MOMENTUS INC. MOMENTUS MANAGEMENT REPORT ON FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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The following discussion and analysis provides information which our management
believes is relevant to an assessment and understanding of our results of
operations and financial condition. This discussion and analysis should be read
together with our audited and unaudited financial statements and related notes
appearing elsewhere in this Quarterly Report on Form 10-Q (this "Form 10-Q") and
Annual Report on Form 10-K filed with the SEC on March 9, 2022. This discussion
and analysis should also be read together with our financial information for the
period ended and as of September 30, 2022. In addition to historical financial
information, this discussion and analysis contains forward-looking statements
that reflect our plans, estimates, and beliefs that involve risks, uncertainties
and assumptions. As a result of many factors, such as those set forth under the
"Risk Factors" under Part II, Item 1A: "Risk Factors," in this Form 10-Q and
under Part I, Item 1A in our Annual Report on Form 10-K filed with the SEC on
March 9, 2022, and "Cautionary Statement Regarding Forward-Looking Statements"
elsewhere in this Form 10-Q, our actual results may differ materially from those
anticipated in these forward-looking statements.

Certain figures, such as interest rates and other percentages, included in this
section have been rounded for ease of presentation. Percentage figures included
in this section have not in all cases been calculated on the basis of such
rounded figures but on the basis of such amounts prior to rounding. For this
reason, percentage amounts in this section may vary slightly from those obtained
by performing the same calculations using the figures in our financial
statements or in the associated text. Certain other amounts that appear in this
section may similarly vary slightly due to rounding.

Insight

Momentus plans to offer transportation and infrastructure services to help
enable the commercialization of space. Satellite operators are our principal
customers and target customers. Services that we plan to provide include "last
mile" satellite transportation, payload-hosting, on-orbit satellite refueling,
on-orbit inspection, on-orbit satellite maintenance, de-orbiting, debris
removal, and other satellite-to-satellite service offerings.

Our transportation service offering will focus on delivering our customers'
satellites to precision orbits of their choosing. To accomplish this, we plan to
create a hub-and-spoke transportation network in partnership with leading launch
service providers, such as SpaceX. Under this model, our customers' satellites
would "ride share" from Earth to space on a midsized or large rocket. Our
Orbital Service Vehicles ("OSVs") would then provide "last mile" transportation
services from the rocket's drop-off orbit to a custom orbit of the satellite
operator's choosing. We believe our hub-and-spoke model has the potential to
expand our customers' deployment options relative to what they would be able to
achieve with ride share launch alone, while reducing their costs relative to
what they could achieve with a dedicated small launch vehicle. Over time, we
plan to begin introducing additional services beyond "last mile" transportation.

Since our founding in 2017, we have been working to develop, test and enhance
our vehicles and supporting technologies, particularly our water plasma
propulsion technology. We have signed contracts for approximately $43 million in
backlog (potential revenue), as of October 31, 2022. These agreements contain
firm orders as well as options, allowing customers to opt-in to launches on
shorter notice without requiring a separate agreement. The breadth of these
signed contracts spans across 19 companies in 14 countries. In general, our
customers have the right to cancel their contracts with the understanding that
they will forgo their deposits. If a customer cancels a contract before it is
required to pay non-refundable deposits, we may not receive revenue from these
orders, except for an initial deposit which is paid at the time the contract is
signed. Refer to "Risk Factors - We may not be able to convert our orders in
backlog into revenue," under Part II, Item 1A: "Risk Factors," in this Form 10-Q
and under Part I, Item 1A in our Annual Report on Form 10-K filed with the SEC
on March 9, 2022.

On May 25, 2022, the Company launched its first demonstration flight of the
Vigoride spacecraft (Vigoride 3) to low-earth orbit aboard the SpaceX
Transporter-5 mission. In addition to Vigoride, Momentus used a second port on
the same SpaceX mission to fly a third-party deployer from a partner company. On
May 25, 2022, Momentus used the third-party deployer to place its first customer
satellite in orbit.

On May 26, 2022, upon establishing two-way contact between the Vigoride
spacecraft in low-earth orbit and a ground station on Earth, Momentus discovered
that the Vigoride spacecraft had experienced certain anomalies after its launch,
primarily relating to its deployable solar arrays, which provide power to the
spacecraft and its subsystems. Since that time, the Company has been working to
address the anomalies, identify root causes and pursue solutions to be
implemented in advance of future missions.

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The Company has determined that the Vigoride spacecraft's deployable solar
arrays, which are produced by a third party, and are folded and stowed during
launch, did not operate as intended once in orbit. This resulted in low power
and communications issues with the spacecraft. Meanwhile, the spacecraft's
fixed, body-mounted solar panels appear to be working as intended and are
providing some power to the spacecraft. The Company has been working closely
with the producer of the solar arrays and has identified a mechanical issue as
the root cause of the deployable arrays not operating as intended. The Company
also believes that it has identified the root cause of the anomalies that it
experienced with other spacecraft systems during the low-power state.

On May 28, 2022, Momentum was able to deploy two client satellites from Vigoride 3 (out of nine client satellites in total on board Vigoride 3). The Company then continued its efforts to deploy other customer satellites.

While Momentus initially established two-way communications with the Vigoride
spacecraft, it has not been able to continue such two-way communication given
the spacecraft's low-power state. Momentus has been using an unplanned frequency
to work through the anomalies and applied for a 30-day Special Temporary
Authority ("STA") from the FCC to properly comply with the FCC's radio frequency
transmission requirements. On June 9, 2022, the Company received approval of a
30-day STA from the FCC as requested, which the FCC extended for an additional
30 days on July 13, 2022. Momentus has continued to apply for 30-day extensions
for its STA, which the FCC has granted, most recently on October 20, 2022.

While Momentus has not been able to re-establish two-way communication with the
Vigoride spacecraft, it has continued to broadcast commands to the spacecraft
from ground stations on Earth, including commands to deploy customer satellites.
Additionally, the Vigoride spacecraft is equipped with a mechanism designed to
autonomously deploy customer satellites in the event that the spacecraft loses
communications with ground stations.

During the third quarter of 2022, the Vigoride spacecraft deployed five
additional customer satellites including two on July 17, 2022, two on July 29,
2022, and one at the end of August 2022. Momentus has now deployed a total of
eight customer satellites in low-earth orbit, comprising seven satellites from
Vigoride 3 and one satellite from the third-party deployer system.

While Momentus is continuing efforts to address the anomalies experienced by the
Vigoride 3 spacecraft during its inaugural mission and to deploy the three
remaining customer satellites, the Company's level of confidence that it will be
able to perform some planned operations of the vehicle on this test and
demonstration mission has substantially declined. The Company is working to
incorporate improvements identified during the current mission in advance of its
planned follow-on missions.

The Company anticipates flying its second Vigoride vehicle to low-earth orbit on
a third-party launch provider as early as December 2022. All future missions
remain subject to the receipt of licenses and government approvals, and
successful completion of our efforts to prepare our spacecraft for flight. The
Company can offer no assurances that the vehicles that it plans to operate in
future missions will be ready on time, or that they will operate as intended.
Refer to "Risk Factors - We may not receive all required governmental licenses
and approvals," and "Risk Factors - We are dependent on the successful
development of our satellite vehicles and related technology," under Part II,
Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A in our
Annual Report on Form 10-K filed with the SEC on March 9, 2022.

Our services are made possible by the space industry's rapid technological
developments over the past two decades, driven predominantly by significant
decreases in launch costs, as well as the advent of smaller, lower-cost
satellites. This convergence of these trends has resulted in substantial growth
in the commercial space market, rooted in higher accessibility for companies
entering the new space economy that aim to offer communication, earth
observation and data collection services, and other satellite services.

We anticipate there could be considerable growth over the coming years in the
space transportation segment as companies continue to seek versatile and
low-cost ways to deliver single satellites to specific orbits or deploy their
satellite constellations. We anticipate that the need for small satellite
transportation to low-earth orbit will continue to drive overall demand growth
for space transportation services in the short-term as technology advancements
continue to make space more accessible to new market entrants, although new
applications beyond low-earth orbit are also emerging. We also believe that over
the next decade, new space-based businesses may emerge, for example the
generation of solar energy in space, space manufacturing or space data
processing. The advent of these new business models could substantially increase
demand for space transportation and other space infrastructure services.

Beyond transportation, we anticipate that growth of the satellite constellations
market may drive demand for our Hosted Payload, on-orbit satellite refueling,
on-orbit inspection, on-orbit satellite maintenance, de-orbiting, debris
removal, and other satellite-to-satellite service offerings, if we are
successful in executing on our business plan,

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including fully developing and validating our technology in space. Satellite
constellations have relatively short lifespans and, in our view, will require
maintenance, de-orbiting, and other general servicing with higher frequency.

We expect our expenses to increase substantially in connection with our ongoing
activities, particularly as we continue to advance the development of our
vehicles, build corporate infrastructure and enhance our sales and marketing
functions.

The technology underlying our anticipated service offerings is still in the
process of being developed, and has not been fully tested or validated in space.
Our ability to execute on our business plan is dependent on the successful
development and commercialization of the technologies described in this Form
10-Q. Although we believe our water plasma propulsion technology will be a key
differentiator of our product offerings, we have to date only conducted one test
of this technology in space. Although we believe our test unit generated plasma
in space and validated the theoretical basis of our technology, we have yet to
experimentally confirm the unit's ability to generate thrust in space, which is
crucial to our ability to conduct actual spacecraft maneuvers in orbit. Until we
can accomplish this, the technology will remain in the experimental stages.
Moreover, even if the unit generates thrust, there can be no assurance that it
can be operated in a manner that is sufficiently reliable and efficient to
permit full commercialization of the technology. Our statements and beliefs
about the viability of our technology are primarily based on theoretical
analyses and experimentally observed results during ground testing and our
single test of this technology in space. Development of space technologies is
extremely complex, time consuming, and expensive, and there can be no assurance
that our predicted theoretical and ground-based results will translate into
operational space vehicles that operate within the parameters we expect, or at
all. This Form 10-Q describes Momentus' current business plans for continuing to
develop its technology and marketing and commercializing its products, however
there can be no assurance that Momentus will be able to successfully develop its
technologies and implement them in commercially viable vehicles. Refer to "Risk
Factors - A key component of our business model is the delivery of satellites
using our vehicles from low-earth orbit to other orbits. The technology for this
maneuver is still in the development stage..." under Part II, Item 1A: "Risk
Factors," in this Form 10-Q and under Part I, Item 1A in our Annual Report on
Form 10-K filed with the SEC on March 9, 2022.

Service overview

When our technology is fully developed and validated in the future, we currently plan to provide the following infrastructure services to the space economy:

Space Transportation. We are designing a space transportation service based on a
hub-and-spoke model, which combines ride share launch on a medium or large
rocket with last-mile delivery using one of our OSVs. Under this model, our
customers will deliver their payload to us a few months prior to launch for
integration onto our vehicle. Once we have integrated our customers' payloads,
we will then ship our vehicle, holding the customer payload fixture, to the
launch site, where it will be integrated onto the rocket. The rocket will then
transport our vehicle to the drop-off orbit. After separation from the rocket,
our vehicle will transport our customers' payloads to their chosen final orbit.

We are designing our water plasma thrusters to enable our vehicle to efficiently
transport each customer payload to its respective orbit. We believe our
hub-and-spoke model has the potential to expand our customers' deployment
options relative to what they could achieve with ride share launch alone, while
reducing their costs relative to what they could achieve with a dedicated small
launch vehicle.

Initially, after delivering our customer payloads to their final orbits, our
vehicles will de-orbit. However, our plan is to develop the capability for our
vehicles to be reusable, such that, upon delivery of the payload, they will be
capable of remaining in space to conduct additional missions.

Hosted Payload. We are designing our transfer vehicles for modularity and ease
of integration with customer payloads, and with a full suite of capabilities
that our customers will need on orbit. Under our Hosted Payload model, our
vehicle, after transporting a customer payload to a specific orbit, would stay
connected to the payload for the duration of its mission to provide continuous
power, orbit maintenance, orientation, and communications to support telemetry,
commanding, and downlinking of payload data. Our objective is to offer a higher
degree of modularity which we believe has the potential to significantly
increase orbital accessibility and/or lower manufacturing costs for a wide range
of satellite operators.

In-Orbit Servicing. We view in-orbit servicing of satellites as a quickly
growing business opportunity. As the number of satellites in space increases, so
does their need to be serviced. We plan to design Momentus' future reusable
vehicles to be capable of performing in-orbit servicing and are pursuing
development activities that support this objective. Although we are still in
very preliminary stages for developing this technology, our aim is to equip

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future vehicles with robotic arms and the ability to maneuver in close proximity
to other spacecraft and dock or berth with them. Once fully developed, we
believe these capabilities could allow us to offer a suite of different in-orbit
services, such as inspection, refueling, life extension, re-positioning, salvage
missions, maintenance and repair, and de-orbiting.

Factors affecting our performance

We believe that our performance and future success depend to a substantial
extent on our ability to capitalize on the following opportunities, which in
turn is subject to significant risks and challenges, including those discussed
below and in the section titled "Risk Factors" under Part II, Item 1A: "Risk
Factors," in this Form 10-Q and under Part I, Item 1A in our Annual Report on
Form 10-K filed with the SEC on March 9, 2022.

Transport in space and service vehicles and Related technology development

Our primary research and development objectives focus on the development of our
existing and future in-space transfer and service vehicles and related water
plasma propulsion technology.

Vigoride is the first vehicle that Momentus is developing. Once fully developed,
tested and validated in space, we expect Vigoride will be sufficient to meet our
initial operating plan of offering in-space transportation in low-earth orbit to
small satellites. Vigoride is intended to transport up to 750 kg of customer
payload in low-earth orbit, although our payload capacity will likely be lower
in most common configurations. We have set the delta-v and host power objectives
for Vigoride at 2 km/sec and 1 kW, respectively, which we believe we can achieve
a few years into our product roadmap.

Beyond our inaugural launch in May 2022, we have entered into launch services
agreements with SpaceX that secure space for Vigoride on launch vehicles that
SpaceX currently targets operating in the second half of 2022 and in 2023. We
believe these early missions will allow us to further validate Vigoride's
capabilities. While securing space on the manifest is an important step, all
future missions remain subject to the receipt of licenses and government
approvals, and successful completion of our efforts to prepare our spacecraft
for flight. The Company can offer no assurances that the vehicles that it plans
to operate in future missions will be ready on time, or that they will operate
as intended. Refer to "Risk Factors - We may not receive all required
governmental licenses and approvals," and "Risk Factors - We are dependent on
the successful development of our satellite vehicles and related technology,"
under Part II, Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item
1A in our Annual Report on Form 10-K filed with the SEC on March 9, 2022.

Early Vigoride vehicles will not be reusable, meaning that we will de-orbit them
following delivery of their customer payloads. However, around the middle of
this decade, we plan to make our vehicles capable of reuse such that, upon
delivery of their payloads, they will be able to remain in space to conduct
follow-on missions. Establishing reusable vehicles will require significant
additional research and technological developments. We believe our choice of
water as a propellant will help with the creation of reusable vehicles because
water can be stored without special conditions, other than ensuring lines and
tanks do not freeze or become obstructed with ice, for an indefinite amount of
time and pumped easily. Additionally, water is safe and non-hazardous relative
to commonly used propellants such as cryogenic components and hypergolic toxic
fuels for chemical propulsion, or highly pressurized noble gases (such as xenon
or krypton) for electrical propulsion. We believe that if we are able to achieve
reusability, it will allow us to lower manufacturing and launch costs on a
per-ride basis and achieve higher margins and returns for our investors while
also reducing our environmental impact.

Beyond Vigoride, we envision bringing two progressively larger vehicles to
market, currently called Ardoride and Fervoride. These vehicles will be similar
to our Vigoride vehicle, but with larger structures, larger solar arrays, and
more powerful propulsion systems in order to carry progressively larger payloads
progressively further from Earth.

The successful development of our vehicles equipped with water plasma propulsion technology involves uncertainties, including:

•the timetable for finalizing the design and specifications of the systems;

•the success of test programs and demonstration missions;

•whether we will receive and the timing of receipt of licenses and government
approvals that will allow us to fly our vehicles in space and gather valuable
data that will assist in further development of our vehicles;

•Meet stated technology objectives and goals for the design on time, within budget, and within cost objectives;

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• our ability to obtain applicable additional approvals, licenses or certifications from regulatory agencies and to maintain current approvals, licenses or certifications;

• our ability to secure locations on our launch vendor manifests;

•the performance of our manufacturing tool despite the risks that disrupt production, such as natural disasters;

•the performance of our third-party contractors who support our research and development activities;

•the performance of a limited number of suppliers for certain raw materials and components supplied and their willingness to do business with us;

• our ability to protect our intellectual property essential to the design and operation of our orbital service vehicles;

•our ability to continue to fund and maintain our current research and development activities;

•the impact of the COVID-19 pandemic on us, our customers, suppliers and distributors, and on the global economy; and

•our ability to comply with the terms of the NSA and any related compliance measures instituted by the Director of Security.

A change in the outcome of any of these variables could delay the development of
our vehicles which in turn could impact our business and results of operations.
Refer to "Risk Factors," under Part II, Item 1A: "Risk Factors," in this Form
10-Q and under Part I, Item 1A in our Annual Report on Form 10-K filed with the
SEC on March 9, 2022.

Initial and successive launches

Our water plasma propulsion technology (that we are developing) is based on the
use of microwave electrothermal or "MET," thrusters, which we believe could
ultimately provide safe, affordable, reliable, and regular in-space services,
including Space Transportation, Hosted Payload, and In-Orbit Servicing. To
accomplish this, we currently intend to:

Develop our commercial program for in-space transportation. We conducted our
inaugural demonstration mission with our Vigoride vehicle (Vigoride 3) in May
2022. We currently plan to fly our second Vigoride vehicle on a SpaceX
Transporter flight as early as December 2022. All future missions remain subject
to the receipt of licenses and government approvals, and successful completion
of our efforts to prepare our spacecraft for flight. The Company can offer no
assurances that the vehicles that it plans to operate in future missions will be
ready on time, or that they will operate as intended. Refer to "Risk Factors -
We may not receive all required governmental licenses and approvals," and "Risk
Factors - We are dependent on the successful development of our satellite
vehicles and related technology," under Part II, Item 1A: "Risk Factors," in
this Form 10-Q and under Part I, Item 1A in our Annual Report on Form 10-K filed
with the SEC on March 9, 2022.

Launch our commercial program for Hosted Payload. If in the future our vehicles
are operationalized for their intended in-space transport uses, we plan to
develop a modular approach to satellite systems through our hosted payload
model. For missions that require significant power for the payload and/or
specific orbits, our objective is for Momentus to be able to provide a unique
combination of a low-cost service model, in-orbit flexibility, and high
electrical power generation.

Launch our commercial program for In-Orbit Servicing. If we develop reusability
for our vehicles as currently contemplated, we believe we will be able to begin
offering a suite of different in-orbit services to our clients. Although we have
not yet developed these capabilities or the technology that would be required to
provide these services, such services may include inspection, refueling, life
extension, re-positioning, salvage missions, maintenance and repair, and
de-orbiting. As the quantity of satellites sent into space continues to
increase, we anticipate growing demand from such services.

The success of our in-space infrastructure services business will depend on our
ability to successfully and regularly deliver customer satellites into custom
orbits. Our early missions, particularly those in 2022 and 2023, including our
inaugural mission (Vigoride 3) in May 2022, are intended to be demonstration
missions. The primary goals of our planned demonstration missions are to test
Vigoride on orbit and learn from any issues that we encounter. The lessons
learned from demonstration missions will help inform changes we can make to our
Vigoride vehicle as we seek to ultimately certify a design for production.
Depending on the nature of issues we encounter, our schedule for future launches
and other planned activities could be adversely affected. There can be no
assurance that we will not experience operational or process failures and other
problems during our future demonstration missions or on any future mission. Any
failures or setbacks, particularly those that we experienced on our inaugural
mission (Vigoride 3) and those that we may encounter on other early missions,
could harm our reputation and have a material adverse

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effect on our business, financial condition and results of operation. Refer to
"Risk Factors - We are dependent on the successful development of our satellite
vehicles and related technology," under Part II, Item 1A: "Risk Factors," in
this Form 10-Q and under Part I, Item 1A in our Annual Report on Form 10-K filed
with the SEC on March 9, 2022.

Customer demand

We have received significant interest from a range of satellite operators,
satellite manufacturers, satellite aggregators, launch service providers, and
others. As of September 30, 2022, we had collected approximately $2.4 million in
customer deposits related to future launches. While our standard contracts do
not contain refunds or recourse provisions that enable our customers to recover
any non-refundable deposits that have been paid, we issued refunds totaling $1.4
million to customers during the year ended December 31, 2021 due to cancelled
launches for 2021 in order to foster future business relationships and customer
goodwill.

Because our technologies have not yet been fully tested, our service offering to
our customers on our demonstration missions will be limited. To reflect this, we
expect to provide discounts to customers on these demonstration missions
relative to the price we intend to eventually charge for our transportation
services. During our demonstration missions, we plan to demonstrate Vigoride's
ability to deploy satellites. Once all customer payloads have been released, we
plan to perform certain maneuvers and technology demonstrations to validate our
technology and establish the potential commercial viability of our strategy.
This approach limits risk for us as well as for our customers.

We have signed contracts for approximately $43 million in backlog (potential
revenue), as of October 31, 2022. These agreements contain firm orders as well
as options, allowing customers to opt-in to launches on shorter notice without
requiring a separate agreement. The breadth of these signed contracts spans
across 19 companies in 14 countries. In general, our customers have the right to
cancel their contracts with the understanding that they will forgo their
deposits. If a customer cancels a contract before it is required to pay
non-refundable deposits, we may not receive revenue from these orders, except
for an initial deposit which is paid at the time the contract is signed.

Our backlog is subject to meaningful customer concentration risk. As of
October 31, 2022, approximately 90% of the total dollar value of our backlog
related to three launch services providers and aggregators of launch services
capacity, and their affiliates. The top ten customers in our backlog represent
approximately 98% of the total dollar value of our backlog.

In addition, backlog is typically subject to large variations from quarter to
quarter and comparisons of backlog from period to period are not necessarily
indicative of future revenues. Furthermore, some contracts comprising the
backlog are for services scheduled many years in the future, and the economic
viability of customers with whom we have contracted is not guaranteed over time.
As a result, the contracts comprising our backlog may not result in actual
revenue in any particular period, or at all, and the actual revenue from such
contracts may differ from our backlog estimates. The timing of receipt of
revenues, if any, on projects included in the backlog could change because many
factors affect the scheduling of missions and adjustments to contracts may also
occur. The failure to realize some portion of our backlog could adversely affect
our revenues and gross margins.

Impact of COVID-19

The COVID-19 pandemic has affected our business in the past, including our timing for our previously scheduled launch in April 2020and has the potential to further impact our business in the future, including our plans for future launches and our ability to secure contracts with our customers.

The Company anticipates flying its second Vigoride vehicle to low-earth orbit on
a third-party launch provider as early as December 2022. All future missions
remain subject to the receipt of licenses and government approvals, and
successful completion of our efforts to prepare our spacecraft for flight. The
Company can offer no assurances that the vehicles that it plans to operate in
future missions will be ready on time, or that they will operate as intended.
Refer to "Risk Factors - We may not receive all required governmental licenses
and approvals," and "Risk Factors - We are dependent on the successful
development of our satellite vehicles and related technology," under Part II,
Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A in our
Annual Report on Form 10-K filed with the SEC on March 9, 2022.

Our non-operations personnel began working from home in March 2020 as we reduced
our in-person operations to prioritize the safety of our employees. We have
begun to gradually bring essential personnel back to the office, while adhering
to Centers for Disease Control and Prevention, federal, state and local
protective standards. Subject to local regulations and the effectiveness of
vaccination initiatives, we intend to gradually bring all employees back

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to the office; until then, we will continue to support our employees working
from home. While remote working arrangements have affected our manufacturing and
development timelines, the overall impact of this arrangement has not materially
adversely affected the timeline of future launches.

In May 2020, to strengthen our liquidity position, we received a Paycheck
Protection Program loan (the "PPP Loan") in the amount of $1.0 million under the
Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"); however,
in September 2020, we repaid the PPP Loan in full.

Notwithstanding the foregoing, the impact of the COVID-19 pandemic on the
Company's business, results of operations and overall financial performance will
ultimately depend on future developments, including the duration of the
pandemic, possible recurrent outbreaks, the appearance of variants and the
effectiveness of vaccines and other mitigation measures against variants, all of
which are highly uncertain and cannot be predicted. See Part II, Item 1A: "Risk
Factors," in this Form 10-Q and under Part I, Item 1A in our Annual Report on
Form 10-K filed with the SEC on March 9, 2022, for additional discussion of the
potential impact of the COVID-19 pandemic on our business.

RECENT DEVELOPMENTS

Offer on the market

On September 28, 2022, the Momentus entered into an At-the-Market Equity
Offering Sales Agreement with a sales agent (the "ATM Sales Agreement").
Pursuant to the ATM Sales Agreement, the Company may from time to time sell,
through the sales agent using at-the-market ("ATM") offerings, shares of Common
Stock up to an aggregate offer price of up to $50.0 million. Under the ATM Sales
Agreement, the sales agent will be entitled to compensation at a commission rate
of up to 3.0% of the gross sales price per share sold.

In the three and nine months ended September 30, 2022 there were no sales under the ATM sales contract.

Realization of the business combination

On August 12, 2021, the Company consummated a merger pursuant to certain
Agreement and Plan of Merger, dated October 7, 2020, and as amended on March 5,
2021, April 6, 2021, and June 29, 2021 (the "Merger Agreement"), by and among
Stable Road Acquisition Corp ("SRAC"), Project Marvel First Merger Sub, Inc., a
Delaware corporation and a direct, wholly owned subsidiary of SRAC ("First
Merger Sub"), and Project Marvel Second Merger Sub, LLC, a Delaware limited
liability company and a direct, wholly owned subsidiary of SRAC ("Second Merger
Sub"), pursuant to which First Merger Sub merged with and into Momentus Inc., a
Delaware corporation ("Legacy Momentus") with Legacy Momentus as the surviving
corporation of the First Merger Sub, and immediately following which Legacy
Momentus merged with and into the Second Merger Sub, with the Second Merger Sub
as the surviving entity (the "Business Combination"). In connection with the
closing of the Business Combination (the "Closing"), the Company changed its
name from Stable Road Acquisition Corp. to Momentus Inc., and Legacy Momentus
changed its name to Momentus Space, LLC.

The business combination is accounted for as a reverse recapitalization under GAAP. Under this method of accounting, SRAC is treated as the “acquired” company for financial reporting purposes. We are deemed to be the accounting predecessor of the combined business, and Momentus inc.as the parent company of the combined company, is the successor SECOND registrant, which means that our consolidated financial statements for prior periods are disclosed in future periodic registrant reports filed with the SECOND.

The Business Combination will have a significant impact on our future reported
financial position and results as a consequence of the reverse recapitalization.
The most significant changes in Momentus' future reported financial position and
results are an increase in cash of $247.3 million, offset by additional
transaction costs for the Business Combination. See Note 3.

As a result of the Business Combination, we became the successor to an
SEC-registered and Nasdaq-listed company, which will require us to hire
additional personnel and implement procedures and processes to address public
company regulatory requirements and customary practices. We have begun to incur
additional recurring expenses as a public company for, among other things,
directors' and officers' liability insurance, director fees, and additional
internal and external accounting, legal and administrative resources.

Term loan and guarantee agreement

On February 22, 2021, the Company entered into the Term Loan which provided the
Company with up to $40.0 million in borrowing capacity at an annual interest
rate of 12%. $25.0 million of the Term Loan was immediately available for
borrowing by the Company at the inception of the agreement, the Company borrowed
this amount on March 1, 2021. The remaining $15.0 million of borrowing capacity
is no longer available as the Company did not
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achieve certain milestones needed by the June 30, 2021 deadline. Under the terms
of the loan, if certain operating cash ratios are not met, the lender is granted
a lien on the Company's intellectual property while the loan is outstanding.
Prior to the Business Combination, the lien was granted but was subsequently
released as a result of the proceeds from the Business Combination. The
repayment terms of the Term Loan provide for interest-only payments beginning
March 1, 2021 through February 28, 2022.

Under the original terms of the loan, the principal amount was due and payable
on March 1, 2022, however, during January 2022, the Company exercised its option
to pay back the Term Loan over 24 months. The extended payment term resulted in
a recast schedule with a lower effective interest rate. See Note 10.

In conjunction with the Term Loan, warrants to purchase preferred stock up to 1%
of the fully diluted capitalization (including allowance for conversion of all
outstanding convertible notes, SAFE notes and such warrants) of the Company were
granted to the lender exercisable at the lender's option. 80% of the 1% of the
warrants were earned by the lender upon execution of the agreement. The
additional 20% of the warrants was forfeited as of June 30, 2021. On August 12,
2021 the lender exercised the warrant; see Note 11 for discussion on the
valuation and conversion of the warrants.

In addition, the lender will have certain rights to participate in future private equity offerings (including convertible notes or bridge financings) of
Momentum.

SEC Regulations and CFIUS Examination

We have incurred significant expenses in connection with the CFIUS review
described below and have incurred and expect to incur significant expenses in
connection with the implementation of the NSA described below. We have also
incurred significant expenses related to the SEC settlement discussed below. As
of September 30, 2022, the Company had incurred legal expenses of approximately
$9.1 million related to these matters.

SEC Rules

On July 13, 2021, the Company agreed to a settlement with the SEC on a "neither
admit nor deny" basis, in anticipation of cease-and-desist proceedings relating
to certain violations of antifraud provisions of the federal securities laws
alleged by the SEC. As a result of the settlement, the Company agreed to a civil
penalty of $7.0 million, $2.0 million of which was paid immediately and
$5.0 million of which is payable within one year of the settlement order. The
Company paid the remaining $5 million liability on July 8, 2022.

CFIUS review and NSA

In February 2021, Momentus and its co-founder Mikhail Kokorich, with support
from SRAC, submitted a joint notice to CFIUS for review of the historical
acquisitions of interests in Momentus by Mr. Kokorich, his wife, and entities
that they control in response to concerns of the U.S. Department of Defense (the
"DoD") regarding Momentus' foreign ownership and control. On June 8, 2021, the
Company entered into a National Security Agreement with Mr. Kokorich, on behalf
of himself and Nortrone Finance S.A. (an entity controlled by Mr. Kokorich), Lev
Khasis and Olga Khasis, each in their respective individual capacities and on
behalf of Brainyspace LLC (an entity controlled by Olga Khasis), and the U.S.
government, represented by the DoD and the U.S. Department of the Treasury (such
agreement, the "NSA"). In accordance with the NSA, Mr. Kokorich, Nortrone
Finance S.A., Lev Khasis and his wife Olga Khasis, and Brainyspace LLC divested
all the equity interests in Momentus owned or beneficially owned by them by
selling such equity interests to the Company on June 8, 2021 (see below
"Co-Founder Divestment"). The NSA also established various requirements and
restrictions on the Company in order to protect national security, certain of
which may materially and adversely affect our operating results due to the cost
of compliance with security measures, and limitations on our control over
certain U.S. facilities, contracts, personnel, vendor selection and operations.
The Company has made progress in implementing the NSA by achieving baseline
compliance and incorporating security measures into Company policies and
procedures addressing some NSA risk.

Divestiture and share repurchase agreements

In accordance with the NSA and pursuant to stock repurchase agreements entered
into with the Company, effective as of June 8, 2021, each of Mr. Kokorich,
Nortrone Finance S.A. and Brainyspace LLC (collectively " the Co-Founders") sold
100% of their respective equity interests in the Company on June 30, 2021. In
exchange for their equity interests, the Company initially paid each entity $1,
but will additionally pay up to an aggregate of $50,000,000, out of funds
legally available therefor, to the Co-Founders, on a pro rata basis, as follows:
(i) an aggregate of $40,000,000 to be paid out of funds legally available
therefor, within 10 business days after the earlier of (A) a business
combination or capital raising transaction or series of transactions (whether in
the form of debt or
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equity) resulting in cash proceeds of no less than $100,000,000 and (B) the
Business Combination (the "First Payment Date"); and (ii) an aggregate of
$10,000,000 to be paid out of funds legally available therefor, within 10
business days after a business combination or capital raising transaction or
series of transactions (whether in the form of debt or equity) resulting in cash
proceeds of no less than $250,000,000 (determined without any reduction for the
$100,000,000 previously received in respect of the First Payment Date).

As a result of the Business Combination, which generated $247.3 million of gross
proceeds (as described in Note 3), the Company paid the Co-Founders
$40.0 million in addition to the initial consideration paid of $3. The Company
recorded the consideration paid as a reduction of common stock and additional
paid in capital. Pursuant to the NSA, a portion of those divestment proceeds
were placed in escrow accounts, and may not be released to the divested
investors until after completion of audit by a third party auditor of the
investors compliance with the NSA and the lapse of a 15 day period without an
objection from the CFIUS Monitoring Agencies. Following the third party audit of
the investors' NSA compliance, all of the escrowed divestment proceeds were
released to the Co-Founders as of March 1, 2022 in accordance with the NSA.

If the Company were to undertake a business combination or capital raising
transaction or series of transactions (whether in the form of debt or equity)
resulting in cash proceeds of approximately $2.7 million or more, the Company
would need to pay an aggregate of $10.0 million to the Co-Founders in accordance
with the terms of the stock repurchase agreements (see Note 11).

The Company evaluated and periodically re-evaluates this potential consideration
as a liability under ASC 480 utilizing a probability-weighted approach. Certain
factors which would enable successful fundraising were considered, including
progress toward compliance with the NSA, research and development progress, and
agreements with launch providers as well as the Company's fundraising efforts
under the at-the-market offering program describe above, resulting in an
estimated liability of $10.0 million expected to be paid to the Co-Founders with
a corresponding offset to additional paid in capital within the statements of
stockholders' equity (deficit), as of September 30, 2022.

The payment came from proceeds of the Business Combination and PIPE Investment
and therefore reduce the proceeds available to Momentus to fund its operations
and capital expenditures going forward.

As part of the stock repurchase agreements, both Messrs. Kokorich and Khasis
agreed to a broad waiver and release of all claims (broadly defined) against the
Company. The Company has maintained that this release is effective as to various
advancement and indemnification claims either individual may have against the
Company.

Both Messrs. Kokorich and Khasis have, through counsel, disagreed with the
Company's position. For example, Mr. Kokorich is named as a defendant in the
securities class action pending against the Company and other defendants,
although he has not been served nor appeared in those matters. In addition, Mr.
Kokorich is the sole defendant in a civil litigation action filed against him by
the Securities and Exchange Commission, which remains pending in the US District
Court for the District of Columbia, Case No. 1:21-cv-01869. Mr. Kokorich has
demanded indemnification and advancement from Momentus for his fees and costs
incurred in these actions, which claims are disputed by the Company.

The Company continues to maintain that Mr. Kokorich's release in the NSA and
stock repurchase agreements is effective as to his claims for advancement and
indemnification in these litigation matters. On August 16, 2022, Mr. Kokorich
filed a verified complaint against Momentus in the Delaware Court of Chancery
(Case. No. 2022-0722) seeking indemnification and advancement from Momentus. On
October 14, 2022, Momentus filed its motion to dismiss this action. Momentus
disputes the allegations in the complaint and intends to vigorously defend the
litigation.

See "Risk Factors - We may require substantial additional funding to finance our
operations, but adequate additional financing may not be available when we need
it, on acceptable terms or at all," in our Annual Report on Form 10-K filed by
the Company on March 9, 2022.

Components of operating results

Service revenue

We enter into contracts for 'last-mile' satellite and cargo delivery, payload
hosting and in-orbit servicing options with customers that are primarily in the
aerospace industry. The Company recognizes revenue (along with any other fees
that have been paid) upon the earlier of the satisfaction of our performance
obligation or when the customer cancels the contract.

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On May 4, 2022, the Company received a favorable determination from the Federal
Aviation Administration (the "FAA") of its application for payload review, which
was the final regulatory milestone needed to support the Company's inaugural
flight of the Vigoride orbital service vehicle (Vigoride 3) in May 2022. The FAA
favorable determination followed a license from the Federal Communications
Commission (the "FCC") received on April 28, 2022, and updates to existing
licenses from the National Oceanic and Atmospheric Administration (the "NOAA").

On May 25, 2022, the Company launched its first demonstration flight of the
Vigoride spacecraft (Vigoride 3) to low-earth orbit aboard the SpaceX
Transporter-5 mission. In addition to Vigoride, Momentus used a second port on
the same SpaceX mission to fly a third-party deployer from a partner company. On
May 25, 2022, Momentus used the third-party deployer to place its first customer
satellite in orbit.

On May 26, 2022, upon establishing two-way contact between the Vigoride
spacecraft in low-earth orbit and a ground station on Earth, Momentus discovered
that the Vigoride spacecraft had experienced certain anomalies after its launch,
primarily relating to its deployable solar arrays, which provide power to the
spacecraft and its subsystems. Since that time, the Company has been working to
address the anomalies, identify root causes and pursue solutions to be
implemented in advance of future missions.

The Company has determined that the Vigoride spacecraft's deployable solar
arrays, which are produced by a third party, and are folded and stowed during
launch, did not operate as intended once in orbit. This resulted in low power
and communications issues with the spacecraft. Meanwhile, the spacecraft's
fixed, body-mounted solar panels appear to be working as intended and are
providing some power to the spacecraft. The Company has been working closely
with the producer of the solar arrays and has identified a mechanical issue as
the root cause of the deployable arrays not operating as intended. The Company
also believes that it has identified the root cause of the anomalies that it
experienced with other spacecraft systems during the low-power state.

On May 28, 2022, Momentum was able to deploy two client satellites from Vigoride 3 (out of nine client satellites in total on board Vigoride 3). The Company then continued its efforts to deploy other customer satellites.

While Momentus initially established two-way communications with the Vigoride
spacecraft, it has not been able to continue such two-way communication given
the spacecraft's low-power state. Momentus has been using an unplanned frequency
to work through the anomalies and applied for a 30-day Special Temporary
Authority ("STA") from the FCC to properly comply with the FCC's radio frequency
transmission requirements. On June 9, 2022, the Company received approval of a
30-day STA from the FCC as requested, which the FCC extended for an additional
30 days on July 13, 2022. Momentus has continued to apply for 30-day extensions
for its STA, which the FCC has granted, most recently on October 20, 2022.

While Momentus has not been able to re-establish two-way communication with the
Vigoride spacecraft, it has continued to broadcast commands to the spacecraft
from ground stations on Earth, including commands to deploy customer satellites.
Additionally, the Vigoride spacecraft is equipped with a mechanism designed to
autonomously deploy customer satellites in the event that the spacecraft loses
communications with ground stations.

During the third quarter of 2022, the Vigoride spacecraft deployed five
additional customer satellites including two on July 17, 2022, two on July 29,
2022, and one at the end of August 2022. Momentus has now deployed a total of
eight customer satellites in low-earth orbit, comprising seven satellites from
Vigoride 3 and one satellite from the third-party deployer system.

While Momentus is continuing efforts to address the anomalies experienced by the
Vigoride 3 spacecraft during its inaugural mission and to deploy the three
remaining customer satellites, the Company's level of confidence that it will be
able to perform some planned operations of the vehicle on this test and
demonstration mission has substantially declined. The Company is working to
incorporate improvements identified during the current mission in advance of its
planned follow-on missions.

The Company anticipates flying its second Vigoride vehicle to low-earth orbit on
a third-party launch provider as early as December 2022. All future missions
remain subject to the receipt of licenses and government approvals, and
successful completion of our efforts to prepare our spacecraft for flight. The
Company can offer no assurances that the vehicles that it plans to operate in
future missions will be ready on time, or that they will operate as intended.
Refer to "Risk Factors - We may not receive all required governmental licenses
and approvals," and "Risk Factors - We are dependent on the successful
development of our satellite vehicles and related technology," under Part II,
Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item 1A in our
Annual Report on Form 10-K filed with the SEC on March 9, 2022.

In connection with the May 25, 2022 flight of the Vigoride spacecraft and the
third-party deployer from a partner company, the Company completed one of the
intended performance obligations, resulting in $50 thousand of

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recognized revenue, which was previously recorded in contract liabilities. The
remaining customer payloads were negatively impacted by the Vigoride anomalies
and as a result did not receive the anticipated level of service. As a result,
the Company offered concessions to these customers, the value of which was
unresolved as of June 30, 2022. Due to this uncertainty, the Company recorded
the related customer deposits of $133 thousand as deferred revenues within
current contract liabilities as of June 30, 2022.

During the three months ended September 30, 2022, the Company recognized $129
thousand of revenue. $28 thousand was due to forfeited customer deposits from
cancelled customer contracts. The Company also resolved the uncertainties that
had caused it to defer revenue from its inaugural launch. As a result, the
Company recognized revenue of $101 thousand, and continued to defer $33 thousand
now allocated to future services as a result of the variable consideration.

From September 30, 2022 we have signed contracts with clients and collected around $2.4 million in customer deposits, which are recorded as non-current contract liabilities on our Consolidated Balance Sheets.

The Company estimates variable consideration at the most likely amount, which is
included in the transaction price to the extent it is probable that a
significant reversal of cumulative revenue recognized will not occur. While the
Company's standard contracts do not contain refund or recourse provisions that
enable its customers to recover any non-refundable fees that have been paid, the
Company may issue full or partial refunds to customers on a case-by-case basis
as necessary to preserve and foster future business relationships and customer
goodwill. As a result of the Company's inability to complete any launches in
2021 (refer to Note 4 for additional information), the Company issued customer
refunds of $1.4 million to customers during the year ended December 31, 2021.

Revenue cost

Cost of revenue consists primarily of expenses associated with the cost of the
orbital service vehicle and third-party launch costs. Until the orbital service
vehicle design is completed and released for production, the cost of these
orbital service vehicles is being expensed as research and development costs as
materials and services are received. The current design and technology allow for
a single use of the orbital service vehicle.

In connection with the launch of Vigoride 3 and the third party deployer in May
2022, the Company amortized $1.2 million of prepaid launch costs. These costs
were allocated proportionally based on payload weight. $12 thousand allocated to
completed customer payload performance obligations was amortized to cost of
revenue, $14 thousand allocated to customer payload subject to unresolved
variable consideration was deferred within current deferred fulfillment costs as
of the end of the second quarter 2022, $0.6 million allocated to the Vigoride
vehicle was amortized to research and development costs, and $0.6 million
allocated to the third party deployer, intended as a demonstration of Company's
business model, was amortized to selling, general and administrative costs. As a
result of the launch, the Company realized $1.8 million of benefit from the
recovery of previously impaired prepaid launch costs. The Company did not
allocate any Vigoride vehicle development expense to cost of revenue as the
vehicle has not yet met the criteria for capitalization. Refer to Research and
Development Costs in Note 2.

During the three months ended September 30, 2022, the Company resolved the
variable consideration uncertainties that had caused it to defer revenue and
cost of revenue from its inaugural launch. As a result, the Company amortized
the deferred $14 thousand to cost of revenue.

Research and development

Research and development expenditures consist primarily of the cost for the
following activities for developing existing and future technologies for our
vehicles. Research and development activities include basic research, applied
research, design, development, and related test program activities. Costs
incurred for developing our vehicles primarily include equipment, material, and
labor hours (both internal and subcontractors). The Company also records launch
costs related to the testing of its Vigoride vehicles as research and
development costs.

As of September 30, 2022, we have expensed all research and development costs
associated with developing and building our vehicles. Once we have achieved
technological feasibility and released the design for volume production, we will
capitalize the costs to construct any additional components for the vehicles. We
expect to continue to see an increase in our research and development expenses
as we develop our next generation of vehicles.

Selling, general and administrative expenses

Selling, general and administrative expenses consist of human capital related
expenses for employees involved in general corporate functions, including
executive management and administration, accounting, finance, tax, legal,
information technology, security, sales, marketing, and human resources;
depreciation expense and rent relating to facilities, and equipment;
professional fees; and other general corporate costs. Headcount-related expenses
primarily

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include salaries, bonuses, equity compensation expense and benefits. As we
continue to grow as a company, we expect that our selling, general and
administrative costs will increase on an absolute dollar basis. The Company also
recorded one-time launch costs related to the validation of the business model
as selling, general and administrative costs.

We also have begun to incur additional expenses as a result of operating as a
public company, including expenses necessary to comply with the rules and
regulations applicable to companies listed on a national securities exchange and
related to compliance and reporting obligations pursuant to the rules and
regulations of the SEC as well as to comply with the NSA.

interest income

Interest income includes interest earned on investments held in interest-bearing bank accounts.

Interest Expense

Interest expense includes interest incurred on our borrowings as well as the amortization of warrant discounts and debt issuance costs.

Other income/expenses

Other income/expense primarily relates to the change in the estimated fair value
of our SAFE notes and warrants, and non-recurring fees incurred in conjunction
with the SAFE and Term Loan financing, SEC settlement cost, and the Business
Combination.

Income Tax Provision

We are subject to income taxes in the United States. Our income tax provision
consists of an estimate of federal and state income taxes based on enacted
federal and state tax rates, as adjusted for allowable credits, deductions,
uncertain tax positions, changes in the valuation of our deferred tax assets and
liabilities, and changes in tax laws.

The effective tax rate may vary significantly from period to period and can be
influenced by many factors. These factors include, but are not limited to,
changes to the statutory rates in the jurisdictions where the Company has
operations and changes in the valuation of deferred tax assets and liabilities.
The difference between the effective tax rate and the federal statutory rate of
21% primarily relates to certain nondeductible items, state and local income
taxes and a full valuation allowance for deferred tax assets.

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Operating results

The following tables present our results of operations for the periods presented. Period-to-period comparisons of financial results are not necessarily indicative of future results.

Comparison of Financial Results for the Three Months Ended September 30, 2022
and 2021

                                                                            Three Months Ended
                                                                               September 30,
(in thousands)                                   2022                2021               $ Change                % Change
Service revenue                              $      129          $      200          $        (71)                     (36  %)
Cost of revenue                                      14                (184)                  198                     (108  %)
Gross margin                                        115                 384                  (269)                     (70  %)

Operating expenses:
Research and development expenses                10,571               9,047                 1,524                       17  %
Selling, general and administrative expenses     11,184              12,057                  (873)                      (7  %)
Operating loss                                  (21,640)            (20,721)                 (919)                       4  %

Other income (expense):
Decrease in fair value of SAFE notes                  -              26,924               (26,924)                    (100  %)
Decrease (increase) in fair value of
warrants                                          1,579              (2,712)                4,291                     (158  %)
Realized gain on disposal of asset                  (45)                  -                   (45)                         N/A
Interest income                                      28                   -                    28                          N/A
Interest expense                                 (1,261)             (4,328)                3,067                      (71  %)

Other income (expense)                               41              (4,778)                4,819                     (101  %)
(Loss) income before income taxes               (21,298)             (5,614)              (15,684)                     279  %

Net (loss) income                            $  (21,298)         $   (5,614)              (15,684)                     279  %


Service revenue

The revenue recognized during the three months ended September 30, 2022 was due
to the resolution of variable consideration uncertainties, relating to Vigoride
anomalies and subsequent concessions, which had caused the Company to defer
revenues pertaining to its first launch in May 2022, as well as forfeited
customer deposits related to contract cancellations.

The turnover recognized during the three months ended September 30, 2021 was due to the termination of a customer contract, which led to the confiscation of the corresponding customer deposits.

(Recovery from) Cost of revenue

The cost of revenue during the three months ended September 30, 2022 was due to
the revenue recognition relating to deferred revenues from the Company's first
launch in May 2022 described above. The Company allocated the cost of the launch
proportionally based on payload weight.

The reduction of cost of revenue during the three months ended September 30,
2021 represents the reversal of a contingency recorded during the prior year for
loss contracts related to free slots on future missions. During the three months
ended September 30, 2021 the Company signed amendments or terminations with
those customers such that the services will no longer be free of charge.

Research and development costs

Research and development expenses increased from $9.0 million in the three
months ended September 30, 2021 to $10.6 million in the three months ended
September 30, 2022. The increase was primarily due to additional payroll costs
of $1.6 million (including an increase of $0.7 million in non-cash stock based
compensation) due to an increase in headcount, and higher compensation packages
related to the transition from start-up to a publicly traded company. Spending
on components, materials, and other costs also increased by $0.3 million, along
with additional overhead and other costs of $0.4 million. These increases were
offset by decreased subcontracted research and development costs of $0.8
million.
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Selling, general and administrative expenses

Selling, general and administrative expenses decreased from $12.1 million in the
three months ended September 30, 2021 to $11.2 million in the three months ended
September 30, 2022. The decrease was primarily driven by a reduction of $1.1
million in legal spending as the Company's activity related to the NSA and SEC
topics discussed in Note 12 shifted from legal proceedings to compliance, along
with a wider range of smaller litigation matters. Non-cash stock based
compensation costs decreased by $0.5 million due to a stock option modification
in the prior year (described in Note 11), off-set by higher stock based
compensation costs for employees since becoming a publicly traded company. These
decreases were offset by additional insurance costs of $0.3 million and
additional general corporate costs of $0.4 million were incurred due to the
extra requirements of operating as a publicly traded company.

Decrease in fair value of SAFE Notes

The decrease in the calculated fair value of SAFE notes during the three months
ended September 30, 2021 was primarily due to a decrease in the estimated fair
value of the Company's stock, which at that time was driven by its relation to
the market price of SRAC. All outstanding SAFE notes were converted to Common
Stock upon completion of the Business Combination (see Note 9). Prior to
conversion, our SAFE notes were classified as marked-to-market liabilities
pursuant to ASC 480 and gains or losses were recorded as other income or
expense.

Decrease (increase) in fair value of warrants

For the three months ended September 30, 2021, the increase in the calculated
fair value of the private loan-related warrants, which were accounted for as a
derivative liability, was primarily attributable to the final fair value
measurement of the warrants that were exercised in connection with the Business
Combination, in which the expected period was the shortest period of time of any
measurement. The assumed warrant liabilities from the Business Combination also
increased in value due to the Company's stock increasing in fair value in the
remainder of the period following the Merger. See Note 11.

For the three months ended September 30, 2022, the decrease in the calculated
fair value of the Company's currently outstanding warrants, which were assumed
from the Business Combination, was primarily driven by the observable market
price of the publicly listed warrants to purchase the Company's stock under
comparable terms. See Note 11.

Interest expense

Interest expense of $4.3 million for the three months ended September 30, 2021
relates to cash and amortization interest under the original one year term of
the Term Loan. During January 2022, the Company exercised its option to extend
repayment of the loan, resulting in a decrease of the effective interest rate
and lower cash and amortization interest of $1.3 million for the three months
ended September 30, 2022. See Note 10.

Other income (expenses)

Other income in the three months ended September 30, 2022 was immaterial. Other
expense in the three months ended September 30, 2021 was due to the transaction
costs allocated to the liability-classified warrant assumed in connection with
the Business Combination.
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Comparison of Financial Results for the Nine Months Ended September 30, 2022 and
2021

                                                                       Nine Months Ended
                                                                         September 30,
(in thousands)                             2022                2021               $ Change                % Change
Service revenue                        $      179          $      330          $       (151)                     (46  %)
Cost of revenue                                26                (135)                  161                     (119  %)
Gross margin                                  153                 465                  (312)                     (67  %)

Operating expenses:
Research and development expenses          31,438              39,747                (8,309)                     (21  %)
Selling, general and administrative
expenses                                   38,898              35,802                 3,096                        9  %
Operating loss                            (70,183)            (75,084)                4,901                       (7  %)

Other income (expense):
Decrease in fair value of SAFE notes            -             209,291              (209,291)                    (100  %)
Decrease in fair value of warrants          3,382               9,826                (6,444)                     (66  %)
Realized loss on disposal of asset           (114)                  -                  (114)                         N/A
Interest income                                33                   2                    31                     1550  %
Interest expense                           (4,166)             (8,685)                4,519                      (52  %)
SEC settlement                                  -              (7,000)                7,000                     (100  %)
Other income (expense)                         44              (4,965)                5,009                     (101  %)
 (Loss) income before income taxes        (71,004)            123,385              (194,389)                    (158  %)
Income tax expense                              -                   1                    (1)                    (100  %)
Net (loss) income                      $  (71,004)         $  123,384              (194,388)                    (158  %)


Service revenue

The revenue recognized during the nine months ended September 30, 2022 was
primarily due to the Company's first launch in May 2022. This revenue was
recognized as the result of a completed performance obligation, as well as other
performance obligations which were negatively impacted by the Vigoride 3
anomalies and led to concessions offered to customers, the value of which was
resolved after the completion of the mission. Additional revenues were
recognized from forfeited customer deposits related to contract cancellations.

The revenue recognized during the nine months ended September 30, 2021 was due
to customer contract cancellations, resulting in the forfeiture of $0.3 million
of non-refundable customer deposits.

(Recovery from) Cost of revenue

The cost of revenue during the nine months ended September 30, 2022 was due to
the Company's first launch in May 2022. The Company allocated the cost of the
launch proportionally based on payload weight.

The reversal of cost of revenue recorded during the nine months ended
September 30, 2021 represents the reversal of a contingency recorded during the
prior year for loss contracts related to free slots on future missions. During
the nine months ended September 30, 2021 the Company signed amendments or
terminations with those customers such that the services will no longer be free
of charge. The reversed contingency was offset by costs incurred related to one
of the cancelled contracts.

Research and development costs

Research and development expenses decreased from $39.7 million in the nine
months ended September 30, 2021 to $31.4 million in the nine months ended
September 30, 2022. The decrease was primarily due to one-time impairments of
$9.5 million of prepaid launch deposits in the prior year, offset by $0.6
million of launch costs amortized during the nine months ended September 30,
2022. Spending on components, materials, and other costs decreased by $1.2
million along with subcontracted research and development costs which decreased
by $2.3 million. These reductions were offset by additional payroll costs of
$1.8 million (including an increase of $1.5 million in non-cash stock based
compensation) due to an increase in headcount, and higher compensation packages
related to the transition from start-up to a publicly traded company. The
decrease was further offset by additional overhead and other costs of $0.9
million.
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Selling, general and administrative expenses

Selling, general and administrative expenses increased from $35.8 million in the
nine months ended September 30, 2021 to $38.9 million in the nine months ended
September 30, 2022. Non-stock based compensation payroll increased by $1.8
million, with total headcount increasing, and also due to higher compensation
packages for senior employees related to the transition from a start-up to a
publicly traded company. Additional insurance costs of $1.7 million and
additional general corporate costs of $2.0 million were incurred due to the
extra requirements of operating as a publicly traded company. Increased spending
of $6.2 million on non-legal professional fees was offset by a reduction of $5.1
million in legal spending as the Company's activity related to the NSA and SEC
topics discussed in Note 12 shifted from legal proceedings to compliance. Stock
based compensation cost decreased by $4.1 million due to the non-recurring stock
modification in the prior period. The Company also incurred launch costs of $0.6
million during the nine months ended September 30, 2022, related to the
validation of a third party deployer of a partner company.

Decrease in fair value of SAFE Notes

The decrease in the calculated fair value of SAFE notes during the nine months
ended September 30, 2021 was primarily due to a decrease in the estimated fair
value of the Company's stock, which at that time was driven by its relation to
the market price of SRAC. All outstanding SAFE notes were converted to Common
Stock upon completion of the Business Combination (see Note 9). Prior to
conversion, our SAFE notes were classified as marked-to-market liabilities
pursuant to ASC 480 and gains or losses were recorded as other income or
expense.

Decrease in fair value of warrants

For the nine months ended September 30, 2021, the decrease in the calculated
fair value of the private loan-related warrants was due to the decrease in the
estimated fair value of the Company's stock. The private loan-related warrants
in the prior period were exercised in connection with the Business Combination.
This decrease was offset by an increase in the value of the assumed warrant
liabilities from the Business Combination due to the Company's stock increasing
in fair value in the remainder of the period following the Merger.

For the nine months ended September 30, 2022, the decrease in the calculated
fair value of the Company's currently outstanding warrants, which were assumed
from the Business Combination, was primarily driven by the observable market
price of the publicly listed warrants to purchase the Company's stock under
comparable terms. See Note 11.

Interest expense

Interest expense of $8.7 million for the nine months ended September 30, 2021
relates to cash and amortization interest under the original one year term of
the Term Loan. During January 2022, the Company exercised its option to extend
repayment of the loan, resulting in a decrease of the effective interest rate
and $4.2 million of cash and amortization interest for the nine month period.
See Note 10.

SEC Settlement

SEC settlement expense for the nine months ended September 30, 2021 relates to a
civil penalty of $7.0 million, $2 million of which was paid to the SEC
immediately and $5 million of which is payable within one year of the settlement
order, in July 2022. The Company paid the remaining $5 million liability on
July 8, 2022.

Other income (expenses)

Other expense in the nine months ended September 30, 2021 was due to the
transaction costs allocated to the liability-classified warrant assumed in
connection with the Business Combination, as well as banking fees related to
SAFE financing raised during the period. Other income for the nine months ended
September 30, 2022 was immaterial.

Cash and capital resources

Since inception, we have financed our operations primarily by issuing equity and
debt, including the proceeds of the Business Combination and PIPE Investment. As
of September 30, 2022, our principal sources of liquidity were our cash and cash
equivalents in the amount of $81.6 million, which are held in cash or invested
in money market funds.
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Historical Cash Flows

                                                 Nine Months Ended September 30,
(in thousands)                                         2022                     2021
Net cash provided by (used in)
Operating activities                      $        (71,495)                  $ (69,897)
Investing activities                                  (641)                     (2,852)
Financing activities                                (6,244)                    228,421
Net change in cash and cash equivalents   $        (78,380)                  $ 155,672


Operating Activities

Net cash used in operating activities for the nine months ended September 30,
2022 was $71.5 million, driven primarily by headcount costs, research and
development activities, and professional fees related to the SEC and NSA
compliance costs, as well as net cash changes in operating assets and
liabilities. Headcount related payroll costs, excluding accrued bonus and
stock-based compensation, were $21.9 million. Research and development activity
expenses, including materials, components, and subcontractor costs were $11.2
million. Professional fees for compliance related to the SEC and NSA topics
discussed in Note 12, business development, accounting and audit, and other
services, were $10.8 million. Legal fees, related to public company costs as
well as the class action complaints discussed in Note 12 were $6.7 million.
Office overheads, other general corporate expenses, and cash interest were $12.3
million. The Company paid for $1.2 million of launch costs during the nine
months ended September 30, 2022 that were amortized in connection with its first
launch. The Company additionally had net cash changes in operating assets and
liabilities of $7.2 million, which included payment of the $5.0 million SEC
settlement payable.

Net cash used in operating activities for the nine months ended September 30,
2021 was $69.9 million, driven primarily by headcount costs, research and
development activities, and selling, general, and administrative costs.
Headcount related payroll costs, excluding accrued bonus and stock-based
compensation, were $16.2 million. Research and development activity expenses,
including materials, components, and subcontractor costs were $14.8 million.
Legal fees, related to the SEC and CFIUS review topics, discussed in Note 12,
were $11.8 million. Professional fees for recruiting, accounting and audit, and
other services were $4.5 million. Office overheads, other general corporate
expenses, and cash interest were $7.5 million. The Company also paid $2.0
million of its liability under the SEC settlement and $4.8 million of
transaction costs related to the Business Combination allocated to operating
costs. Additionally, cash used in net working capital increased by $10.7
million.

Investing activities

Net cash used in investing activities was $0.6 million and $2.9 million for the
nine months ended September 30, 2022, and 2021, respectively, which consisted
primarily of purchases of machinery and equipment, and build-outs in our
facility.

Fundraising activities

Net cash used in financing activities was $6.2 million for the nine months ended
September 30, 2022, due to the first four months of principal repayment under
the Term Loan.

Net cash provided by financing activities was $228.4 million for the nine months ended September 30, 2021consisting of the proceeds of the SAFE bond issue, borrowing under the term loan and business combination and PIPE.

Financing needs

We expect our expenses to increase substantially in connection with our ongoing
activities, particularly as we continue to advance the development of our
vehicles, build corporate infrastructure and enhance our sales and marketing
functions.

Specifically, our operating expenses will increase as we:

•scale our corporate infrastructure, people, processes and systems;

•improve and expand our sales and marketing function;

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•increase our manufacturing capabilities by increasing the footprint of our facilities, by purchasing additional manufacturing equipment;

•pursue research and development related to the development of our next-generation vehicles;

• seek regulatory approvals for modifications or updates to our vehicles;

•hire additional staff;

• implement the measures required under the NSA and seek to comply with NSA
terms;

•maintain, develop and protect our intellectual property portfolio;

•comply with public company reporting requirements; and

•defending against litigation.

We expect that our current cash and cash equivalents, our projected gross profit
(revenue less cost of revenue), and additional funding from equity or debt
financings will enable us to fund an anticipated operating expenses, research
and development expenses and capital expenditures beyond the next 12 months.
Additionally, we believe that the payments in the form of non-refundable
deposits we receive from our customers prior to launch will provide sufficient
funding and liquidity to support costs incurred related to that mission.

We have based these estimates on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect. For
example, the research and development, volume production, launch and in orbit
operation of our vehicles have unpredictable costs and are subject to
significant risks, uncertainties and contingencies, many of which are beyond our
control, that may affect the timing and magnitude of these anticipated
expenditures. Some of these risks and uncertainties are described in more detail
under Part II, Item 1A: "Risk Factors," in this Form 10-Q and under Part I, Item
1A in our Annual Report on Form 10-K filed with the SEC on March 9, 2022, under
the heading "Risk Factors - Risks Related to the Business and Industry of
Momentus."

Although we believe that our current capital is adequate to sustain our
operations for a period of time, changing circumstances may cause us to expend
capital significantly faster than we currently anticipate, or we may need to
spend more money than currently expected because of circumstances beyond our
control. We may be required to seek additional equity or debt financing. In the
event that additional financing is required from outside sources, we may not be
able to raise it on terms acceptable to us, or at all. If we are unable to raise
additional capital when desired, our business, results of operations, and
financial condition would be adversely affected.

Commitments and contingencies

We are party to operating leases primarily for facilities (eg, office buildings, warehouses and a spaceport) under non-cancellable operating leases. These leases expire at various dates through 2028. See Note 7.

We have the main $18.3 million outstanding under the term loan. See Note 10.

We enter into purchase obligations in the normal course of business. These
obligations include purchase orders and agreements to purchase goods or services
that are enforceable, legally binding, and have significant terms and minimum
purchases stipulated. Refer to Note 12.

Speak SECOND regulation, $5 million of the civil penalty is due one year after settlement. Refer to Note 12. The Company has paid the balance $5 million
responsibility on July 8, 2022.

In addition, we enter into agreements in the normal course of business with
vendors for research and development services and outsourced services, which are
generally cancellable upon written notice. These payments are not included in
this table of contractual obligations.

Divestiture and share repurchase agreements

In accordance with the NSA and pursuant to stock repurchase agreements entered
into with the Company, effective as of June 8, 2021, each of Mr. Kokorich,
Nortrone Finance S.A. and Brainyspace LLC (collectively "the Co-Founders") sold
100% of their respective equity interests in the Company on June 30, 2021. In
exchange for their equity interests, the Company initially paid each entity $1,
but will additionally pay up to an aggregate of $50,000,000, out of funds
legally available therefor, to the Co-Founders, on a pro rata basis, as follows:
(i) an aggregate of $40,000,000 to be paid out of funds legally available
therefor, within 10 business days after the earlier of (A) a business
combination or capital raising transaction or series of transactions (whether in
the form of debt or equity) resulting in cash proceeds of no less than
$100,000,000 and (B) the Business Combination (the "First
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Payment Date"); and (ii) an aggregate of $10,000,000 to be paid out of funds
legally available therefor, within 10 business days after a business combination
or capital raising transaction or series of transactions (whether in the form of
debt or equity) resulting in cash proceeds of no less than $250,000,000
(determined without any reduction for the $100,000,000 previously received in
respect of the First Payment Date).

As a result of the Business Combination, which generated $247.3 million of gross
proceeds (as described in Note 3), the Company paid the Co-Founders
$40.0 million in addition to the initial consideration paid of $3. The Company
recorded the consideration paid as a reduction of common stock and additional
paid in capital. Pursuant to the NSA, a portion of those divestment proceeds
were placed in escrow accounts, and may not be released to the divested
investors until after completion of audit by a third party auditor of the
investors compliance with the NSA and the lapse of a 15 day period without an
objection from the CFIUS Monitoring Agencies. Following the third party audit of
the investors' NSA compliance, all of the escrowed divestment proceeds were
released to the Co-Founders as of March 1, 2022 in accordance with the NSA.

If the Company were to undertake a business combination or capital raising
transaction or series of transactions (whether in the form of debt or equity)
resulting in cash proceeds of approximately $2.7 million or more, the Company
would need to pay an aggregate of $10.0 million to the Co-Founders in accordance
with the terms of the stock repurchase agreements.

The Company evaluated and periodically re-evaluates this potential consideration
as a liability under ASC 480 utilizing a probability-weighted approach. Certain
factors which would enable successful fundraising were considered, including
progress toward compliance with the NSA, research and development progress, and
agreements with launch providers, as well as the Company's fundraising efforts
under the at-the-market offering program describe above, resulting in an
estimated liability of $10.0 million expected to be paid to the Co-Founders with
a corresponding offset to additional paid in capital within the statements of
stockholders' equity (deficit), as of September 30, 2022. Refer to Note 11.

Off-balance sheet arrangements

We do not engage in any off-balance sheet activities or have any arrangements or
relationships with unconsolidated entities, such as variable interest, special
purpose, and structured finance entities.

Significant Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with GAAP. The preparation of our financial statements and related disclosures
requires us to make estimates, assumptions and judgments as of the balance sheet
date that affect the reported amounts of assets, liabilities, revenues, costs
and expenses and related disclosures. Our actual results may differ from these
estimates under different assumptions and conditions.

Revenue recognition

We enter into short-term contracts for 'last-mile' satellite and cargo delivery,
payload hosting and in-orbit servicing options with customers that are primarily
in the aerospace industry.

We account for customer contracts in accordance with ASC Topic 606, Revenue from Contracts with Customers, which includes the following five-step model:

•Identification of the contract(s) with a customer.

•Identification of performance obligations in the contract.

•Determination of the transaction price.

•Allocation of the transaction price to the performance obligations of the contract.

• Recognition of revenue when or as the Company satisfies a performance obligation.

Our contracts are cancellable for convenience by the customer and typically do
not contain variable consideration. However, the full transaction price is
collected in advance of the scheduled launch and all fees that are paid are
non-refundable (and are not limited to deposits), regardless if the contract is
cancelled by the customer or in the event a performance obligation is not
satisfied by us. While the Company's standard contracts do not contain refund or
recourse provisions, the Company may issue full or partial refunds to customers
on a case-by-case basis as necessary to preserve and foster future business
relationships and customer goodwill. As a result of the Company's inability to

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complete any launches in 2021 (refer to Note 4 for additional information), the
Company issued customer refunds of $1.4 million to customers during the year
ended December 31, 2021.

Our services are considered a single performance obligation, to transport the
customers' payload to a specified orbit in space. We recognize revenue at a
point in time when control is transferred, which is considered to be upon the
release of the customers' payload into its specified orbit. We will calculate
the weight distribution of each transfer vehicle at the customer level, and we
will estimate the delivery date for each customer's payload based on the
relative weight of payloads released to determine the point in time to recognize
revenue for each payload release.

In periods in which we recognize revenue, we will disclose the amounts of recognized revenue that were included as a contract liability balance at the beginning of the reporting period in accordance with ASC 606-10-50-8(b ).

In connection with the May 25, 2022 flight of the Vigoride spacecraft and the
third-party deployer from a partner company, the Company completed one of the
intended performance obligations, resulting in $50 thousand of recognized
revenue, which was previously recorded in contract liabilities. The remaining
customer payloads were negatively impacted by the Vigoride anomalies and as a
result did not receive the anticipated level of service. As a result, the
Company offered concessions to these customers, the value of which was
unresolved as of June 30, 2022. Due to this uncertainty, the Company recorded
the related customer deposits of $133 thousand as deferred revenues within
current contract liabilities as of June 30, 2022. During the three months ended
September 30, 2022, the Company recognized $129 thousand of revenue. $28
thousand was due to forfeited customer deposits from cancelled customer
contracts. The Company also resolved the uncertainties that had caused it to
defer revenue from its inaugural launch. As a result, the Company recognized
revenue of $101 thousand, and continued to defer $33 thousand now allocated to
future services as a result of the variable consideration.

As of September 30, 2022 we have signed contracts with customers and have
collected approximately $2.4 million in customer deposits, which are recorded as
non-current contract liabilities in our consolidated balance sheet and will be
recognized as revenue (along with any other fess that have been paid) upon the
earlier of the satisfaction of our performance obligation or when the customer
cancels the contract.

Loss Contingencies

We are subject to the possibility of various loss contingencies arising in the
ordinary course of business, including product-related and other litigation. We
consider the likelihood of loss or impairment of an asset or the incurrence of a
liability, as well as our ability to reasonably estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued when it
is probable that an asset has been impaired or a liability has been incurred and
the amount of loss can be reasonably estimated. We regularly evaluate current
information available to us to determine whether such accruals should be
adjusted and whether new accruals are required. Refer to Note 12.

Deferred execution and prepaid initiation fees

We prepay for certain launch costs to third party providers that will carry the
orbital service vehicle to orbit. Prepaid costs allocated to the delivery of a
customer's payload are classified as deferred fulfillment costs and recognized
as cost of revenue upon delivery of the customer's payload. Prepaid costs
allocated to our payload are classified as prepaid launch costs and are
amortized to research and development expense upon the release of our payload.
The allocation is determined based on the distribution between customer and our
payload weight on each launch.

On May 21, 2021, the Company received notification from one of its launch
service providers that it was terminating two launch service agreements for
flights scheduled during calendar year 2021 and that they considered the Company
to be in default of prior payments totaling $8.7 million. The Company believed
the prepayments would be non-recoverable as this was the third time the payload
was rescheduled. As a result of the notification from one of its launch service
providers, the Company recorded an impairment charge of $8.7 million of prepaid
launch costs during the nine months ended September 30, 2021. There was an
unrelated impairment of $0.8 million the three and nine months ended
September 30, 2021.

On October 12, 2021, the Company began discussions with the same launch service
provider about reestablishing a future launch schedule. As a result of the
discussion, the Company signed a Launch Services Agreement on October 19, 2021
that reserved space on a launch that occurred in May 2022. The Company
determined that $2.7 million of the impaired deposits were potentially
recoverable in connection with the reestablished schedule. The Company did not
record any adjustments as a result of the discussions. See Note 4.

On May 4, 2022, the Company received a favorable determination from the Federal
Aviation Administration (the "FAA") of its application for payload review, which
was the final regulatory milestone needed to support the Company's inaugural
flight of the Vigoride orbital service vehicle (Vigoride 3) in May 2022. The FAA
favorable
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determination followed a license from the Federal Communications Commission (the
"FCC") received on April 28, 2022, and updates to existing licenses from the
National Oceanic and Atmospheric Administration (the "NOAA").

In connection with the launch of Vigoride 3 and the third party deployer in May
2022, the Company amortized $1.2 million of prepaid launch costs. These costs
were allocated proportionally based on payload weight. $12 thousand allocated to
completed customer payload performance obligations was amortized to cost of
revenue, $14 thousand allocated to customer payload subject to unresolved
variable consideration was deferred within current deferred fulfillment costs as
of the end of the second quarter 2022, $0.6 million allocated to the Vigoride
vehicle was amortized to research and development costs, and $0.6 million
allocated to the third party deployer, intended as a demonstration of Company's
business model, was amortized to selling, general and administrative costs. As a
result of the launch, the Company realized $1.8 million of benefit from the
recovery of previously impaired prepaid launch costs. The Company did not
allocate any Vigoride vehicle development expense to cost of revenue as the
vehicle has not yet met the criteria for capitalization. Refer to Research and
Development Costs in Note 2.

During the three months ended September 30, 2022, the Company resolved the
variable consideration uncertainties that had caused it to defer revenue and
cost of revenue from its inaugural launch. As a result, the Company amortized
the deferred $14 thousand to cost of revenue.

Contractual responsibilities

Customer deposits collected prior to the release of the customer's payload into
its specified orbit are recorded as current and non-current contract liabilities
in our condensed consolidated balance sheets as the amounts received represent a
prepayment for the satisfaction of a future performance obligation that has not
yet commenced. Each non-refundable deposit is determined to be a contract
liability upon cash collection. Prior to making this determination, we ensure
that a valid contract is in place that meets the definition of the existence of
a contract in accordance with ASC 606-10-25-1 and 2.

Stock-based compensation

We have various stock incentive plans under which incentive and non-qualified
stock options and restricted stock awards are granted to employees, directors,
and consultants. All stock-based payments to employees, including grants of
employee stock options are recognized in the financial statements based on their
respective grant date fair values.

We recognize stock-based compensation expense using a fair value-based method
for costs related to all stock-based payments. We estimate the fair value of
stock-based payments on the date of grant using the Black-Scholes-Merton option
pricing model. The model requires management to make a number of assumptions,
including expected volatility of our stock, expected life of the option,
risk-free interest rate, and expected dividends. The fair value of the stock is
expensed over the related service period which is typically the vesting period.
The stock-based compensation expense that is reported in our financial
statements is based on awards that are expected to vest. We account for
forfeitures as they occur.

Estimating the fair value of equity awards as of the grant date using valuation
models, such as the Black-Scholes-Merton option pricing model, is affected by
assumptions regarding a number of variables as disclosed above, and any changes
in the assumptions can materially affect the fair value and ultimately how much
stock-based compensation expense is recognized. These inputs are subjective and
generally require significant analysis and judgment to develop. See Note 11 for
the specific assumptions we used in applying the Black-Scholes-Merton option
pricing model to determine the estimated fair value of our stock options and
awards granted during the nine months ended September 30, 2022.

We expect our share-based compensation cost will increase to the extent that we
grant additional stock option awards to employees and non-employees. If there
are any modifications or cancellations of the underlying unvested securities, we
may be required to accelerate any remaining unearned share-based compensation
cost or incur incremental cost. Share-based compensation cost affects our
research and development expenses and selling, general, and administrative
expenses.

SAFE Notes

We issued SAFE notes to investors which were converted to shares of Common Stock
in connection with the Business Combination. Prior to conversion, we determined
that the SAFE notes were not a legal form of debt (i.e., no creditors' rights).
The SAFE notes included a provision allowing for cash redemption upon the
consummation of a change of control, the occurrence of which is outside the
control of the Company. Therefore, we classified SAFE notes as liabilities as
they were redeemable upon a change of control event which is not within the
control of the
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Company. The SAFE Notes were recorded at fair value and revalued through earnings at each reporting date until their respective settlement date and classified as mark-to-market liabilities in accordance with the ASC 480.

We determined the estimated fair value of the SAFE notes by applying a Backsolve
method within the Black-Scholes-Merton Option Pricing model. This methodology
effectively allowed us to solve for the implied value of the business based on
the terms of the SAFE investments (i.e. the value of the company, such that when
allocated to the various securities, the value allocated to the SAFE investment
equals the price the investor paid for such SAFE instrument).

Income taxes

We account for income taxes in accordance with authoritative guidance, which
requires the use of the asset and liability method. Under this method, deferred
income tax assets and liabilities are determined based upon the difference
between the financial statement carrying amounts and the tax basis of assets and
liabilities and are measured using the enacted tax rate expected to apply to
taxable income in the years in which the differences are expected to be
reversed.

Significant judgment is required in determining any valuation allowance recorded
against deferred tax assets. In assessing the need for a valuation allowance,
management considers all available evidence, including past operating results,
estimates of future taxable income, and the feasibility of tax planning
strategies.

In the event that management changes its determination as to the amount of
deferred tax assets that can be realized, we will adjust our valuation allowance
with a corresponding impact to the provision for income taxes in the period in
which such determination is made.

We are required to evaluate the tax positions taken in the course of preparing
its tax returns to determine whether tax positions are "more likely than not" of
being sustained by the applicable tax authority. Tax benefits of positions not
deemed to meet the "more likely than not" threshold would be recorded as a tax
expense in the current year. The amount recognized is subject to estimate and
management judgment with respect to the likely outcome of each uncertain tax
position. The amount that is ultimately sustained for an individual uncertain
tax position or for all uncertain tax positions in the aggregate could differ
from the amount that is initially recognized.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other
standard setting bodies that are adopted by us as of the specified effective
date. Unless otherwise discussed, we believe that the impact of recently issued
standards that are not yet effective will not have a material impact on our
financial position or results of operations upon adoption.

Please refer to Note 2 to our financial statements included in this Form 10-Q
for a description of recently adopted accounting pronouncements and recently
issued accounting pronouncements not yet adopted, the timing of their adoptions
and our assessment, to the extent we have made one, of their potential impact on
our financial condition and results of operations.

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