Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and plan of operations together with and our accompanying consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contain forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted

Throughout this Annual Report on Form 10-K, references to "we," "our," "us," the "Company," "Sidus," or "Sidus Space" refer to Sidus Space, Inc., individually, or as the context requires, collectively with its subsidiary.

Forward-Looking Statements and Industry Data

This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be identified by such forward-looking terminology as "may," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

	●	our projected financial position and estimated cash burn rate;
	●	our estimates regarding expenses, future revenues and capital requirements;
	●	our ability to continue as a going concern;

	●	our need to raise substantial additional capital to fund our operations;
	●	our ability to compete in the global space industry;
	●	our ability to obtain and maintain intellectual property protection for our current products and services;
	●	our ability to protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our intellectual property rights;
	●	the possibility that a third party may claim we have infringed, misappropriated or otherwise violated their intellectual property rights and that we may incur substantial costs and be required to devote substantial time defending against these claims;
	●	our reliance on third-party suppliers and manufacturers;
	●	the success of competing products or services that are or become available;
	●	our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel;
	●	the potential for us to incur substantial costs resulting from lawsuits against us and the potential for these lawsuits to cause us to limit our commercialization of our products and services;

All of our forward-looking statements are as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC") could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Annual Report on Form 10-K that modify or impact any of the forward-looking statements contained in this Annual Report on Form 10-K will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.

This Annual Report on Form 10-K may contain estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this Annual Report on Form 10-K from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in "Risk Factors." We caution you not to give undue weight to such projections, assumptions, and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies, and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.

Overview of Operations

Sidus Space operates as a vertically integrated space and defense technology company providing satellite design and manufacturing, technology integration, mission operations, artificial intelligence-enabled products and services, and space-based data solutions to government, defense, intelligence, and commercial customers. Our operations are supported by in-house engineering, manufacturing, assembly, integration, testing, and mission control capabilities.

During the fiscal year, our operating activities were focused on advancing satellite programs, supporting customer manufacturing and engineering contracts, expanding mission operations capabilities, and continuing to invest in artificial intelligence-enabled computing and data processing technologies. These initiatives required significant upfront investment in personnel, infrastructure, product development, and regulatory compliance, which impacted operating results and liquidity during the period.

Our results of operations are influenced by the timing and structure of customer contracts, milestone achievement, regulatory approvals, satellite launch schedules, and the level of investment required to support both current programs and anticipated future growth. As a result, revenue, expenses, and cash flows may fluctuate from period to period.

This overview should be read in conjunction with the more detailed discussion of our results of operations, liquidity and capital resources, and known trends and uncertainties set forth below.

Our Business and Operations:

Our business model is structured around the delivery of integrated mission capabilities. We support customers through a range of offerings including satellite platform design and manufacturing, technology hosting and integration, mission operations, engineering services, space and defense manufacturing, and, in certain cases, access to space-based data and analytics.

We operate primarily from our manufacturing, assembly, integration, and testing facility located on Florida's Space Coast. This facility supports satellite production, mission-critical hardware manufacturing, and engineering services. Operating a vertically integrated facility results in fixed infrastructure, personnel, and compliance costs, which may impact margins depending on production volume and contract mix.

We continue to develop and deploy satellite platforms designed to support multiple mission objectives and customer requirements. In addition, we have invested in on-orbit data processing and computing capabilities intended to improve latency, reduce data transmission requirements, and support future data-enabled services. Many of these initiatives require capital investment and operating expenditures before generating recurring revenue.

Highlights for the Year Ended December 31, 2025:

During the year ended December 31, 2025, our operating activities included:

	●	Advancement of satellite platform development and mission readiness activities
	●	Continued expansion of mission operations and manufacturing infrastructure
	●	Ongoing investment in artificial intelligence-enabled computing and data processing technologies
	●	Execution of customer contracts across satellite manufacturing, technology integration, and space and defense manufacturing
	●	Progress toward regulatory approvals supporting future satellite operations

These activities contributed to increased operating expenses and cash utilization during the period as we continued to invest in capabilities intended to support future growth.

Recent Developments:

Subsequent to and during the year ended December 31, 2025, we continued to advance satellite programs, customer missions, and technology development initiatives. Certain programs remain in development or early operational stages and require ongoing investment prior to generating revenue. The timing and financial impact of these initiatives depend on factors including customer requirements, regulatory approvals, satellite launch availability, and mission execution schedules.

Results of Operations:

Revenue:

Revenue is generated primarily from satellite platform and payload hosting contracts, manufacturing and engineering services, mission operations, and sales of proprietary hardware products. In certain cases, we also generate revenue from early-stage data-related activities.

Revenue during the periods presented was influenced by contract mix, project scope, and the timing of milestone achievement and customer acceptance. Because many of our contracts are milestone-based, the timing of revenue recognition may vary significantly between periods depending on program execution and launch schedules.

Cost of Revenue:

Cost of revenue consists primarily of labor, materials, manufacturing overhead, subcontractor costs, and expenses associated with satellite production and mission services. Cost of revenue may also include depreciation or amortization of capitalized satellite or system assets, where applicable.

Period-to-period changes in cost of revenue are driven by variations in production activity, supply chain conditions, and the relative mix of manufacturing versus services-based revenue.

Operating Expenses:

Operating expenses primarily consist of research and development expenses and selling, general and administrative expenses. Research and development expenses reflect continued investment in satellite platforms, AI-enabled computing systems, software development, and mission operations capabilities. These expenses are often incurred in advance of related revenue generation.

Selling, general and administrative expenses include personnel costs, professional services, public company compliance expenses, insurance, and facility-related costs necessary to support operations.

Liquidity and Capital Resources:

Liquidity:

Our primary sources of liquidity have included cash on hand, revenue generated from operations, and financing activities. We use cash primarily to fund operating losses, research and development activities, satellite production and deployment, manufacturing operations, and working capital requirements.

Because satellite development and deployment activities are capital intensive and often precede recurring revenue generation, our operating activities have used cash during the periods presented. Our ability to improve liquidity depends on the execution of customer contracts, cost management, and access to capital.

Capital Expenditures:

Capital expenditures primarily relate to investments in satellite systems, manufacturing equipment, information technology infrastructure, and facility improvements. Certain satellite- and software-related costs may be capitalized and amortized over the estimated useful lives of the related assets.

Financing Activities:

From time to time, we may access capital markets or other financing sources to support operations and growth initiatives. Market conditions, investor sentiment, and Company performance may affect the availability and terms of any future financing.

Going Concern Considerations:

Our consolidated financial statements have been prepared on a going-concern basis. Our ability to continue as a going concern depends on our ability to manage operating losses, execute our business strategy, generate revenue, and obtain additional capital as necessary.

Known Trends, Events, and Uncertainties:

Our business and operating results are subject to a number of trends and uncertainties, including the timing of satellite launches, customer adoption of space-based capabilities, regulatory approvals, supply chain availability, macroeconomic conditions, and geopolitical developments. These factors may materially impact future revenue, operating results, liquidity, and capital requirements.

Critical Accounting Policies and Estimates:

The preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenue, and expenses. Significant accounting policies and estimates include revenue recognition, satellite impairment, credit losses, lease accounting, and stock option and warrant valuation. Actual results may differ materially from management's estimates.

Comparison of year ended December 31, 2025 to year ended December 31, 2024

The following table provides certain selected financial information for the periods presented:

		Years Ended
		December 31,
		2025				2024				Change				%
Revenue		$	3,383,878			$	4,672,646			$	(1,288,768	)			(28	)%
Cost of revenue			9,076,445				6,141,657				2,934,788				48	%
Gross Profit (Loss)			(5,692,567	)			(1,469,011	)			(4,223,556	)			288	%
Gross Profit Percentage			(168	)%			(31	)%
Selling, general & administrative expense			22,315,569				14,249,870				8,065,699				57	%
Other expense			(1,466,168	)			(1,805,175	)			339,007				19	%
Net loss		$	(29,474,304	)		$	(17,524,056	)		$	(11,950,248	)			68	%

Revenue

Total revenue for the twelve months ended December 31, 2025 decreased approximately $1.3 million compared to total revenue for the twelve months ended December 31, 2024. Non-related party revenue decreased by approximately 54% for the twelve months ended December 31, 2025, to approximately $1.8 million as compared to approximately $3.9 million for the twelve months ended December 31, 2024. This was primarily driven by the timing of fixed price milestone contracts offset by satellite payload revenue. Related party revenue for the year increased 101% to approximately $1.6 million for the twelve months ended December 31, 2025 versus approximately $800,000 for twelve months ended December 31, 2024. This was driven by an increase in the number of contracts our related party secured with its customers, leading to increased outsourcing of work to us, as well as the timing of fixed-price milestone contracts.

Cost of Revenue

Cost of revenue increased 48% for the twelve months ended December 31, 2025 to approximately $9.1 million as compared to approximately $6.1 million for the twelve months ended December 31, 2024 and included approximately $1.7 million related party cost of sales as of December 31, 2025 and approximately $713,000 as of December 31, 2024. The overall increase in cost of revenue was primarily driven by increased satellite and related software depreciation expense of approximately $2.1 million versus 2024, reflecting the first full year of LizzieSat® operations, as well as a mix of contracts of varying types with higher direct labor and fringe benefit expenses.

Gross Profit (Loss)

The 137% decrease in our gross margin for the twelve months ended December 31, 2025 to a loss of approximately $5.7 million as compared to a loss of approximately $1.5 million for the twelve months ended December 31, 2024, was driven primarily by higher satellite and related software depreciation expense, reflecting the first full year of LizzieSat® operations, a decrease in total revenue, and increased direct labor and fringe benefit costs.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased 57% for the twelve months ended December 31, 2025 to approximately $22.3 million as compared to approximately $14.2 million for the twelve months ended December 31, 2024.

This was primarily related to the following increases:

	●	An increase of approximately $2.1 million in labor to $7.3 million compared to $5.2 million in 2024 due to increased headcount to support expanded operations, higher bonus accruals, and growth in mission operations staffing.
	●	An increase of approximately $420,000 in fringe benefits to $2.2 million compared to $1.8 million in 2024 due to higher headcount and the corresponding increases in health insurance, 401K matching, and payroll tax expenses.
	●	An increase of approximately $269,000 in software expenses to $713,000 compared to $444,000 in 2024 due to continued investment in enterprise software systems and expanded technology infrastructure to support company growth.
	●	An increase of approximately $235,000 in consulting outside services to $870,000 compared to $635,000 in 2024 due to business development and sales consulting services and temporary office and operations related labor.
	●	An increase of approximately $255,000 in mission control related expenses to $1.2 million compared to $976,000 in 2024 was primarily due to continued LizzieSat® on-orbit operations and increased ground station support costs.
	●	An increase of approximately $281,000 in post-employment and termination expenses to $303,000 compared to $22,000 in 2024, as a result of severance obligations incurred in connection with employee separations during the year.
	●	An increase of approximately $4.5 million in impairment of LS1 in 2025.

These increases were offset by the following decreases:

	●	A decrease of $266,000 in D&O insurance to $326,000 compared to $592,000 in 2024 was due to a reduction in insurance rates.
	●	A decrease of $369,000 in professional fees to $737,000 compared to $1.1 million in 2024 primarily related to lower accounting related expenses.
	●	A decrease of $108,000 in fundraising costs to $549,000 compared to $657,000 in 2024 related to achieving efficiencies on capital raising costs.

Total other income (expense)

During the year ended December 31, 2025, we had interest income and other income of $170,329 and $100,991, respectively and asset-based loan and interest expense of $1,647,344 and $90,144, respectively.

During the year ended December 31, 2024, we had interest income and other income of $39,015 and $4,613, respectively, and asset-based loan expense of $542,551 and interest expense of $1,306,252, respectively.

NON-GAAP MEASURES

To provide investors with additional information in connection with our results as determined in accordance with GAAP, we use non-GAAP measures of adjusted EBITDA. We use adjusted EBITDA in order to evaluate our operating performance and make strategic decisions regarding future direction of the company since it provides a meaningful comparison to our peers using similar measures. We define adjusted EBITDA as net income (as determined by U.S. GAAP) adjusted for interest expense, depreciation and amortization expense, capital raise expense, severance costs, equity-based compensation and impairment loss. These non-GAAP measures may be different from non-GAAP measures made by other companies since not all companies will use the same measures. Therefore, these non-GAAP measures should not be considered in isolation or as a substitute for relevant U.S. GAAP measures and should be read in conjunction with information presented on a U.S. GAAP basis.

The following table reconciles adjusted EBITDA to net loss (the most comparable GAAP measure) for the twelve months ended December 31 2025, and 2024:

		Years Ended December 31,
		2025				2024				Change				%
Net Income / (Loss)		$	(29,474,304	)		$	(17,524,056	)		$	(11,950,248	)			68	%
Interest Expense (i)			1,737,489				1,306,252				431,237				33	%
Depreciation and Amortization (ii)			4,371,263				2,171,873				2,199,390				101	%
Capital raise expense (iii)			642,680				805,322				(162,642	)			-20	%
Severance Costs			302,852				22,201				280,651				1264	%
Equity based compensation (iv)			619,273				309,736				309,537				100	%
Impairment loss (v)			4,510,680				-				4,510,680				0	%
Total Non-GAAP Adjustments			12,184,237				4,615,384				7,568,853				164	%
Adjusted EBITDA			(17,290,067	)			(12,908,672	)			(4,381,395	)			34	%

(i)	Sidus Space incurred increased interest expense due to a borrowing increase from the asset-based loan.

(ii)	Sidus Space incurred increased depreciation expense with launch and deployment of satellite fixed asset and related satellite software.
(iii)	Sidus Space incurred internal fundraising expense related to multiple capital raises.
(iv)	Sidus Space issued stock-based compensation for employee and Board services rendered.
(v)	Sidus Space incurred impairment of LS1 and related assets.

Liquidity and Capital Resources

The following table provides selected financial data about us as of December 31, 2025, and December 31, 2024.

		December 31,				December 31,
		2025				2024				Change				%
Current assets		$	50,688,590			$	22,252,552			$	28,436,038				128	%
Current liabilities		$	15,020,739			$	14,209,502			$	811,237				6	%
Working capital		$	35,667,851			$	8,043,050			$	27,624,801				343	%

Liquidity is the ability of a company to generate funds to support asset growth, satisfy disbursement needs, maintain reserve requirements, and otherwise operate on an ongoing basis. We had insufficient operating revenues, so we are currently dependent on debt financing and sale of equity to fund operations.

We had an accumulated deficit of approximately $89.8 million and a working capital surplus of approximately $35.7 million as of December 31, 2025 compared to accumulated deficit of approximately $60.3 million and a working capital surplus of approximately $8 million as of December 31, 2024. As of December 31, 2025, we had approximately $43.2 million of cash compared to approximately $15.7 million of cash as of December 31, 2024.

As of December 31, 2025, our working capital surplus was primarily due to funds raised in our capital raises completed in Q3 and Q4 2025. As of December 31, 2024, the working capital surplus was primarily due to funds raised in our capital raises completed Q4 2024.

Current assets increased by approximately $28.4 million, or 128%, to $50.7 million as of December 31, 2025 from approximately $22.3 million as of December 31, 2024. The increase is primarily attributable to our increased cash balance.

Current liabilities increased by approximately $811,000, or 6%, to approximately $15.0 million as of December 31, 2025 from approximately $14.2 million as of December 31, 2024. The increase was attributable to an increase in our accounts payable, asset-based loan liability partially offset by a decrease in notes payable.

In January 2025 the company issued 2,247,667 shares of Class A common stock in exchange for warrants exercised from the December 2024 capital raise. The company received funds of approximately $2.4 million in exchange for the shares issued.

Between July 2025 and December 2025, the company issued 47,119,572 shares of Class A common stock for net proceeds of $53.3 million.

In January 2026 the company issued 1,095,797 shares of Class A common stock in exchange for warrants exercised from the November and December 2024 capital raises. The company received funds of approximately $1.7 million in exchange for the shares issued.

Cash Flow

		Years Ended
		December 31,
		2025				2024				Change				%
Cash used in operating activities		$	(18,153,485	)		$	(15,825,052	)		$	(2,328,433	)			15	%
Cash used in investing activities		$	(8,174,345	)		$	(7,474,836	)		$	(699,509	)			9	%
Cash provided by financing activities		$	53,800,247			$	37,787,360			$	16,012,887				42	%
Cash on hand		$	43,175,996			$	15,703,579			$	27,472,417				175	%

Year ended December 31, 2025 and 2024

For the years ended December 31, 2025 and 2024, we did not generate positive cash flows from operating activities. For the year ended December 31, 2025, net cash flows used in operating activities was approximately $18.2 million compared to approximately $15.8 million during the year ended December 31, 2024.

Cash flows used in operating activities for the year ended December 31, 2025, of approximately $18.2 million is comprised of a net loss of $29.5 million, which was reduced by non-cash expenses of $853,182 for stock-based compensation, approximately $4.4 million for depreciation and amortization, $4.5 million for impairment loss, and a decrease in net working capital of approximately $1.6 million.

Cash flows used in operating activities for the year ended December 31, 2024, of approximately $15.8 million is comprised of a net loss of $17.5 million, which was reduced by non-cash expenses of $289,175 for stock-based compensation, $87,129 for bad debt expense, approximately $2.2 million for depreciation and amortization, and an increase in net working capital of approximately $849,000.

Cash Flows from Investing Activities

During the year ended December 31, 2025, we purchased property and equipment in the amount of approximately $8.2 million of which approximately $6.4 million primarily related to the satellite side of our business.

During the year ended December 31, 2024, we purchased property and equipment in the amount of approximately $7.5 million of which approximately $6.6 million primarily related to the satellite side of our business.

Cash Flows from Financing Activities

During the year ended December 31, 2025, net cash provided in financing activities of approximately $53.8 million included our July 2025, September 2025, and December 2025 capital raises of approximately $53 million net proceeds, and approximately $1.1 million net proceeds of an asset-based loan agreement, repayment of notes payable of $3 million and proceeds from warrants exercise.

During the year ended December 31, 2024, net cash provided in financing activities of approximately $37.8 million included our January 2024, March 2024, November 2024, and December 2024 capital raises of approximately $33.6 million net proceeds, and approximately $4.3 million net proceeds of an asset-based loan agreement, repayment of notes payable of $150,000 and proceeds from stock payable from warrants exercise.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on Form 10-K, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.

We believe our most critical accounting policies and estimates relate to the following:

	●	Revenue Recognition
	●	Satellite Impairment
	●	Credit losses
	●	Lease Accounting
	●	Stock Option and Warrant Valuation

Revenue Recognition

We adopted ASC 606 - Revenue from Contracts with Customers using the modified retrospective transition approach. The core principle of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. Our updated accounting policies and related disclosures are set forth below, including the disclosure for disaggregated revenue. The impact of adopting ASC 606 was not material to the Consolidated Financial Statements.

Our revenue is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following five elements:

	●	executed contracts with our customers that we believe are legally enforceable;
	●	identification of performance obligations in the respective contract;
	●	determination of the transaction price for each performance obligation in the respective contract;
	●	Allocation of the transaction price to each performance obligation; and
	●	Recognition of revenue only when we satisfy each performance obligation.

These five elements, as applied to each of our revenue categories, are summarized below:

Revenues primarily from manufacturing related fixed price contracts that are still in progress at month end are recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs for each contract. This method is used because management considers total costs to be the best available measure of progress on these contracts. Revenue from fixed price contracts and time-and-materials contracts that are completed in the month the work was started are recognized when the work is shipped.

Revenues from fixed price contracts primarily related to the satellite side of the business that require milestone payments are recognized at the time of the milestone being met provided the milestone includes the delivery of a service or product. This method is used because management considers that the payments are nonrefundable unless the entity fails to perform as promised. If the customer terminates the contract, we are entitled to retain any progress payments received from the customer and we have no further rights to compensation from the customer. Even though the payments made by the customer are nonrefundable, the cumulative amount of those payments is not expected, at all times throughout the contract, to at least correspond to the amount that would be necessary to compensate us for performance completed to date. Accordingly, we account for the progress under the contract as a performance obligation satisfied at a point in time.

Credit Losses

The provision for expected credit losses on trade receivables is estimated based on historical information, customer solvency and changes in customer payment terms and practices. The Company will calibrate its provision matrix to adjust the historical credit loss experience with forward-looking information. The amount of expected credit losses is sensitive to changes in circumstances and of forecast economic conditions. The Company's historical credit loss experience and forecast of economic conditions may also not be representative of the customer's actual default in the future. The company will utilize the Allowance Method based on the accounts receivable aging in order to accrue bad debt expense.

Satellite Impairment

Management performs its impairment assessment using an undiscounted cash flow model, which incorporates projected revenue from the Company's satellite operations, as the related fixed assets are directly tied to these activities. Key assumptions in the model include the expected initial data harvesting date, the probability of establishing and maintaining communications, the number of daily satellite passes over ground stations, average usable contact time per pass, data downlink speed, the proportion of data sold, and the pricing of such data. These assumptions are based on historical satellite performance, current market pricing, and management's expectations for future operations. Given the inherent uncertainty in forecasting, these assumptions are highly sensitive, and relatively small changes could result in different conclusions. Any impairment charge identified is recognized in the period determined and may have a significant impact on net income and stockholders' equity.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases in the balance sheet. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Leases with a lease term of 12 months or less at inception are not recorded on our balance sheet and are expensed on a straight-line basis over the lease term in our statement of operations.

Stock Option and Warrant Valuation

We use the Black-Scholes option-pricing model to value all options and Class A common stock warrants. Estimating the fair value of stock options using the Black-Scholes option-pricing model requires the application of significant assumptions, such as the fair value of our Class A common stock, the estimated term of the options, risk-free interest rates, the expected volatility of the price of our Class A common stock, and an expected dividend yield. Each of these assumptions is subjective, requires significant judgment, and is based upon management's best estimates. If any of these assumptions were to change significantly in the future, equity-based compensation related to future awards may differ significantly, as compared with awards previously granted.

JOBS Act

On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended ("Securities Act") for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board ("PCAOB") regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.