was amortized to cost of revenue, $14 thousand allocated to customer payload subject to unresolved variable consideration was deferred within current deferred fulfillment costs as of the end of the second quarter 2022, $0.6 million allocated to the Vigoride vehicle was amortized to research and development costs, and $0.6 million allocated to the third party deployer, intended as a demonstration of Company’s business model, was amortized to selling, general and administrative costs. As a result of the launch, the Company realized $1.8 million of benefit from the recovery of previously impaired prepaid launch costs. The Company did not allocate any Vigoride vehicle development expense to cost of revenue as the vehicle has not yet met the criteria for capitalization. Refer to Research and Development Costs below.
During the three months ended September 30, 2022, the Company resolved the variable consideration uncertainties that had caused it to defer revenue and cost of revenue from its inaugural launch. As a result, the Company amortized the deferred $14 thousand to cost of revenue.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
Property, Machinery and Equipment, net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is generally recorded using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives of fixed assets by asset category are described below:
Fixed Assets
Estimated Useful Life
Computer equipment
Three years
Furniture and fixtures
Five years
Leasehold improvements
Lesser of estimated useful life or remaining lease term (one year to seven years)
Machinery and equipment
Seven years
Costs of maintenance or repairs that do not extend the lives of the respective assets are charged to expenses as incurred.
Intangible Assets, net
Intangible assets consist of patents (in accordance with ASU 2018-15) and are reported at cost less accumulated amortization and accumulated impairment loss, if any. Amortization is recognized on a straight-line basis over 10 years for patents, and 3 years for internal-use software implementation costs, which is the estimated useful lives of the intangible assets.
Deferred Offering Costs
Offering costs consist of legal, accounting, underwriting fees and other costs incurred that are directly related to fundraising activities. During the year ended December 31, 2021, deferred offering costs were attributable to the Business Combination and upon completion of the Business Combination, all deferred offering costs were netted with the proceeds, with costs relating to the issuance of equity recorded as a reduction of additional paid in capital, while all costs related to the liability classified warrants were charged to expense. See Note 3 for more information. During the nine months ended September 30, 2022, deferred offering costs were attributable to the Company’s S-3 Universal Shelf registration and the at-the-market offering program. These costs will be netted with the proceeds proportional to the at-the-market program fundraising and any future fundraising under that S-3 registration. Refer to Note 11.
Loss Contingencies
We estimate loss contingencies in accordance with ASC 450-20, Loss Contingencies, which states that a loss contingency shall be accrued by a charge to income if both of the following conditions are met: (i) information available before the condensed consolidated financial statements are issued or are available to be issued indicates that it is probable that a liability had been incurred at the date of the condensed consolidated financial statements and (ii) the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals are required. Refer to Note 12.
Revenue Recognition
The Company enters into contracts for ‘last-mile’ satellite and cargo delivery, payload hosting and in-orbit servicing options with customers that are primarily in the aerospace industry. The Company recognizes revenue (along with any other fees that have been paid) upon satisfaction of the Company’s performance obligation.
The Company estimates variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. While the Company’s standard contracts do not contain refund or recourse provisions that enable its customers to recover any non-refundable fees that have been paid, the Company may issue full or partial refunds, or concessions on future services to customers on a case-by-case basis as necessary to preserve and foster future business relationships and customer goodwill. As a result of the Company’s inability to complete any launches in 2021 (refer to Note 4 for additional information), the Company issued customer refunds of $1.4 million during the year ended December 31, 2021.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
As part of its contracts with customers, the Company collects up-front non-refundable deposits prior to launch. As of September 30, 2022, and December 31, 2021, the Company had customer deposit balances of $2.4 million and $1.6 million, respectively, in related to signed contracts with customers, including firm orders and options (some of which have already been exercised by customers). These deposits are recorded as current and non-current contract liabilities in the Company’s condensed consolidated balance sheets. Included in the collected amount as of September 30, 2022 and December 31, 2021 are $1.2 million and $1.6 million, respectively, of non-current deposits.
In connection with the May 25, 2022 flight of the Vigoride spacecraft and the third-party deployer from a partner company, the Company completed one of the intended performance obligations, resulting in $50 thousand of recognized revenue, which was previously recorded in contract liabilities. The remaining customer payloads were negatively impacted by the Vigoride anomalies and as a result did not receive the anticipated level of service. As a result, the Company offered concessions to these customers, the value of which was unresolved as of June 30, 2022. Due to this uncertainty, the Company recorded the related customer deposits of $133 thousand as deferred revenues within current contract liabilities as of June 30, 2022.
During the three months ended September 30, 2022, the Company recognized $129 thousand of revenue. $28 thousand was due to forfeited customer deposits from cancelled customer contracts. The Company also resolved the uncertainties that had caused it to defer revenue from its inaugural launch. As a result, the Company recognized revenue of $101 thousand, and continued to defer $33 thousand now allocated to future services as a result of the variable consideration.
For the year ended December 31, 2021, the Company recognized revenue related to customer cancelled contracts of $0.3 million, which were previously recorded as contract liabilities. The Company also recorded $(135) thousand as a reduction of cost of revenue which represents the reversal of a contingency recorded during the prior year for loss contracts, partially offset by costs incurred related to one of the cancelled contracts. During the year ended December 31, 2021, in conjunction with the isolated refunds described below, the Company signed amendments with those customers considered in the contingency, such that the services will no longer be free of charge.
Fair Value Measurement
The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. A three-tiered hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires that the Company use observable market data, when available, and minimize the use of unobservable inputs when determining fair value:
Level 1, observable inputs such as quoted prices in active markets;
Level 2, inputs other than the quoted prices in active markets that are observable either directly or indirectly; and
Level 3, unobservable inputs in which there is little or no market data, which requires that the Company develop its own assumptions.
The fair values of cash and cash equivalents, accounts payable, and certain prepaid and other current assets and accrued expenses approximate carrying values due to the short-term maturities of these instruments which fall with Level 1 of the fair value hierarchy. The carrying value of certain other non-current assets and liabilities approximates fair value. The Company had no Level 2 inputs for the nine months ended September 30, 2022 and and fiscal year ended December 31, 2021.
The Company’s SAFE note liabilities, prior to conversion, were marked-to-market liabilities pursuant to ASC 480 and are classified within Level 3 of the fair value hierarchy as the Company is using a backsolve method within the Black Scholes Option Pricing model, which allowed the Company to solve for the implied value of the business based on the terms of the SAFE investments. Significant unobservable inputs included volatility and expected term. Volatility is based upon on the actual historical volatility of a group of comparable publicly traded companies observed over a historical period equal to the expected remaining life of the SAFE investments. The expected term was based on the anticipated time until the SAFE investments would have a conversion event. Upon conversion, the SAFE notes were valued based on the closing price of Company’s Common Stock on the Closing Date.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
The Company’s warrants are recorded as a derivative liability pursuant to ASC 815 and are classified within Level 3 of the fair value hierarchy as the Company is using the Black Scholes Option Pricing model. Significant unobservable inputs include stock price, volatility and expected term. Expected stock price volatility is based on the actual historical volatility of a group of comparable publicly traded companies observed over a historical period equal to the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of valuation equal to the remaining expected life of the warrants. The expected term was based on the maturity of the warrants, which is 5 years. The dividend yield percentage is zero because the Company does not currently pay dividends, nor does it intend to do so during the expected term of the warrants. Upon conversion of the Legacy Momentus private warrants immediately prior to the business combination, the key valuation input was the closing price of Company’s Common Stock on the Closing Date, as the expected term and volatility were immaterial to the pricing model.
The Company’s performance awards under the equity incentive plans are recorded as contingent liabilities pursuant to ASC 480, measured at fair value. The performance awards are classified within Level 3 of the hierarchy as the fair value is dependent on management assumptions about the likelihood of non-market outcomes (see Note 11).
The Company’s stock repurchase agreements with the Co-Founders are recorded as contingent liabilities pursuant to ASC 480, measured at fair value. The stock repurchase agreements are classified within Level 3 of the hierarchy as the fair value is dependent on management assumptions about the likelihood of non-market outcomes (see Note 11). There were no transfers between levels of input during the three and nine months ended September 30, 2022 and 2021.
Warrant Liability
The Company’s private warrants and stock purchase warrants are recorded as derivative liabilities pursuant to ASC 815 and are classified within Level 3 of the fair value hierarchy as the Company is using the Black Scholes Option Pricing model to calculate fair value. See Note 11. Significant unobservable inputs, prior to the Company’s stock being publicly listed, included stock price, volatility and expected term. At the end of each reporting period, changes in fair value during the period are recognized as a components of other income (expense), net within the condensed consolidated statements of operations. The Company will continue to adjust the warrant liabilities for changes in fair value until the earlier of (i) the exercise or expiration of the warrants or (ii) the redemption of the warrants, at which time the warrants will be reclassified to additional paid-in capital within the condensed consolidated statements of stockholders’ equity (deficit).
The warrants issued by Momentus Inc. prior to the Business Combination were exercised in connection with the Business Combination and as a result, the Company performed a fair value measurement of those warrants on the Closing Date and recorded the change in the instruments’ fair values prior to converting them to equity. The warrants assumed by the Company as a result of the Business Combination remain outstanding.
SAFE Notes
The Company issued SAFE notes to investors during the three months ended March 31, 2021 and the years ended December 31, 2020 and 2019, which were converted to shares of Common Stock in connection with the Business Combination. Prior to conversion, the Company determined that the SAFE notes were not a legal form of debt (i.e., no creditors’ rights). The SAFE notes included a provision allowing for the investors to receive a portion of the proceeds upon a change of control equal to the greater of their investment amount or the amount payable based upon a number of shares of Common Stock equal to the investment amount divided by the liquidity price, the occurrence of which is outside the control of the Company. This provision required that the SAFE notes be classified as marked-to-market liabilities pursuant to ASC 480. See Note 9.
Basic and Diluted (Loss) Income Per Share
Net (loss) income per share is provided in accordance with FASB ASC 260-10 Earnings per Share. Basic net (loss) income per share is computed by dividing losses by the weighted average number of common shares outstanding during the period. Diluted (loss) income per share gives effect to all dilutive potential common shares outstanding during the period. Diluted loss per share excludes all potential common shares and SAFE notes if their effect is anti-dilutive. See Note 11.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies (cont.)
Impairment of Long-lived Assets
The Company evaluates the carrying value of long-lived assets on an annual basis, or more frequently whenever circumstances indicate a long-lived asset may be impaired. When indicators of impairment exist, the Company estimates future undiscounted cash flows attributable to such assets. In the event cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair value. During the three and nine months ended September 30, 2022 and 2021 there were immaterial impairments of long-lived assets. See Note 5 and Note 6.
Stock-based Compensation
The Company has a stock incentive plan under which equity awards are granted to employees, directors, and consultants. All stock-based payments are recognized in the consolidated financial statements based on their respective grant date fair values.
Restricted stock unit fair value is based on our closing stock price on the day of the grant. Stock option fair value is determined using the Black Scholes Merton Option Pricing model. The model requires management to make a number of assumptions, including expected volatility of the Company’s stock, expected life of the option, risk-free interest rate, and expected dividends. Employee Stock Purchase Plan (“ESPP”) compensation fair value is also determined using the Black Scholes Merton Option Pricing model, using a six month expected term to conform with the six month ESPP offering period.
The fair value of equity awards is expensed over the related service period which is typically the vesting period, and expense is only recognized for awards that are expected to vest. The Company accounts for forfeitures as they occur.
401(k) Plan
The Company has a 401(k) plan that it offers to its full-time employees. The Company did not contribute to the plan for the nine months ended September 30, 2022 and 2021.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs include activities to develop existing and future technologies for the Company’s vehicles. Research and development activities include basic research, applied research, design, development, and related test program activities. Costs incurred for developing our vehicles primarily include equipment, material, and labor hours (both internal and subcontractors).
Once the Company has achieved technological feasibility, the Company will capitalize the costs to construct any additional components of the vehicle systems.
Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities related to an executory contractual arrangement are deferred and capitalized. These advance payments are recognized as an expense as the related goods are delivered or services performed. When the related goods are no longer expected to be delivered or services rendered, the capitalized advance payment should be charged to expense.
Leases
The Company leases real estate facilities under non-cancelable operating leases with various expiration dates through February 2028. The Company determines if an arrangement contains a lease at inception based on whether there is an identified property, plant or equipment and whether the Company controls the use of the identified asset throughout the period of use.
The Company adopted the ASU No. 2016-02,