ITEM
1. FINANCIAL STATEMENTS.
SIDUS
SPACE, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SIDUS
SPACE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SIDUS
SPACE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
For
the Three Months Ended March 31, 2023
For
the Three Months Ended March 31, 2022
| |
Class A | | |
Class B | | |
Additional | | |
| | |
| |
| |
Common Stock | | |
Common Stock | | |
Paid-In | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance - December 31, 2021 | |
| 6,574,040 | | |
$ | 657 | | |
| 10,000,000 | | |
$ | 1,000 | | |
$ | 26,074,292 | | |
$ | (15,415,878 | ) | |
$ | 10,660,071 | |
Beginning balance, value | |
| 6,574,040 | | |
$ | 657 | | |
| 10,000,000 | | |
$ | 1,000 | | |
$ | 26,074,292 | | |
$ | (15,415,878 | ) | |
$ | 10,660,071 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for services | |
| 300,000 | | |
| 30 | | |
| - | | |
| - | | |
| 1,208,970 | | |
| - | | |
| 1,209,000 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,330,354 | ) | |
| (2,330,354 | ) |
Balance - March 31, 2022 | |
| 6,874,040 | | |
$ | 687 | | |
| 10,000,000 | | |
$ | 1,000 | | |
$ | 27,283,262 | | |
$ | (17,746,232 | ) | |
$ | 9,538,717 | |
Ending balance, value | |
| 6,874,040 | | |
$ | 687 | | |
| 10,000,000 | | |
$ | 1,000 | | |
$ | 27,283,262 | | |
$ | (17,746,232 | ) | |
$ | 9,538,717 | |
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SIDUS
SPACE, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SIDUS
SPACE, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March
31, 2022
Note
1. Organization and Description of Business
Organization
Sidus
Space Inc. (“Sidus”, “we”, “us” or the “Company”), was formed as Craig Technologies Aerospace
Solutions, LLC, in the state of Florida, on July 17, 2012. On April 16, 2021, the Company filed a Certificate of Conversion to register
and incorporate with the state of Delaware and on August 13, 2021 changed the company name to Sidus Space, Inc.
Description
of Business
Founded
in 2012, we are a vertically integrated provider of Space and Defense-as-a-Service solutions including end-to-end satellite support.
The Company combines complex mission critical hardware manufacturing; multi-disciplinary engineering services; and satellite and earth
observation/remote sensing solutions with a vision to lead the growth of the space ecosystem by enabling space flight heritage status
for new technologies and delivering data and predictive analytics to both domestic and global customers. Our advanced space-based data
offering will provide imagery in hyperspectral, multispectral and visible bands based upon latest industry needs such as weather, greenhouse
gasses, agriculture and supply chain tracking. We have over a decade of commercial, defense and government manufacturing experience combined
with a proven track record of success, space qualification experience, existing customers and pipeline, and heritage hardware. We provide
solutions for both government and commercial in-space missions for all destinations through the solar system, not just LEO.
We
are developing, building, launching and operating a multi-mission constellation of company-owned Earth observation/remote sensing satellites
using our multi-mission hybrid 3D printed multipurpose satellites. We have designed and are manufacturing LizzieSat (LS) for our LEO
satellite constellation operating in diverse orbits (28°-98° inclination, 300-650km altitude) as approved by the International
Telecommunication Union (ITU) in February 2021. LS is expected to begin operations in 2023. Initial launches are planned via SpaceX launch
service rideshare contracts and the NASA CRS2 program agreement. We have secured a number of rideshare opportunities with SpaceX and
continue to evaluate additional launch providers to ensure robust access to space for our mission and our customers. Each LS is 100kg
with up to 35kg dedicated to customer payload requirements including Sidus owned remote sensing instruments for space-based data collection.
Payloads (Sidus or customer owned) can collect data over multiple Earth based locations, record it onboard, and downlink via ground passes
to the Sidus Mission Control Center (MCC) in Merritt Island, FL. We have executed multiple agreements for global ground station coverage
with leading providers of services along with ample backhaul cloud storage services to provide reduced data aging and persistent refresh.
Products
and Services
Leveraging
our existing manufacturing operations and facilities, flight hardware manufacturing experience and space proven commercial-off-the-shelf
(COTS) subsystem hardware, we believe we can deliver customer sensors to orbit in months, rather than years. In addition, we intend on
delivering high-impact data and actionable intelligence for insights on aviation, maritime, weather, space services, earth intelligence
and observation, financial technology (Fintech) and the Internet of Things. While our business has historically been centered on the
design and manufacture of space hardware, our expansion into manufacture of spacecraft as well as on-orbit constellation management services
and space data applications has led us to innovating in the area of space data applications. We continue to patent our products including
our satellites, external platforms and other innovations.
Our
end-to-end space and defense solutions include the following product and services offerings:
|
● |
Mission
Critical Hardware Manufacturing: Our Manufacturing as a Service offering is built upon a proven track record of success supporting
multiple large U.S. Government space programs and demonstrates our deep knowledge of the industry. Our flight and ground heritage
experience provides us with lessons learned that we believe positions us to avoid many of the challenges and issues that many start
up space companies have and will likely undergo during their initial phases of growth and operation. |
|
|
|
|
● |
Multi-Disciplinary
Engineering Services: Our Operations as a Service offering not only provides engineering and subject matter experience solutions
but also management, operations and transfer of information from customer-owned on-orbit satellites via our in-house mission operations
center in Merritt Island, Florida. |
|
|
|
|
● |
Satellite
Design, Production, Launch Planning, Mission Operations, and In-Orbit Support: We provide both customer requested and Sidus owned
integrated design, manufacture, test and assembly of satellites to meet the needs of customer missions. Our manufacturing facilities
are located in Cape Canaveral, Florida and include traditional machining, 3D printing, cable and wire harness assembly and cleanroom
operations as part of our ground infrastructure. Additionally, we provide customers assistance with the launch of satellites and
sensors into space by identifying and securing launch opportunities with launch providers or integrating customer sensors into our
own satellite constellation and coordinating and managing all activities leading up to launch. We launch software, payloads and dedicated
satellite constellations for our customers that we own and manage on their behalf. Similar to our data and analytics services, our
customers have the opportunity to subscribe to the data that is collected during orbit operations. |
|
|
|
|
● |
On-Orbit
Testing of Space Ecosystem Technologies and Hardware: Our Satellite as a Service offering provides hosted payload options using
available capacity on our satellites to accommodate additional transponders, instruments, or other space sensors. This offering enables
our customers, both commercial and government organizations, to rapidly, reliably, and cost efficiently prove out technologies for
space operations. |
|
|
|
|
● |
Data
and Analytics Derived from Satellite Missions: Our Data as a Service offering uses our Space-based infrastructure of multi-mission
satellites with hyperspectral, multi-spectral and other sensors to provide monitoring services and solutions to multiple sectors
and industries. The global proprietary data that we expect to collect includes data captured from space with no exact terrestrial
alternatives, however, we believe that integration with terrestrial data will provide a more valuable data set for customers. Data
of this type is collected once and can be sold to multiple customers and consumers across a growing set of industries including weather,
agriculture, maritime and oil and gas. Near real-time data can be easily integrated into our existing and proposed customers’
operations and provide unique aggregated datasets through a recurring subscription as a service model. |
Each
of these areas and initiatives addresses a critical component of our end-to-end solution and value proposition for the space economy
as a Space and Defense-as-a-Service company. The majority of our revenues to date have been from our space related hardware manufacturing,
however, 2022 and 2023 revenue includes revenue related to our multi-mission constellation and our hybrid 3D printed LizzieSat satellite.
As part of our business strategy, we may expand our offerings from time to time to include the growth of our complex, mission critical
hardware manufacturing services to focus on supporting additional launch vehicles for Moon and Mars access.
We
support a broad range of international and domestic governments and commercial companies with hardware manufacturing including the Netherlands
Organization, U.S. Department of State, the U.S. Department of Defense, NASA, Collins Aerospace, Lockheed Martin, Teledyne Marine, Bechtel,
and L3Harris in areas that include launch vehicles, satellite hardware, and autonomous underwater vehicles. Planned services that benefit
current and future customers include delivering space-based data that can provide critical insight for agriculture, commodities tracking,
disaster assessment, illegal trafficking monitoring, energy, mining, oil and gas, fire monitoring, classification of vegetation, soil
moisture, carbon mass, Maritime AIS, Aviation ADS, and weather monitoring; providing the ability for customers to demonstrate that a
technology (hardware or software) performs successfully in the harsh environment of space and delivering space services. We plan to own
and operate one of the industry’s leading U.S. based low earth orbit (“LEO”) small satellite (“smallsat”
or “smallsats”) constellations focused on earth observation and remote sensing. Our operating strategy is to continue to
enhance the capabilities of our satellite constellation, to increase our international and domestic partnerships and to expand our analytics
offerings in order to increase the value we deliver to our customers. Our two operating assets—our satellite constellation and
hardware manufacturing capability—are mutually reinforcing and are a result of years of heritage and innovation.
Note
2. Summary of Signification Accounting Policies
Basis
of Presentation
The
Company prepares its financial statements in accordance with rules and regulations of the Securities and Exchange Commission (“SEC”)
and GAAP in the United States of America. The accompanying interim financial statements have been prepared in accordance with GAAP for
interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March
31, 2023, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures
presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial
statements and the footnotes thereto for the year ended December 31, 2022, contained in the Company’s Form 10-K filed on March
15, 2023.
Certain
prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on
the reported results of operations. For the three months ended March 31, 2022, the Company has reclassified depreciation of $21,091 to
general and administrative expenses to conform with current period presentation.
Going
Concern
For
the three months ended March 31, 2023, the Company had a net loss of $3.4 million. We have non-recurring one-time expenses of $706,000
included in our net loss. For the three months ended March 31, 2023, the Company had negative cash flow from operating activities of
$3.5 million. We have non-recurring one-time expenses of $140,000 included in our cash flow from operating activities. The Company plans
to fund its cash flow needs through current cash on hand and future debt and/or equity financings which it may obtain through one or
more public or private equity offerings, debt financings, government or other third-party funding, strategic alliances, or collaboration
agreements. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its projects and services
which could adversely affect its future business prospects and its ability to continue as a going concern. While there are indicators
of substantial doubt, the Company believes that its current available cash on hand plus additional sources of funding, including current
customer contracts as well as the Company’s ability to raise additional capital through the Company’s issuance of Class A
common stock. As noted in subsequent event, Note 15, on April 20, 2023 net proceeds of approximately $10.2 million through a public offering
of the Company’s Class A common stock. These alleviated the substantial doubt, and we believe the Company will be sufficiently
funded to meet its planned expenditures and to meet the Company’s obligations for at least the one-year period following its consolidated
financial statement issuance date.
Principles
of Consolidation
The
consolidated financial statements include the variable interest entity (“VIE”), Aurea Alas Limited (“Aurea”),
of which we are the primary beneficiary. Aurea is a Limited company organized in the Isle of Man, which entered into a license agreement
with a third party vendor, whereby they licensed the rights to use certain available radio frequency spectrum for satellite communications.
All intercompany transactions and balances have been eliminated on consolidation.
For
entities determined to be VIEs, an evaluation is required to determine whether the Company is the primary beneficiary. The Company evaluates
its economic interests in the entity specifically determining if the Company has both the power to direct the activities of the VIE that
most significantly impact the VIE’s economic performance (“the power”) and the obligation to absorb losses or the right
to receive benefits that could potentially be significant to the VIE (“the benefits”). When making the determination on whether
the benefits received from an entity are significant, the Company considers the total economics of the entity, and analyzes whether the
Company’s share of the economics is significant. The Company utilizes qualitative factors, and, where applicable, quantitative
factors, while performing the analysis.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period. Some of these judgments can be subjective and complex, and, consequently, actual
results may differ from these estimates. Examples of estimates and assumptions include: for revenue recognition, determining the nature
and timing of satisfaction of performance obligations, the fair value of and/or potential impairment of property and equipment; product
life cycles; useful lives of our property and equipment; allowances for doubtful accounts; the market value of, and demand for, our inventory;
fair value calculation of warrant; and the potential outcome of uncertain tax positions that have been recognized in our consolidated
financial statements or tax returns.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market
funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company
had no cash equivalents at March 31, 2023 and December 31, 2022.
Periodically,
the Company may carry cash balances at financial institutions more than the federally insured limit of $250,000 per institution. The
amount in excess of the FDIC insurance as of March 31, 2023, was approximately $2.5 million. The Company has not experienced losses on
these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these
deposits is not significant.
Contract
Assets and Contract Liabilities
The
amounts included within contract assets and contract liabilities are related to the company’s long-term construction contracts.
Retainage for which the company has an unconditional right to payment that is only subject to the passage of time is classified as contracts
receivable. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities on
a net basis at the individual contract level. Contract assets represent revenue recognized in excess of amounts paid or payable (contracts
receivable) to the company on uncompleted contracts. Contract liabilities represent the company’s obligation to perform on uncompleted
contracts with customers for which the company has received payment or for which contracts receivable are outstanding.
Property
and Equipment
Property
and equipment, consisting mostly of plant and machinery, motor vehicles, computer equipment and capitalized research and development
equipment, is recorded at cost reduced by accumulated depreciation and impairment, if any. Depreciation expense is recognized over the
assets’ estimated useful lives of three - ten years using the straight-line method. Major additions and improvements are capitalized
as additions to the property and equipment accounts, while replacements, maintenance and repairs that do not improve or extend the life
of the respective assets, are expensed as incurred. Estimated useful lives are periodically reviewed and, when appropriate, changes are
made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment
may be performed on the recoverability of the carrying amounts.
Fair
Value Measurements
The
Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring
basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.
The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining
fair value. The three tiers are defined as follows:
|
● |
Level
1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
|
|
|
|
● |
Level
2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace
for identical or similar assets and liabilities; and |
|
|
|
|
● |
Level
3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The
Company’s financial instruments, including cash, accounts receivable, prepaid expense and other current assets, accounts payable
and accrued liabilities, and loans payable, are carried at historical cost. At March 31, 2023 and December 31, 2022, the carrying amounts
of these instruments approximated their fair values because of the short-term nature of these instruments.
Revenue
Recognition
The
Company adopted ASC 606 – Revenue from Contracts with Customers using the modified retrospective transition approach. The core
principle of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. The
Company’s updated accounting policies and related disclosures are set forth below, including the disclosure for disaggregated revenue.
The impact of adopting ASC 606 was not material to the Consolidated Financial Statements.
Revenue
from the Company is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers
in return for expected consideration and includes the following elements:
|
● |
executed
contracts with the Company’s customers that it believes are legally enforceable; |
|
● |
identification
of performance obligations in the respective contract; |
|
● |
determination
of the transaction price for each performance obligation in the respective contract; |
|
● |
Allocation
of the transaction price to each performance obligation; and |
|
● |
recognition
of revenue only when the Company satisfies each performance obligation. |
These
five elements, as applied to each of the Company’s revenue category, is summarized below:
Revenues
from fixed price contracts that are still in progress at month end are recognized on the percentage-of-completion method, measured by
the percentage of total costs incurred to date to the estimated total costs for each contract. This method is used because management
considers total costs to be the best available measure of progress on these contracts. Revenue from fixed price contracts and time-and-materials
contracts that are completed in the month the work was started are recognized when the work is shipped. To achieve this core principle,
we apply the following five steps: identify the contract with the client, identify the performance obligations in the contract, determine
the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the
Company satisfies a performance obligation.
Revenues
from fixed price service contracts that contain provisions for milestone payments are recognized at the time of the milestone being met
and payment received. This method is used because management considers that the payments are nonrefundable unless the entity fails to
perform as promised. If the customer terminates the contract, the Company is entitled only to retain any progress payments received from
the customer and the Company has no further rights to compensation from the customer. Even though the payments made by the customer are
nonrefundable, the cumulative amount of those payments is not expected, at all times throughout the contract, to at least correspond
to the amount that would be necessary to compensate the Company for performance completed to date. Accordingly, the Company accounts
for the progress under the contract as a performance obligation satisfied at a point in time. To achieve this core principle, we apply
the following five steps: identify the contract with the client, identify the performance obligations in the contract, determine the
transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company
satisfies a performance obligation.
Recent
Accounting Pronouncements
In
June 2022, the FASB issued ASU 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security
is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments
in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning
after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard
on its consolidated financial statements.
The
Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will
have a material impact on its financial statements.
Note
3. Variable Interest Entity
The
consolidated financial statements include Aurea Alas Limited, which is a variable interest entity of which we are the primary beneficiary,
and on August 26, 2020, the Company entered into a licensing agreement with Aurea. Aurea is a Limited company organized in the Isle of
Man, which entered into a license agreement with a third-party vendor, whereby they licensed the rights to use certain available radio
frequency spectrum for satellite communications. The Company is responsible for 100% of the operations of Aurea and derives 100% of the
net profits or losses derived from the business operations. The assets, liabilities and the operations of Aurea from the date of inception
(July 20, 2020), were included in the Company’s consolidated financial statements.
Through
a declaration of trust, 100% of the voting rights of Aurea’s shareholders have been transferred to the Company so that the Company
has effective control over Aurea and has the power to direct the activities of Aurea that most significantly impact its economic performance.
There are no restrictions on the consolidated VIE’s assets and on the settlement of its liabilities and all carrying amounts of
VIE’s assets and liabilities are consolidated with the Company’s financial statements.
If
facts and circumstances change such that the conclusion to consolidate the VIE has changed, the Company shall disclose the primary factors
that caused the change and the effect on the Company’s financial statements in the periods when the change occurs.
As
of March 31, 2023 and December 31, 2022, Aurea’s assets and liabilities are as follows:
Schedule
of Variable Interest Entities Assets and Liabilities
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Assets | |
| | | |
| | |
Cash | |
$ | 77,128 | | |
$ | 76,517 | |
Prepaid and other current assets | |
| 9,231 | | |
| 11,394 | |
Total Assets | |
$ | 86,359 | | |
$ | 87,911 | |
| |
| | | |
| | |
Liability | |
| | | |
| | |
Accounts payable and other current liabilities | |
$ | 28,430 | | |
$ | 29,005 | |
For
the three months ended March 31, 2023 and 2022, Aurea’s net loss was $976 and $32,107 respectively.
Note
4. Prepaid expense and Other current assets
As
of March 31, 2023 and December 31, 2022, prepaid expense and other current assets are as follows:
Schedule
of Prepaid Expense and Other Current Assets
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Prepaid insurance | |
$ | 716,789 | | |
$ | 994,450 | |
Prepaid components | |
| 1,032,038 | | |
| 950,679 | |
Prepaid satellite services & licenses | |
| 2,723,946 | | |
| 1,367,125 | |
Prepaid software | |
| 108,500 | | |
| 107,000 | |
Other current assets | |
| 16,378 | | |
| 57,494 | |
Total | |
$ | 4,597,651 | | |
$ | 3,476,748 | |
During
the three months ended March 31, 2023 and 2022, the Company recorded interest expense of $6,325 and $5,875 related to financing of our
prepaid insurance policies.
Note
5. Inventory
As
of March 31, 2023 and December 31, 2022, inventory is as follows:
Schedule
of Inventory
| |
March 31,
2023 | | |
December 31,
2022 | |
| |
| | | |
| | |
Work in Process | |
$ | 806,289 | | |
$ | 583,437 | |
Note
6. Property and Equipment
At
March 31, 2023 and December 31, 2022, property and equipment consisted of the following:
Schedule
of Property and Equipment
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Office equipment | |
$ | 17,061 | | |
$ | 17,061 | |
Computer equipment | |
| 41,233 | | |
| 37,296 | |
Vehicle | |
| 28,143 | | |
| 28,143 | |
Software | |
| 158,212 | | |
| 158,212 | |
Machinery | |
| 3,436,011 | | |
| 3,386,111 | |
Leasehold improvements | |
| 391,167 | | |
| 372,867 | |
R&D software | |
| - | | |
| 386,182 | |
Construction in progress | |
| 2,958,729 | | |
| 1,497,276 | |
Property and equipment, gross | |
| 7,030,556 | | |
| 5,883,148 | |
Accumulated depreciation | |
| (3,331,516 | ) | |
| (3,328,156 | ) |
Property and equipment, net of accumulated depreciation | |
$ | 3,699,040 | | |
$ | 2,554,992 | |
As
of March 31, 2023 and December 31, 2022, construction in progress represents components to be used in the manufacturing of our satellites.
Depreciation
expense of property and equipment for the three months ended March 31, 2023 and 2022 is $3,361
and $105,211,
respectively, of which $43,696
and $84,120
are included as components of cost of revenue.
During
the three months ended March 31, 2023 and 2022, the Company purchased assets of $1,147,409 and $541,264, respectively.
Note
7. Accounts payable and other current liabilities
At
March 31, 2023 and December 31, 2022, accounts payable and other current liabilities consisted of the following:
Schedule
of Accounts payable and other current liabilities
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Accounts payable | |
$ | 3,001,268 | | |
$ | 1,483,467 | |
Payroll liabilities | |
| 926,011 | | |
| 820,451 | |
Credit cards | |
| 74,220 | | |
| 44,650 | |
Other payable | |
| 175,396 | | |
| 239,110 | |
Insurance payable | |
| 573,673 | | |
| 828,167 | |
Total accrued expenses
and other liabilities | |
$ | 4,750,568 | | |
$ | 3,415,845 | |
Note
8. Asset-based loan
The
Company is party to a recourse loan and security agreement with an unrelated lender whereby the lender will provide loans secured by
certain accounts receivable for up to 90% of the face amount, which is paid to the Company in the form of a cash advance. The Company
has a revolving line-of-credit for $2 million with a loan interest rate of 15.2% annum on outstanding balances. Additionally, in the
event of default the Lender at its option can increase the loan interest rate by 5% per annum for each month or partial month default
on outstanding balances. Under the loan and security agreement, the Company must pay back any invoices that become uncollectable. As
of March 31, 2023 and December 31, 2022, the asset-based loan was $1,138,260 and $502,349, respectively. For the three months ended March
31, 2023, the costs and interest incurred by the Company in connection with the loan and security agreement activities were $40,933.
Note
9. Contract assets and liabilities
At
March 31, 2023 and December 31, 2022, contract assets and contract liabilities consisted of the following:
Schedule
of Contract Assets and Liabilities
Contract assets | |
March 31,
2023 | | |
December 31,
2022 | |
| |
| | |
| |
Revenue recognized in excess of amounts paid or payable (contracts receivable) to the company on uncompleted contracts (contract asset), excluding retainage | |
$ | - | | |
$ | - | |
Retainage included in contract assets due to being conditional on something other than solely passage of time | |
| 60,932 | | |
| 60,932 | |
Retainage included in contract assets due to being conditional on something other than solely passage of time – related party | |
| 21,859 | | |
| 14,982 | |
Total contract assets | |
$ | 82,791 | | |
$ | 75,914 | |
Contract liabilities | |
March 31,
2022 | | |
December 31,
2022 | |
| |
| | |
| |
Payments received or receivable (contracts receivable) in excess of revenue recognized on uncompleted contracts (contract liability), excluding retainage | |
$ | - | | |
$ | - | |
Retainage included in contract liabilities due to being conditional on something other than solely passage of time | |
| 60,932 | | |
| 60,932 | |
Retainage included in contract liabilities due to being conditional on something other than solely passage of time – Related party | |
| 21,859 | | |
| 14,982 | |
Total contact liabilities | |
$ | 82,791 | | |
$ | 75,914 | |
Note
10. Leases
Operating
lease
We
have a noncancelable operating lease entered in November 2016 for our office facility that expires in July 2021 and has renewal options
to May 2024. The monthly “Base Rent” is $10,392 and the Base Rent is increased by 2.5% each year. During the year ended December
31, 2021, the Company exercised its option and extended the lease to May 31, 2024. As of March 31, 2023 and December 31, 2022, the remaining
right of use asset was $21,604 and $53,697, respectively, and the remaining lease liability was $22,566 and $56,103, respectively.
In
May 2021, we entered into a new lease agreement for our office and warehouse space that expires in May 2024. The Company shall have the
option to terminate the lease after 12 months and 24 months from the commencement date. The monthly “Base Rent” is $11,855
and the Base Rent may be increased by 2.5% each year. As of March 31, 2023 and December 31, 2022, the remaining right of use asset was
$162,651 and $196,240, respectively, and the remaining lease liability was $171,264 and $206,365, respectively.
We
recognized total lease expense of approximately $86,387 and $84,999 for the three months ended March 31, 2023 and 2022, respectively,
primarily related to operating lease costs paid to lessors from operating cash flows. As of March 31, 2023 and December 31, 2022, the
Company recorded a security deposit of $10,000 included in Other assets on the balance sheet.
Future
minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at March 31, 2023 were
as follows:
Summary
of Future Minimum Lease Payments Under Operating Leases
| |
Total | |
Year Ended December 31, | |
| | |
2023 - Remaining nine months | |
$ | 134,708 | |
2024 | |
| 63,835 | |
Thereafter | |
| - | |
Total undiscounted lease payments | |
| 198,543 | |
Less: Imputed interest | |
| (4,713 | ) |
Operating lease liabilities | |
| 193,830 | |
| |
| | |
Operating lease liability - current | |
| 168,349 | |
Operating lease liability - non-current | |
$ | 25,481 | |
The
following summarizes other supplemental information about the Company’s operating lease as of March 31, 2023:
Summary
of Other Supplemental Information
Weighted average discount rate | |
| 4.91 | % |
Weighted average remaining lease term (years) | |
| 1.05 | |
Note
11. Notes Payable
Decathlon
Note
On
December 1, 2021, we entered into a Loan Assignment and Assumption Agreement, or Loan Assignment, with Decathlon Alpha IV, L.P., or Decathlon
and Craig Technical Consulting, Inc (“CTC”) pursuant to which we assumed $1,106,164 in loans (the “Decathlon Note”)
to CTC by Decathlon. In connection with our assumption of the Decathlon Note, CTC reduced the principal of the Note Payable – related
party by $1.4 million. The Company recorded a reclassification of $1,106,164 from Note Payable – related party to Note payable
– non- current (Decathlon note) and recorded forgiveness of note payable – related party of $293,836.
Management
believes that the assumption of the Decathlon Note from CTC is in our best interests because in connection therewith, Decathlon released
us from a cross-collateralization agreement it was a party to with CTC for a loan of a greater amount. Also in connection with the Loan
Assignment on December 3, 2021, we entered into a Revenue Loan and Security Agreement, or RLSA, with Decathlon and our CEO, Carol Craig,
pursuant to which we pay interest based on a minimum rate of one (1) times the amount advanced and make monthly payments based on a percentage
of our revenue calculated as an amount equal to the product of (i) all revenue for the immediately preceding month multiplied by (ii)
the Applicable Revenue Percentage, defined as 4% of revenue for payments due during any month. The Decathlon Note is secured by our assets
and is guaranteed by CTC and matures the earliest of: (i) December 9, 2023, (ii) immediately prior to a change of control, or (iii) upon
an acceleration of the obligations due to a default under the RLSA.
During
the three months ended March 31, 2023 and 2022, the Company recorded interest expense of $181,203 and $46,796, respectively, which included
an additional accrual estimate based on the principal and accrued but unpaid interest payment due when the note matures, and made payments
of $92,483 and $34,627, respectively. As of March 31, 2023 and December 31, 2022, the Company recorded principal amount and accrued interest
of $1,687,870 and $1,599,150 on the balance sheet, respectively. At maturity the Company will be required to pay approximately $2.2M
representing the Decathlon Note and accrued but unpaid interest.
Note
12. Related Party Transactions
Revenue
and Accounts Receivable
The
Company recognized revenue of $348,903 and $438,947 for the three months ended March 31, 2023 and 2022 and accounts receivable of $306,676
and $168,170 and contract asset and liability of $21,859 and $14,982 as of March 31, 2023 and December 31, 2022, respectively, from contracts
entered into by Craig Technical Consulting, Inc, its majority shareholder, and subcontracted to the Company for four customers.
Accounts
Payable
As
of March 31, 2023 and December 31, 2022, the Company owed $541,991 and $566,636 to Craig Technical Consulting, Inc. Advances are unsecured,
due on demand and non-bearing-interest.
Cost
of Revenue
For
the three months ended March 31, 2023 and 2022, the Company recorded cost of revenue to Craig Technical Consulting, Inc. of $0 and $0,
and general and administrative expense of $0 and $0, respectively.
Professional
Service Agreements
A
Professional Services Agreement, effective November 15, 2021, was made, between the Company and Craig Technical Consulting, Inc. The
period of performance for this Agreement was December 1, 2021, through November 30, 2022. The Agreement was amended and the term of the
Agreement was extended to November 30, 2023.
During
the three months ended March 31, 2023 and 2022, the Company recorded professional services of $19,634 and $32,296, respectively.
Sublease
On
August 1, 2021, the Company entered into a Sublease Agreement with its related party Majority Shareholder (“Sublandlord”),
whereby the Company shall sublease certain offices, rooms and shared use of common spaces located at 150 Sykes Creek Parkway, Merritt
Island, FL. The Lease is a month-to-month lease and may be terminated with 30 days’ notice to the Sublandlord. The monthly rent
is $4,570 from inception through January 31, 2022, $4,707 from February 1, 2022 to January 31, 2023 and $4,847 from February 1, 2023
to January 31, 2024. During the three months ended March 31, 2023 and 2022, the Company recorded $14,401 and $13,984 to lease expenses,
respectively.
Note
13. Commitments and Contingencies
Litigation
The
Company is currently involved in various civil litigation in the normal course of business none of which is considered material.
License
Agreement
The
consolidated financial statements include Aurea Alas Limited, which is a variable interest entity of which we are the primary beneficiary
(see Note 3). On August 18, 2020, Aurea entered into a license agreement with a third-party vendor (the “Vendor”), whereby
they licensed the rights to use certain available radio frequency spectrum for satellite communications. The Company shall pay an annual
Reservation Fee of $120,000 while the Company pursues up to four (4) NGSO satellite filing(s) via the Vendor. The Reservation Fee is
levied on the date the filing(s) is received at the International Telecommunication Union (ITU). The Reservation Fee is payable annually
at the anniversary of the date of receipt, as long as the customer retains the NGSO filing(s). The Reservation Fee payment continues
to be payable until any of the frequency assignments of the NGSO filing(s) are brought into use. Upon the submission to the ITU to bring
into use any of the frequency assignments of a given constellation, an annual License Fee of $120,000 shall be paid in lieu of the Reservation
Fee. On February 1, 2021, the Vendor submitted the license filing to the ITU and on April 6, 2021, the ITU published the license filing
for LIZZIE IOMSAT. Payments began in February 2021. For the three months ended March 31, 2023 and 2022 the Company recorded payments
of $30,000 in Other General and Administrative expenses.
Note
14. Stockholder’s Equity
Authorized
Capital Stock
The
Company has authorized 5,000,000 shares of preferred stock with a par value of $0.0001.
The
Company has authorized 110,000,000 shares of common stock with a par value of $0.0001, consisting of 100,000,000 shares of Class A Common
Stock and 10,000,000 shares of Class B Common Stock. The Class B Common Stock is entitled to 10 votes for every 1 vote of the Class A
Common Stock.
Class
A Common Stock
On
January 30, 2023, the Company offered an aggregate of up to 2,640,000 shares of our Class A common stock and pre-funded warrants to purchase
up to an aggregate 12,360,000 shares of Class A common stock. In addition, the company issued 2,250,000 prefunded warrants to cover over-allotments.
All pre-funded warrants were exercised and total issued stock in this offering was 17,250,000 aggregate shares of Class A common stock.
The purchase price for each share of Class A common stock was $0.30. Warrants equal to 4% of the number of securities issued by the Company
in the offering were issued to the underwriter at an exercise price of 125% of the offering price per share. Gross proceeds from the
offering were approximately $5.2 million, and net proceeds of approximately $4.6 million after underwriter expenses.
Class
B Common Sock
The
Company had 10,000,000 shares of Class B common stock issued and outstanding as of March 31, 2023 and December 31, 2022.
Pre-funded
Warrants
For
the three months ended March 31, 2023, the Company issued a total of 14,610,000 pre-funded warrants for a period of five years at an
exercise price per share of $0.30 in connection with the common stock sold. These warrants were fully exercised into Class A Common stock
as part of the offering previously described.
In
addition, the Company issued a total of 690,000 underwriter warrants for a period of five years at an exercise price per share of $0.375
in connection with the common stock sold. Upon the issuance of the warrants as compensation of its services as underwriters, the warrants
were categorized as equity and the fair value of $566,229 was recorded as finance expense.
The
Company utilizes the Black-Scholes model to value its warrants. The Company utilized the following assumptions:
Schedule
of Warrant Valuation Assumption
| |
Three Months Ended | |
| |
March 31, | |
| |
2023 | |
Expected term | |
| 5 years | |
Expected average volatility | |
| 182 | % |
Expected dividend yield | |
| - | |
Risk-free interest rate | |
| 3.96 | % |
A
summary of activity of the warrants during the three months ended March 31, 2023 as follows:
Schedule
of Activity of Warrants
| |
Number of | | |
Weighted Average | | |
Average | |
| |
warrants | | |
Exercise Price | | |
Life (years) | |
Outstanding, December 31, 2022 | |
| - | | |
$ | - | | |
| - | |
Granted | |
| 14,610,000 | | |
| 0.30 | | |
| 5.00 | |
Granted | |
| 690,000 | | |
| 0.375 | | |
| 5.00 | |
Expired | |
| - | | |
| - | | |
| - | |
Exercised | |
| (14,610,000 | ) | |
| 0.30 | | |
| 5.00 | |
Outstanding, March 31, 2023 | |
| 690,000 | | |
$ | 0.375 | | |
| 4.84 | |
The
intrinsic value of the warrants as of March 31, 2023 $121,509. All of the outstanding warrants are exercisable as of March 31, 2023.
Note
15. Subsequent Events
On
April 20, 2023, the Company sold an aggregate of 8,572,018
shares of our Class A Common Stock and pre-funded warrants to purchase up to an aggregate 21,731,012
shares of Class A Common Stock and warrants to purchase up to 30,303,030
shares of Class A Common Stock. In addition, the Company sold 3,787,874
shares of Class A Common Stock and 3,787,874
of accompanying warrants to purchase shares of Class A Common Stock pursuant to the partial exercise of the underwriter’s
over-allotment option. 2.7
million of pre-funded warrants were exercised as of May 12, 2023, and the total number of Class A Common Shares issued in this
offering was 15,059,892.
The purchase price for each share of Class A Common Stock and accompanying warrant was $0.33. Warrants
equal to 3% of the number of securities issued by the Company in the offering at an exercise price of 125% of the offering price per
share was issued to the underwriter. Gross proceeds from the offering were approximately $11.2
million, and net proceeds of approximately $10.2
million after underwriting discounts and commissions and estimated offering expenses payable by us.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking
Statements and Industry Data
This
Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions 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”). These statements may be identified by such forward-looking terminology as “may,”
“should,” “expects,” “intends,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other
comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections
about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually
achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements
involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
|
● |
our
projected financial position and estimated cash burn rate; |
|
|
|
|
● |
our
estimates regarding expenses, future revenues and capital requirements; |
|
|
|
|
● |
our
ability to continue as a going concern; |
|
|
|
|
● |
our
need to raise substantial additional capital to fund our operations; |
|
|
|
|
● |
our
ability to compete in the global space industry; |
|
|
|
|
● |
our
ability to obtain and maintain intellectual property protection for our current products and services; |
|
|
|
|
● |
our
ability to protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce
or protect our intellectual property rights; |
|
|
|
|
● |
the
possibility that a third party may claim we have infringed, misappropriated or otherwise violated their intellectual property rights
and that we may incur substantial costs and be required to devote substantial time defending against these claims; |
|
|
|
|
● |
our
reliance on third-party suppliers and manufacturers; |
|
|
|
|
● |
the
success of competing products or services that are or become available; |
|
|
|
|
● |
our
ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; |
|
|
|
|
● |
the
potential for us to incur substantial costs resulting from lawsuits against us and the potential for these lawsuits to cause us to
limit our commercialization of our products and services; |
All
of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ
materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will
prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties
referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other
documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially
and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake
or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or
projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form
10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public
statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements
contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form
10-Q.
This
Quarterly Report on Form 10-Q may contain estimates and other statistical data made by independent parties and by us relating to market
size and growth and other data about our industry. We obtained the industry and market data in this annual report on Form 10-Q from our
own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a
number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we
operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not
to give undue weight to such projections, assumptions, and estimates. Further, industry and general publications, studies and surveys
generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness
of such information. While we believe that these publications, studies, and surveys are reliable, we have not independently verified
the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such
results and estimates have not been verified by any independent source.
You
should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim
consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical
information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our
actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as may be amended, supplemented or superseded from time to time
by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Throughout
this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” “Sidus,”
or “Sidus Space” refer to Sidus Space, Inc., individually, or as the context requires, collectively with its subsidiary.
Overview
Description
of Business
Founded
in 2012, we are a vertically integrated provider of Space and Defense-as-a-Service solutions including end-to-end satellite support.
The Company combines complex mission critical hardware manufacturing; multi-disciplinary engineering services; and satellite and earth
observation/remote sensing solutions with a vision to lead the growth of the space ecosystem by enabling space flight heritage status
for new technologies and delivering data and predictive analytics to both domestic and global customers. Our advanced space-based data
offering will provide imagery in hyperspectral, multispectral and visible bands based upon latest industry needs such as weather, greenhouse
gasses, agriculture and supply chain tracking, We have over a decade of commercial, military and government manufacturing experience
combined with a proven track record of success, space qualification experience, existing customers and pipeline, and heritage hardware.
We provide solutions for both government and commercial in-space missions for all destinations through the solar system, not just LEO.
We
are developing, building, launching and operating a multi-mission constellation of company-owned Earth observation/remote sensing satellites
using our multi-mission hybrid 3D printed multipurpose satellites. We have designed and are manufacturing LizzieSat (LS) for our LEO
satellite constellation operating in diverse orbits (28°-98° inclination, 300-650km altitude) as approved by the International
Telecommunication Union (ITU) in February 2021. LS is expected to begin operations in 2023. Initial launches are planned via SpaceX launch
service rideshare contracts and the NASA CRS2 program agreement. We have secured a number of rideshare opportunities with SpaceX and
continue to evaluate additional launch providers to ensure robust access to space for our mission and our customers Each LS is 100kg
with up to 35kg dedicated to customer payload requirements including Sidus owned remote sensing instruments for space-based data collection.
Payloads (Sidus or customer owned) can collect data over multiple Earth based locations, record it onboard, and downlink via ground passes
to the Sidus Mission Control Center (MCC) in Merritt Island, FL. We have executed multiple agreements for global ground station coverage
with leading providers of services along with ample backhaul cloud storage services to provide reduced data aging and persistent refresh.
Products
and Services
Leveraging
our existing manufacturing operations and facilities, flight hardware manufacturing experience and space proven commercial-off-the-shelf
(COTS) subsystem hardware, we believe we can deliver customer sensors to orbit in months, rather than years. In addition, we intend on
delivering high-impact data and actionable intelligence for insights on aviation, maritime, weather, space services, earth intelligence
and observation, financial technology (Fintech) and the Internet of Things. While our business has historically been centered on the
design and manufacture of space hardware, our expansion into manufacture of spacecraft as well as on-orbit constellation management services
and space data applications has led us to innovating in the area of space data applications. We continue to patent our products including
our satellites, external platforms and other innovations.
Our
end-to-end space and defense solutions include the following product and services offerings:
|
● |
Mission
Critical Hardware Manufacturing: Our Manufacturing as a Service offering is built upon a proven track record of success supporting
multiple large U.S. Government space programs and demonstrates our deep knowledge of the industry. Our flight and ground heritage
experience provides us with lessons learned that we believe positions us to avoid many of the challenges and issues that many start
up space companies have and will likely undergo during their initial phases of growth and operation. |
|
|
|
|
● |
Multi-Disciplinary
Engineering Services: Our Operations as a Service offering not only provides engineering and subject matter experience solutions
but also management, operations and transfer of information from customer-owned on-orbit satellites via our in-house mission operations
center in Merritt Island, Florida. |
|
|
|
|
● |
Satellite
Design, Production, Launch Planning, Mission Operations, and In-Orbit Support: We provide both customer requested and Sidus owned
integrated design, manufacture, test and assembly of satellites to meet the needs of customer missions. Our manufacturing facilities
are located in Cape Canaveral, Florida and include traditional machining, 3D printing, cable and wire harness assembly and cleanroom
operations as part of our ground infrastructure. Additionally, we provide customers assistance with the launch of satellites and
sensors into space by identifying and securing launch opportunities with launch providers or integrating customer sensors into our
own satellite constellation and coordinating and managing all activities leading up to launch. We launch software, payloads and dedicated
satellite constellations for our customers that we own and manage on their behalf. Similar to our data and analytics services, our
customers have the opportunity to subscribe to the data that is collected during orbit operations. |
|
|
|
|
● |
On-Orbit
Testing of Space Ecosystem Technologies and Hardware: Our Satellite as a Service offering provides hosted payload options using
available capacity on our satellites to accommodate additional transponders, instruments, or other space sensors. This offering enables
our customers, both commercial and government organizations, to rapidly, reliably, and cost efficiently prove out technologies for
space operations. |
|
|
|
|
● |
Data
and Analytics Derived from Satellite Missions: Our Data as a Service offering uses our Space-based infrastructure of multi-mission
satellites with hyperspectral, multi-spectral and other sensors to provide monitoring services and solutions to multiple sectors
and industries. The global proprietary data that we expect to collect includes data captured from space with no exact terrestrial
alternatives, however, we believe that integration with terrestrial data will provide a more valuable data set for customers. Data
of this type is collected once and can be sold to multiple customers and consumers across a growing set of industries including weather,
agriculture, maritime and oil and gas. Near real-time data can be easily integrated into our existing and proposed customers’
operations and provide unique aggregated datasets through a recurring subscription as a service model. |
Each
of these areas and initiatives addresses a critical component of our end-to-end solution and value proposition for the space economy
as a Space and Defense-as-a-Service company. The majority of our revenues to date have been from our space related hardware manufacturing,
however, 2022 and 2023 revenue includes revenue related to our multi-mission constellation and our hybrid 3D printed LizzieSat satellite.
As part of our business strategy, we may expand our offerings from time to time to include the growth of our complex, mission critical
hardware manufacturing services to focus on supporting additional launch vehicles for Moon and Mars access.
We
support a broad range of international and domestic governments and commercial companies with hardware manufacturing including the Netherlands
Organization, U.S. Department of State, the U.S. Department of Defense, NASA, Collins Aerospace, Lockheed Martin, Teledyne Marine, Bechtel,
and L3Harris in areas that include launch vehicles, satellite hardware, and autonomous underwater vehicles. Planned services that benefit
current and future customers include delivering space-based data that can provide critical insight for agriculture, commodities tracking,
disaster assessment, illegal trafficking monitoring, energy, mining, oil and gas, fire monitoring, classification of vegetation, soil
moisture, carbon mass, Maritime AIS, Aviation ADS, and weather monitoring; providing the ability for customers to demonstrate that a
technology (hardware or software) performs successfully in the harsh environment of space and delivering space services. We plan to own
and operate one of the industry’s leading U.S. based low earth orbit (“LEO”) small satellite (“smallsat”
or “smallsats”) constellations focused on earth observation and remote sensing. Our operating strategy is to continue to
enhance the capabilities of our satellite constellation, to increase our international and domestic partnerships and to expand our analytics
offerings in order to increase the value we deliver to our customers. Our two operating assets—our satellite constellation and
hardware manufacturing capability—are mutually reinforcing and are a result of years of heritage and innovation.
Key
Factors Affecting Our Results and Prospects
We
believe that our performance and future success depend on several factors that present significant opportunities but also pose risks
and challenges, including competition from better known and well-capitalized companies, the risk of actual or perceived safety issues
and their consequences for our reputation and the other factors discussed under “Risk Factors.” We believe the factors discussed
below are key to our success.
Growing
our experienced space hardware operations
We
are on track to grow our space and defense hardware operations, with a goal of expanding to two and a half shifts with an increased customer
base in the future. With current customers in space, marine, and defense industries, our contract revenue is growing, and we are in active
discussions with numerous potential customers, including government agencies, large defense contractors and private companies, to add
to our contracted revenue. In the past decade, we have fabricated Ground and Flight products for the NASA SLS Rocket and Mobile Launcher
as well as other Commercial Space and Satellite companies. Customers supported include Boeing, Lockheed Martin, Northrop Grumman, Dynetics/Leidos,
Blue Origin, United Launch Alliance, Collins Aerospace, L3Harris, OneWeb and Space Systems Loral/Maxar. Various products have been manufactured
including fluid, hydraulic and pneumatic systems, electrical control systems, cable harnesses, hardware lifting frames, umbilical plates,
purge and hazardous gas disconnects, frangible bolts, reef cutters, wave guides, customized platforms, and other precision machined and
electrical component parts for all types of Rockets, Ground, Flight and Satellite systems.
Commencing
and Expanding Commercial Satellite Operations
Our
goal is to help customers understand how space-based data can be impactful to day-to-day business. Our strategy includes increasing the
demand downstream by starting out as end user focused. While others are focused on data verticalization strategy specializing on a key
sectors or problem set, we believe that flexibility in production, low-cost bespoke design and ‘Bringing Space Down to Earth’
for consumers will provide a scalable model for growth. With LizzieSat design reviews (PDR and CDR) successfully completed in 2022, we
began LizzieSat integration and testing in Q1 2023. We completed critical command and data system testing which validated the proper
functioning of the communications and data transfer paths between a LizzieSat satellite in space and the KSAT ground stations, a requirement
for mission success of the LizzieSat™ constellation.
In
Q1 2023 we signed an agreement with SkyWatch for use of its TerraStream data-management platform. This agreement is expected
to accelerate the expansion of Sidus’ commercial data distribution strategy, which includes white labeling data for the Company’s
existing customers as well as driving growth of new data customers. Serving as a key contributor to the Space data marketplace, the agreement
is expected to generate additional revenue for the Company and engage customers that otherwise may not have connected with Sidus. We
also announced an agreement to integrate EdgeAI capabilities into our planned constellation with ExoSpace’s FeatherEdge AI platform
which will enable us to deliver near real-time intelligence derived from Earth Observation data. Further expanding the capabilities of
our constellation, we announced an agreement with SatLab to implement its second-generation automated identification system (AIS) technology
into the LizzieSat™ satellite constellation. AIS technology uses sophisticated systems on board marine vessels to identify and
track ships to prevent collisions and protect life at sea. The integration of this technology into Sidus’s satellites will enable
more accurate vessel tracking and monitoring while providing valuable information about ship movements in real time.
In
January 2023, we were awarded a follow-on agreement for the next phase of NASA’s Autonomous Satellite Technology for Resilient
Applications (ASTRA) project. During this phase of the ASTRA project, the Autonomous Systems Lab (ASL) team at NASA’s Stennis
Space Center near Bay St. Louis, Mississippi, will join Sidus Space to integrate ASTRA’s autonomous operational on-orbit
capabilities on a Sidus-built LizzieSat satellite as the organizations transition to the operational phase of the
program.
In
February 2023, Sidus executed a multi-million dollar agreement with The Netherlands Organization for Applied Scientific Research (TNO)
to deploy and test TNO’s laser communications technology aboard a Sidus’ LizzieSat™ satellite expanding our
international presence.
We
are in active discussions with numerous potential customers, including domestic and international government agencies, for payload hosting
and data related to our planned satellite launches over the next 24 months.
We
have previously been approved for our X-band and S-band radio frequencies licensing through a published filing by the ITU on April
4, 2021. Such licenses are held through Aurea Alas, Ltd., an Isle of Man company, which is a VIE to us. Our filing contains approved
spectrum use for multiple X-Band and S-Band frequencies and six different orbital planes. In addition, we have submitted FCC
experimental license applications for our first two satellites and we plan to file for additional missions through 2024. We have
received NOAA Tier 1 licenses to fly to fly Dragon-Fly Gecko and Simera Sense Hyperscape 100 imagers on our initial satellites. We
plan to file additional NOAA licenses as additional imagers are needed. In February 2023, we announced four additional Transporter
missions with SpaceX in 2024 and 2025 which further ensures a steady launch cadence. Any delays in commencing our commercial launch
operations, including due to delays or cost overruns in obtaining NOAA licenses or other regulatory approvals for future operations
or frequency requirements, could adversely impact our results and growth plans.
Our
Vertically Integrated Space Infrastructure
We
are designing, developing, manufacturing, and planning to operate a constellation of proprietary smallsats. These satellites are designed
for multiple missions and customers and form the foundation of our satellite platform. Weighing approximately 100 kilograms each, these
hybrid 3D printed, modular satellites are more functional than cubesats and nanosatellites and less expensive to manufacture than the
larger satellites in the 200-600kg range. Launched into a LEO and operating in diverse orbits (28°-98° inclination, 300-650km
altitude) as approved by the International Telecommunication Union (ITU) in February 2021, our constellation will be optimally distributed
to provide maximum coverage for our customers in the government and commercial sectors. With six initial globally distributed ground
stations, our constellation is designed for rapid tasking, collection, and delivery of high-revisit, high-resolution imagery and data
analytics. As our satellite constellation grows, the amount of data we collect will scale, and we expect our revisit rate will improve.
Our
cost-efficient smallsats are designed from the ground-up to optimize performance per unit cost. We can integrate technologies and deliver
data on demand at lower costs than legacy providers due to our vertical integration, use of Customer Off the Shelf (COTS) proven systems,
cost-efficiencies, capital efficient constellation design, and adaptable pricing models.
We
manufacture our satellites at our Cape Canaveral facility. Our current configuration and facility is designed to manufacture 5-10 satellites
a month. Our vertical integration enables us to control our satellites through the entire design, manufacturing, and operation process.
Our years of experience manufacturing space hardware means we are able to leverage our manufacturing expertise and commercial best practices
for satellite production. Additionally, leveraging both in-house and partner-provided subsystem components and in-house design and integration
services, as well as operational support of satellites on orbit, to provide turn-key delivery of entire constellations offer “concept
to constellation” in months instead of years. Specifically, our Space and Defense-as-a-Service offerings encompass all aspects
of hosted satellite and constellation services, including hosting customer payloads onto our satellites, and delivering services to customers
from our space platform. These services are expected to allow customers to focus on developing innovative payloads rather than having
to design or develop complete satellite buses or satellites or constellations, which we will provide, along with ancillary services that
are likely to include telemetry, tracking and control (“TT&C”), communications, processing, as well as software development
and maintenance. Our patented technologies include a print head for regolith-polymer mixture and associated feedstock; a heat transfer
system for regolith; a method for establishing a wastewater bioreactor environment; vertical takeoff and landing pad and interlocking
pavers to construct same; and high-load vacuum chamber motion feedthrough systems and methods. Regolith is a blanket of unconsolidated,
loose, heterogeneous superficial deposits covering solid rock. It includes dust, broken rocks, and other related materials and is present
on Earth, the Moon, Mars, some asteroids, and other terrestrial planets and moons. We continue to patent our products including our satellites,
external platforms and other innovations.
Revenue
Generation
We
generate revenue by selling payload space on our satellite platform, providing engineering and systems integration services to strategic
customers on a project-by-project basis, and manufacturing space hardware. Additionally, we intend to add to our revenue by selling geospatial
data and actionable intelligence captured through our constellation. This support is typically contracted to both commercial and government
customers under fixed price contracts and often includes other services. Due to the size and capacity of our satellite, we are able to
host a diverse array of sensors such as Multispectral and Hyperspectral Earth Observing Imagers, Maritime Vessel RF Tracking receivers,
UHF IoT Transceivers, Optical Communications gear and others on a single platform that can simultaneously address the needs of many customer
requirements.
Lowering
Manufacturing Cost and Schedule
We
are developing a manufacturing model that provides rapid response to customer requirements including integration of customers technologies
and space-based data delivery. Our planned satellites are being designed to integrate Customer Off the Shelf (COTS) subsystems that are
space-proven, can be rapidly integrated into the satellite and replaced rapidly when customer needs change or evolve. Our vertically
integrated manufacturing processes give us the flexibility to make changes during the production cycle without impacting launch or costs.
Environmental,
social, and corporate governance
While
Environmental, Social and Governance (ESG) reporting is not mandatory, we are developing an ESG policy that will implement the tracking
of several indicators we believe are critical to ensure we are doing our part to continue sustainable growth and maximize shareholder
value. We have been in business for over ten years manufacturing space hardware and components, and in that time, implementation of policies
and processes to mitigate environmental impact have been of upmost importance. Furthermore, since our inception, we have recognized the
value of our employees and have always prioritized employee well-being through facets such as excellent benefits, programs, educational
assistance, and insurance of a safe and healthy work environment. We also understand that our efforts to promote value and well -being
are not limited to our employees. We are committed to the communities we belong to both locally and professionally. We recently started
to formalize this commitment, providing tangible benefits back to the community that supports us.
Environmental
As
the global awareness and importance of environmental sustainability increases, we recognize our duty to implement developments that not
only facilitate the evolution of aerospace solutions, but also promote environmentally conscious protocols yielding measurable results
toward the conservation of our planet. A key component of our focus on sustainability is found in our utilization of in-house 3D printing
technology as a primary manufacturing asset. The development of 3D printing is host to a variety of manufacturing improvements but perhaps
the chief benefits are seen in its reduction of environmental strain. Our LizzieSat constellation will contribute to this reduced impact
as a portion of the satellite bus is 3D printed.
Manufacturing
parts with a 3D printer reduces overall energy consumption and waste, reducing our carbon footprint compared to its predecessor of conventional
machining. Additional benefits include the removal of waste and unnecessary energy associated with conventional machining, often resulting
in the production of more scrapped material per part than the material that part is composed of. While these are the biggest impacts,
the effects too can be seen in smaller scales. Due to the massive reduction in weight 3D printing provides, energy spent using cargo ships
and commercial vehicles for transportation sees a significant decrease. This reduction in weight is accompanied by a reduction in space
requirements for housing the material, cutting out the need for large storage spaces and the energy needed to maintain those facilities.
Looking
toward the future, the potential for exciting developments in the field of sustainability are of upmost importance. These developments
include the use of more biodegradable and/or recycled materials that can be used to manufacture parts and further benefit the environment.
Until these developments occur, we are doing our part through the practice of recycling roughly 5,000 lbs. of metal a year coupled with
the recycling of any used oil and coolant. As technologies continue to advance, we remain dedicated to preserving the Earth and continuing
to evolve with newer technologies as they develop.
Social
We
recognize the importance of our employees, the community with which we are situated as well as the global community. This recognition
has led us to implement a variety of actions that support society from the individual to global scale.
Employee
well-being is at the heart of our commitment to provide a positive impact on all. With our core values being rooted in a familial and
communal structure, we uphold these values by offering our employees excellent benefits, programs, educational assistance, and insurance
of a safe and healthy work environment for all employees. We understands the importance of diversity in the workplace, because it was
built by diversity.
Community
on all scales is fundamental to our success, and because of that, we are committed to leaving a lasting impact on the community that
supports us. This commitment brought forth Sidus Serves, our way of actively improving life on earth. Community involvement is key to
our culture, and we believe in the power of volunteerism. We actively invest in the communities of our employees’ by supporting
K-12 education, providing military and veteran assistance, environmental stewardship, and volunteering at local non-profit organizations.
We, and our employees, are passionate about the improvement of their communities through individual efforts and partnership with local,
regional, and national organizations. We are proud to support local STEM programs and schools in local communities. We are focused on
bridging the gap in the aerospace field by supporting young professionals through establishing partnerships with several organizations
dedicated to providing STEM learning opportunities to a diverse array of students.
Governance
Our
governance structure is designed to promote transparency, efficiency, and ethics. Through a qualified and diverse chain of command, we
are confident that our decision making will carry out performance at the highest degree. Our Board of Directors consists of professionals
with strong executive experience, business strategy and leadership skills. Our board consists of 4 independent directors alongside our
CEO and CTO including 2 women.
Global
Space Industry Overview
In
recent years, the importance of the space economy has been growing as technological advances in both satellites and supporting terrestrial
technologies have enabled new commercial use cases. These use cases include satellite broadband, remote imaging, Internet-of-Things (“IOT”)/Machine-to-Machine
(“M2M”) communications, defense-related applications, as well as others. As a result, several new and existing operators
have announced new satellite constellations to serve these use cases. Many of these announced constellations will consist of small LEO
satellites rather than large GEO satellites. With the flux of new entrants at all levels of the value chain, the small satellite value
chain has continued to evolve, especially in the launch sector, downstream value-added applications, M&As and consolidation between
stakeholders.
The
rapid pace of innovation and technological advancements continue to drive the commercialization of space-based data, analytics, and insights,
enhancing their relevance to businesses, governments, and the general public. Furthermore, the demand for data that can be collected
from space is growing rapidly while the cost of accessing space is decreasing. Several key trends have emerged in the new space economy,
including the expansion of constellations and the availability of space-based data, the shift in user demand towards analytics and insights,
climate change adaptation, global security concerns, and advancements in on-board technologies.
According
to Citi Report 2022: Space – Dawn of a New Age: published in 2022, forecasts a $1 trillion annual revenue for the space
economy by 2040, an increase from $370 billion in 2020 with forecasts of strong growth in satellites, government space budgets, as well
as new applications and industries in the field of space exploration.1 In addition, Prospects for the Small Satellite Market
– A Euroconsult Report 8th Edition July 2022, expects that over the next decade, the total manufacturing and launch
market value for small satellites is expected to reach $84 billion, more than 3.5 times the market value over 2012-2021. Although this
indicates significant growth, it does not reflect the six-fold increase in the mass of smallsats resulting from the rise of cubesats,
constellations and the introduction of low-cost systems for both manufacturing and launch, which reduce average costs per satellite.
Rapid
growth in private investment in the commercial space industry has led to a wave of new companies reinventing major elements of the traditional
space industry, including human spaceflight, satellites, and launch, in addition to unlocking entirely new market segments. Furthermore,
government agencies have realized the value of the private commercial space industry and have become increasingly more supportive and
reliant on private companies to catalyze innovation and advance national space objectives. In the United States, this has been evidenced
by notable policy initiatives and by commercial contractors’ growing share of space activity.
Launch
Market
Space
access has traditionally been limited to those with significant capital expenditures, with launch costs remaining high, with few exceptions.
Launch costs have traditionally been the primary bottleneck impeding the development of orbital activities. The frequency and availability
of launches, while acceptable for the legacy market (several times a year), has proved paralyzing to some operators of small satellites.
Although new launch provider entrants seek to offer higher launch rates and more flexibility to small satellites, capital remains the
main barrier to entry.
After
years of launch bottlenecks, smallsats now enjoy more launch options as new launchers, brokers and smallsat dispensers become available
and facilitate access to space. According to Euroconsult, the smallsat launch market which was valued at $7.6 billion is set to grow
by +279% to $28.4 billion, however much of that launch value remains captive of national industries and vertically integrated players
(e.g., SpaceX). Since the demand for small satellites had been fragmented and considered less profitable than larger satellites, launch
providers had not actively pursued the launch business. However, this has now changed, as the launch supply has adapted rapidly.
Small
Satellite Market
Since
2018, a paradigm shift in the commercial space market has resulted in an increased demand for smallsats. Euroconsult states that Smallsats
have become smaller in size over the past few years but have gained in performance. Technical advances have allowed them to expand their
mission capabilities, making them more resilient, effective, and lower cost. Miniaturization is a continuous process that allows the
customer to choose between lighter satellites with no change in capabilities, or bigger, more powerful, and more capable satellites with
greater capabilities. Other technical enablers include, but are not limited to:
|
v |
Extension
of electrical propulsion use; |
|
v |
Miniaturization
of attitude sensors; |
|
v |
Solar
cells and batteries’ efficiency improvement; |
|
v |
COTS
solutions for bus electronics; 3D printing. |
The
demand for large geosynchronous satellites declined dramatically as companies prepared to launch constellations of smaller, cheaper broadband
satellites in low and medium Earth orbits, resulting in a dramatic decrease in demand for large geosynchronous communications satellites.
New technologies in space and space-related sectors, particularly computational technologies, and data analytics, are facilitating the
miniaturization of satellite systems, thereby improving the market. Due to this, smallsats are now able to provide operational services
previously only available through heavier satellites. Euroconsult anticipates that about 18,500 smallsats (<500 kg) will launch over
2022-2031, or about 365 tons per year, (i.e., one ton per day on average over the next 10 years).
Moreover,
the rise of this market has also created a new market segment in nanosatellites and microsatellites, weighing less than 10 kg and between
10 and 100 kg, respectively. While these satellites can be deployed individually, they can also be operated as part of a constellation,
a large group of satellites interconnected to provide a service, such as the Starlink satellite constellation’s offering of global
internet connectivity. According to Euroconsult, the smallsat manufacturing market, which was valued at $15.5 billion over 2012-2021,
is set to grow by +258% to $55.6 billion over 2022-2031, driven by the multiplication of constellation projects from both commercial
and government stakeholders. The next decade will be defined primarily by the rollout of multiple constellation projects, which will
account for 81% of smallsats, mainly for commercial operators. A total of 3,335 smallsats <10 kg are expected to launch throughout
the next decade, i.e., more than twice the 1,656 launched over 2012-2021. Satellites in this category, especially cubesats, have gained
momentum recently: 1,187 were launched in the past 5 years alone.
The
growth in the LEO satellite constellations market is being driven by technological advances in ground equipment, new business models,
expanded funding, and growing demand for high bandwidth and lower latency. Though this satellite constellations market remains nascent
in maturity, we anticipate considerable growth over the coming years in the launch industry as companies continue to seek versatile and
low-cost ways to deliver single satellites to specific orbits or deploy their satellite constellations. Furthermore, we anticipate the
growth of the satellite constellations market to contribute business to our Satellite Services offerings. LEO satellite constellations
have relatively short lifespans on orbit, resulting in a requirement to launch replenishment satellites every few years.
Results
of Operations
The
following table provides certain selected financial information for the periods presented:
Three
Months Ended March 31, 2023 compared to the Three Months Ended March 31, 2022
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Change | | |
% | |
Revenue | |
$ | 2,263,627 | | |
$ | 1,799,335 | | |
$ | 464,292 | | |
| 26 | % |
Cost of revenue | |
| 1,367,828 | | |
| 820,998 | | |
| 546,830 | | |
| 67 | % |
Gross Profit (Loss) | |
| 895,799 | | |
| 978,337 | | |
| (82,538 | ) | |
| (8 | )% |
Gross Profit Percentage | |
| 40 | % | |
| 54 | % | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Operating expense | |
| 3,542,169 | | |
| 3,242,783 | | |
| 299,386 | | |
| 9 | % |
Other expense | |
| (794,689 | ) | |
| (65,908 | ) | |
| (728,781 | ) | |
| 1106 | % |
Net loss | |
$ | (3,441,059 | ) | |
$ | (2,330,354 | ) | |
$ | (1,110,705 | ) | |
| 48 | % |
Revenue
Non-related
party revenue increased by 140% for the three months ended March 31, 2023 to approximately $1.9 million as compared to approximately
$1.36 million for the three months ended March 31, 2022 and was primarily driven by increased sales staff which allowed for more aggressive
pursuit of customers and resulted in an increase in our satellite related revenue versus prior year. Contracts increased as
a result of the timing of industry needs and proposals submitted. Revenue from related parties decreased by 21% to approximately $348,903
for the three months ended March 31, 2023 from approximately $438,947 for the three months ended March 31, 2022. This was driven by the
timing of fixed price milestone contracts and smaller contracts our related party entered into with its customers, resulting in it outsourcing
less of its work to us.
Cost
of Revenue
The
increase in cost of revenue of 67% for the three months ended March 31, 2023 to approximately $1.37 million as compared to $820,998 for
the three months ended March 31, 2022 was driven by increased materials purchases and other direct costs related to our increased revenue.
As a manufacturing entity, materials and other direct costs are a percentage of revenue. The percent change in the cost of revenue was
higher than the percent increase in revenue due to mix of contracts, increased materials purchases, and continued supply chain impacts.
Gross
Profit (Loss)
The
decrease in our gross profit of approximately $83,000 to a gross profit of approximately $896,000 for the three months ended March 31,
2023 as compared to a gross profit of approximately $978,000 for the three months ended March 31, 2022 is primarily attributable to mix
of contracts and higher supply chain related costs.
Operating
Expenses
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Change | | |
% | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Payroll expenses | |
$ | 1,716,543 | | |
$ | 751,198 | | |
$ | 965,345 | | |
| 129 | % |
Sales and marketing expenses | |
| 188,597 | | |
| 90,461 | | |
| 98,136 | | |
| 108 | % |
Lease expense | |
| 86,387 | | |
| 84,999 | | |
| 1,388 | | |
| 2 | % |
Professional fees | |
| 487,442 | | |
| 1,322,292 | | |
| (834,850 | ) | |
| (63 | )% |
General and administrative expense | |
| 1,063,200 | | |
| 993,833 | | |
| 69,367 | | |
| 7 | % |
Total | |
$ | 3,542,169 | | |
$ | 3,242,783 | | |
$ | 299,386 | | |
| 9 | % |
Overall
operating expenses increased by approximately $300,000 to approximately $3.5 million for the three months ended March 31, 2023 as compared
to approximately $3.2 million for the three months ended March 31, 2022. The increase is primarily attributed to an increase in our payroll
expenses to approximately $1.7 million from $751,198 for the three months ended March 31, 2022, as a result of an expansion of our staff
to support the needs of the business. This was partially offset by an $834,850 decrease in our professional fees to $487,442 for the
3 months ended March 31, 2023 from approximately $1.3 million as of March 31, 2022 which included a $1.2 million one-time charge in stock-based
consulting fees for investor relations.
Total
other income (expenses)
During
the three months ended March 31, 2023, we had other expense of $794,689 which included financing expense of $566,229 from warrants outstanding
related to underwriter compensation, interest expense of $187,527, consisting of approximately $181,000 related to short term debt and
$6,325 related to the financing of our insurance policies, and $40,933 of asset-based loan expense.
During
the three months ended March 31,2022 we had other expense of $65,908 related to interest expense on long term debt.
Liquidity
and Capital Resources
The
following table provides selected financial data about us as of March 31, 2023, and December 31, 2022.
| |
March 31, | | |
December 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Change | | |
% | |
Current assets | |
$ | 10,083,588 | | |
$ | 7,449,868 | | |
$ | 2,633,720 | | |
| 35 | % |
Current liabilities | |
$ | 8,369,829 | | |
$ | 6,359,052 | | |
$ | 2,010,777 | | |
| 32 | % |
Working capital (deficiency) | |
$ | 1,713,759 | | |
$ | 1,090,816 | | |
$ | 622,943 | | |
| 57 | % |
We
had an accumulated deficit of approximately $31.7 million and working capital of approximately $1.7 million as of March 31, 2023. As
of March 31, 2023, we had $2.8 million of cash.
As
of March 31, 2023 the working capital surplus is due to funds raised through equity sales in relation to our January 30, 2023 capital
raise. As of December 31, 2022 the working capital surplus was due to funds raised through financing in relation to our equity line of
credit.
Current
assets increased by approximately $2.6 million to approximately $10.1 million as of March 31, 2023 from approximately $7.4 million as
of December 31, 2022. The increase is primarily attributable to increases in cash, accounts receivable and prepaids.
Current
liabilities increased by approximately $2.0 million to approximately $8.4 million as of March 31, 2023 from approximately $6.4 million
as of December 31, 2022. The increase was primarily attributable to an increase in accounts payable and other current liabilities and
our asset-based loan liability.
On
April 20, 2023 we sold an aggregate of 8,572,018 shares of our Class A Common Stock and pre-funded warrants to purchase up to an
aggregate 21,731,012 shares of Class A Common Stock and warrants to purchase up to 30,303,030 shares of Class A Common Stock. In
addition, we sold 3,787,874 shares of Class A Common Stock and 3,787,874 of accompanying warrants to purchase shares of Class A
Common Stock pursuant to the partial exercise of the underwriter’s over-allotment option. 2.7 million of pre-funded warrants
were exercised as of May 12, 2023, and the total number of Class A Common Shares issued in this offering was 15,059,892. The
purchase price for each share of Class A Common Stock and accompanying warrant was $0.33. Warrants equal to 3% of the number of
securities issued by us in the offering at an exercise price of 125% of the offering price per share was issued to the
underwriter. Gross proceeds from the offering were approximately $11.2 million, and net proceeds of approximately $10,2 million
after underwriting discounts and commission and estimated offering expenses payable by us.
Cash Flow
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Change | | |
% | |
Cash used in operating activities | |
$ | (3,488,006 | ) | |
$ | (2,452,793 | ) | |
$ | (1,035,213 | ) | |
| 42 | % |
Cash used in investing activities | |
$ | (1,1147,409 | ) | |
$ | (541,264 | ) | |
$ | (606,145 | ) | |
| 112 | % |
Cash provided by financing activities | |
$ | 5,158,893 | | |
$ | (297,140 | ) | |
$ | 5,456,033 | | |
| (1836 | )% |
Cash on hand | |
$ | 2,818,737 | | |
$ | 10,419,648 | | |
$ | (7,600,911 | ) | |
| (73 | )% |
Cash
Flow from Operating Activities
Three
Months ended March 31, 2023 and 2022
For
the three months ended March 31, 2023 and 2022, we did not generate positive cash flows from operating activities. For the three months
ended March 31, 2023, net cash flows used in operating activities was approximately $3.49 million compared to approximately $2.45 million
during the three months ended March 31, 2022.
Cash
flows used in operating activities for the three months ended March 31, 2023 of approximately $3.5 million is comprised of a net loss
of approximately $3.4 million, which was reduced by non-cash expenses of $566,229 for the issuance of warrants as compensation of underwriters
services and $3,361 for depreciation, and an increase in net change in working capital of approximately $614,000.
For
the three months ended March 31, 2022, net cash flows used in operating activities of approximately $2.45 million comprised of a net
loss of approximately $2.3 million, which was reduced by non-cash expenses of approximately $1.3 million primarily related to one-time
stock-based compensation and depreciation, and an increase in net change in working capital of approximately $1.4 million.
Cash
Flows from Investing Activities
During
the three months ended March 31, 2023 and 2022, we purchased property and equipment in the amount of approximately $1.15 million and
$541,000 respectively.
Cash
Flows from Financing Activities
During
the three months ended March 31, 2023, net cash provided in financing activities of approximately $5.2 million included a January 2023
capital raise of approximately $4.6 million net proceeds and approximately $636,000 net proceeds from an asset-based loan agreement,
partially offset by repayment of notes payable of approximately $92,000. During the three months ended March 31, 2022, net cash used
in financing activities of $297,140 included repayment of notes payable and notes payable related party of approximately $285,000, and
payment of finance leases of $12,513.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities.
Critical
Accounting Policies and Significant Judgments and Estimates
This
discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared
in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting
periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting
policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on Form 10-K,
we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies
relate to the more significant areas involving management’s judgments and estimates.
We
believe our most critical accounting policies and estimates relate to the following:
|
● |
Revenue
Recognition |
|
● |
Inventory |
|
● |
Credit
losses |
|
● |
Lease
Accounting |
Revenue
Recognition
We
adopted ASC 606 – Revenue from Contracts with Customers using the modified retrospective transition approach. The core principle
of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. Our updated
accounting policies and related disclosures are set forth below, including the disclosure for disaggregated revenue. The impact of adopting
ASC 606 was not material to the Consolidated Financial Statements.
Our
revenue is recognized under Topic 606 in a manner that reasonably reflects the delivery of our services and products to customers in
return for expected consideration and includes the following elements:
|
● |
executed
contracts with our customers that we believe are legally enforceable; |
|
●
|
identification
of performance obligations in the respective contract; |
|
●
|
determination
of the transaction price for each performance obligation in the respective contract; |
|
●
|
Allocation
of the transaction price to each performance obligation; and |
|
●
|
recognition
of revenue only when we satisfy each performance obligation. |
These
five elements, as applied to each our revenue category, are summarized below:
Revenues
from fixed price contracts that are still in progress at month end are recognized on the percentage-of-completion method, measured by
the percentage of total costs incurred to date to the estimated total costs for each contract. This method is used because management
considers total costs to be the best available measure of progress on these contracts. Revenue from fixed price contracts and time-and-materials
contracts that are completed in the month the work was started are recognized when the work is shipped. To achieve this core principle,
we apply the following five steps: identify the contract with the client, identify the performance obligations in the contract, determine
the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as we
satisfy a performance obligation.
Revenues
from fixed price service contracts that contain provisions for milestone payments are recognized at the time of the milestone being met
and payment received. This method is used because management considers that the payments are non-refundable unless the entity fails to
perform as promised. If the customer terminates the contract we are entitled only to retain any progress payments received from the customer
and we have no further rights to compensation from the customer. Even though the payments made by the customer are non-refundable, the
cumulative amount of those payments is not expected, at all times throughout the contract, to at least correspond to the amount that
would be necessary to compensate us for performance completed to date. Accordingly, we account for the progress under the contract as
a performance obligation satisfied at a point in time. To achieve this core principle, we apply the following five steps: identify the
contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction
price to performance obligations in the contract and recognize revenues when or as we satisfy a performance obligation.
Inventory
Inventory
consists of component inventory, work in progress and finished goods and consists of estimated revenue calculated on a percentage of
completion based on direct labor and materials in relation to the total contract value.
Credit
Losses
The
provision for expected credit losses on trade receivables are estimated based on historical information, customer solvency and changes
in customer payment terms and practices. The Company will calibrate its provision matrix to adjust the historical credit loss experience
with forward-looking information. The amount of expected credit losses is sensitive to changes in circumstances and of forecast economic
conditions. The Company’s historical credit loss experience and forecast of economic conditions may also not be representative
of the customer’s actual default in the future. The company will utilize the Allowance Method based on the accounts receivable
aging in order to accrue bad debt expense.
Leases
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities
that arise from leases in the balance sheet. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) – Targeted
Improvements, which, among other things, provides an additional transition method that would allow entities to not apply the guidance
in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment
to the opening balance of retained earnings in the period of adoption. We determine if an arrangement is a lease at inception. Operating
leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating
lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities,
and other long-term liabilities in our balance sheets.
ROU
assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease
payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present
value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental
borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement
date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include
options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments
is recognized on a straight-line basis over the lease term.
Leases
with a lease term of 12 months or less at inception are not recorded on our balance sheet and are expensed on a straight-line basis over
the lease term in our statement of operations.
JOBS
Act
On
April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides
that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can
delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We
have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying
with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act.
As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for
complying with new or revised accounting standards.
We
are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS
Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain
of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls
over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted
by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion
and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which
we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of
the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during
the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.