AST SpaceMobile, Inc. (ASTS) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except as otherwise noted or where the context requires otherwise, references in this report (the “Annual Report”) to “we,” “us” or the “Company” refer to AST SpaceMobile, Inc. and references to our “management” or our “management team” refer to our officers and directors.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto included in Item 8-Financial Statements and Supplementary Data of this Annual Report on Form 10-K for the year ended December 31, 2022, including our audited consolidated financial statements and related notes contained therein. Unless otherwise indicated, all references to “dollars” and “$” in this Annual Report are to, and all monetary amounts in this Annual Report are presented in, U.S. dollars.

Overview

We are building the first space-based Cellular Broadband network designed to be accessible by standard unmodified, off-the-shelf mobile phones or 2G/3G/4G LTE/5G devices using low band and middle band spectrum controlled by Mobile Network Operators (“MNOs”). Our SpaceMobile Service is being designed to provide cost-effective, high-speed Cellular Broadband services to end users who are out of terrestrial cellular coverage. The SpaceMobile Service currently is planned to be provided by a constellation of high-powered, large phased-array satellites in Low Earth Orbit (“LEO”). The mobile traffic will be transmitted by the SpaceMobile constellation and connected via high-throughput Q/V-band links to in-country gateways which are collocated with the MNOs’ cellular network infrastructure. We anticipate that users will be able to connect to the SpaceMobile Service as if they were using a local cell tower.

We intend to work with MNOs to offer the SpaceMobile Service to the MNOs’ end-user customers. Our vision is that users will not need to subscribe to the SpaceMobile Service directly through us, nor will they need to purchase any new or additional equipment. Instead, users will be able to access the SpaceMobile Service when prompted on their mobile device that they are no longer within range of the land-based facilities of the MNO operator or will be able to purchase a plan directly with their existing mobile provider. We generally seek to use a revenue-sharing business model in our agreements with MNOs.

The SpaceMobile Service is expected to be highly attractive to MNOs as it will enable them to improve their service offering without significant incremental capital investments. The SpaceMobile Service is expected to enable MNOs to augment and extend their coverage without building towers or other land-based infrastructure, including where it is not cost-justified or is difficult due to geographical challenges, such as mountainous or rugged terrain. As a result of the incremental coverage created by the planned SpaceMobile Service, we believe that our MNO partners will have the opportunity to increase subscribers’ average revenue per unit (“ARPU”).

On April 1, 2019, we launched our first test satellite, BlueWalker 1 (“BW1”), which was used to validate our satellite to cellular architecture and was capable of managing communications delays from LEO and the effects of doppler in a satellite to ground cellular environment using the 4G-LTE protocols.

We launched our BlueWalker 3 (“BW3”) test satellite on September 10, 2022. On November 14, 2022, we announced the completion of the deployment of the communication array of the BW3 test satellite in orbit. On December 14, 2022, we provided an update with respect to certain BW3 test satellite performance and testing activities, including the construction of a telemetry, tracking and control network, implementation of an end to end testing of the flight control software to control communications array, testing patented doppler and delay hardware and software solutions, and the installation of a ground network for end-to-end testing at various testing locations.

As of March 31, 2023, we are continuing the initial testing in efforts to achieve Cellular Broadband communications between the BW3 test satellite and a standard/unmodified cellular phone using 3GPP standard frequencies. Following the completion of initial testing, we plan to continue performing similar tests of these Cellular Broadband speeds with various MNOs internationally using the BW3 test satellite and a standard/unmodified cellular phone as well as other aspects of the SpaceMobile network. As of December 31, 2022 and as of March 31, 2023, we incurred approximately $92.1 million and $92.3 million of capitalized costs (including launch cost and non-recurring engineering costs) related to the assembly, testing and deployment of the BW3 test satellite, respectively.

We are also currently designing and assembling our constellation of BlueBird (“BB”) satellites. We are leveraging skills, know-how and technological expertise derived from the design and assembly of our BW3 test satellite in the development of our BB

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satellite platform. We are currently assembling the first generation of commercial BB satellites (“Block 1 BB satellites”). We expect the Block 1 BB satellites will be of similar size and weight to the BW3 test satellite and have design improvements for enhanced power efficiency and throughput designed to increase capacity. We currently expect to launch five Block 1 BB satellites during the first quarter of 2024 and have entered into a Launch Services Agreement with SpaceX for the launch of the five BB Block 1 satellites. The exact timing of the launch, which is expected to carry five Block 1 BB satellites, is contingent on a number of factors, including satisfactory and timely completion of assembly and testing of five Block 1 BB satellites and other factors, many of which are beyond our control. Following the launch, deployment and testing of five Block 1 BB satellites, we currently plan to initiate a limited, noncontinuous SpaceMobile Service in targeted geographical areas and seek to generate revenue from such service. Prior to initiating such service, we will need to obtain regulatory approvals in each jurisdiction where we would provide such service and would need to enter into definitive agreements with MNOs relating to the offering of such service in each jurisdiction.

We believe the deployment of Block 1 BB satellites and subsequent initiation of limited noncontinuous SpaceMobile Service will help to demonstrate the advantages of a satellite-based Cellular Broadband service in the marketplace. This market activity may commence while we continue the development and testing of the next generation of the BB satellites.

Our next generation of BB satellites (“Block 2 BB satellites”) are expected to derive greater performance through the introduction of our own AST5000 Application Specific Integrated Circuit (“ASIC”) chip, which will provide materially greater throughput capacity, require less power and offer a lower overall unit cost. We expect that the Block 2 BB satellites will also benefit from the advantages of a larger aperture array which provides greater spectrum reuse, enhanced signal strength and increased capacity, thereby reducing the necessary number of satellites to achieve service as compared to smaller apertures. We expect to launch Block 2 BB satellites beginning in 2024 following the launch and deployment of our Block 1 BB satellites.

We are developing a phased satellite deployment plan and corresponding commercial launch plan of the SpaceMobile Service based on targeted geographical areas to provide the SpaceMobile Service to the most commercially attractive MNO markets. This prioritization of coverage is designed to minimize the capital required to initiate and operate commercial service that generates cash flows from operating activities sooner. We expect that such a successful commercial service would enable us to attract additional capital to continue to assemble and launch additional BB satellites to expand our capacity and geographic coverage area, although there can be no assurance that such capital would be available on terms acceptable to us.

We plan to achieve substantial service in the selected, targeted geographical areas with the launch and operation of 25 BB satellites and achieve substantial service in all targeted geographical areas to meet our long term business goals with the launch and operation of approximately 95 BB satellites. We anticipate launching and deploying additional satellites beyond the initial 95 satellites in order to enhance coverage and system capacity in response to incremental market demand. Our current plan is subject to numerous uncertainties, many of which are beyond our control, including satisfactory and timely completion of assembly and testing of the satellites, availability of launch windows by the launch providers, our ability to raise capital, proposed orbits and resulting satellite coverage, launch costs, ability to enter into agreements with MNOs, regulatory approvals, and other factors. We may adopt a strategy for commercial launch of the SpaceMobile Service, including the nature and type of services offered and the geographic areas where we may launch such services, that may differ materially from our current plan.

The SpaceMobile Service has not been launched and therefore has not yet generated revenue. After we begin to launch and deploy our Block 1 BB satellites, we currently plan to initiate a limited, noncontinuous SpaceMobile Service in targeted geographical areas and seek to generate revenue from such service. Prior to initiating such service, we will need to obtain regulatory approvals in each jurisdiction where we would provide such service and would need to enter into definitive agreements with the MNOs relating to the offering of such service in each jurisdiction.

We operate from multiple locations that include our corporate headquarters and 185,000 square feet satellite assembly, integrating and testing (“AIT”) facilities in Texas, and AIT and engineering and development locations elsewhere in the United States, India, Scotland, Spain and Israel. In December 2022, we started our new research and development center in India to support our global engineering operations and access the vast talent pool of engineers working in space, satellites, and telecommunications sector. Our India operations will focus on research and development of next-generation hardware, software, space-related technologies and operations.

We are continuing to make investments to industrialize the assembly, integration, and testing processes for the production of the BB satellites. We are hiring, and expect to continue hiring, assembly, integration, and testing employees necessary for the production of the BB satellites and engineers that will be required to test and integrate the BB satellites. We are also actively engaged with the third-party vendors to secure supply of components and materials for our BB satellites. Furthermore, we are continuing to expand our research and development (“R&D”) efforts for the development of electronics and subsystems required for BB satellites and cellular and ground infrastructure and gateways.

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On July 2, 2022, AST LLC entered into a share sale and purchase agreement (the “Share Sale and Purchase Agreement”) for sale of its 51% interest in its former subsidiary, NanoAvionika UAB (“Nano”) (the “Share Sale”) to Kongsberg Defence & Aerospace AS, a private limited liability company incorporated under the laws of Norway. The Share Sale and Purchase Agreement provided for a purchase price of €65.0 million in total enterprise value for the purchase of Nano. On September 6, 2022, AST LLC completed the Share Sale for proceeds, net of transaction costs and working capital adjustments, of $26.6 million and recognized a net gain of $24.5 million in Other income (expense), net in the audited Consolidated Statement of Operations. Upon closing of the Nano Share Sale, all amounts outstanding under the Nano Financing Agreement were paid by Kongsberg Defence & Aerospace AS and the Nano Financing Agreement was terminated. See the notes to the audited consolidated financial statements contained elsewhere in this Annual Report on Form 10-K for further information.

We are an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and emerging growth companies. Please refer to Risk Factors contained in Part I, “Item 1A. Risk Factors” included in our Annual Report.

Recent Developments

On February 16, 2023, we filed a petition in the Delaware Court of Chancery pursuant to Section 205 of the DGCL seeking (i) the validation of the April 1, 2021 stockholder vote approving the proposal to amend and restate our certificate of incorporation, as amended to give effect to the Charter Proposal (including its filing and effectiveness, in each case as of April 6, 2021) (the “New Charter”) and (ii) the validation and declaration of effectiveness of (a) our certificate of incorporation, as amended to give effect to the Charter Proposal (including its filing and effectiveness, in each case as of April 6, 2021) (the “New Charter”) and (b) the securities issued or to be issued in reliance on the approval of the Charter Proposal and/or the validity of the New Charter, as of the respective dates of issuance to resolve any uncertainty with respect to those matters (captioned, In re AST SpaceMobile, Inc., C.A. No. 2023-0202-LWW (Del. Ch.)). On March 14, 2023, the Court of Chancery approved our request for relief and entered an order under Section 205 of the DGCL. Refer to Note 13: Commitments and Contingencies in the accompanying notes to the audited consolidated financial statements for further information.

Impact of COVID-19 Pandemic and Global Macroeconomic Conditions

We continue to closely monitor the impact of the COVID-19 pandemic and macroeconomic conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policies, higher interest rates, volatility in the capital markets, and supply chain challenges, on all aspects of our business across geographies, including how it has and may continue to impact our operations, workforce, suppliers, and our ability to raise additional capital to fund operating and capital expenditures. Changes in the prices of satellite materials due to inflation, supply chain challenges, and other macroeconomic factors may affect our capital costs estimates to build and launch the satellite constellation and adversely affect our financial condition. The extent of impact of these factors on our business will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. To date, these factors have not had a material impact on our technology development efforts or results of our operations. However, if macroeconomic conditions deteriorate or there are unforeseen developments with respect to the current COVID-19 pandemic, our results of operations and financial condition may be adversely affected.

Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations

The consolidated assets, liabilities and results of operations for the period from January 1, 2021 up to April 6, 2021, the date the Company completed a business combination (the “Business Combination”), are those of our accounting predecessor, AST LLC. After the Business Combination, upon obtaining additional funding of $416.9 million, we expanded research and development initiatives, made significant progress on the BW3 test satellite and design of the BB satellites, increased the headcount of employees and consultants, and expanded our operations through December 31, 2021.

During the year ended December 31, 2022, we significantly expanded to support our growing operations. We completed the development of our BW3 test satellite and launched it in September 2022, established network and software operations centers, advanced research and development initiatives for the design and development of Block 1 and Block 2 BB satellites, secured long-lead components, made significant progress in Application-Specific Integrated Circuit (“ASIC”) development, industrialized our AIT facilities for production of BB satellites, and increased the headcount of employees and consultants. In addition, we also sold our 51% interest in our former subsidiary, Nano, on September 6, 2022. Following the completion of the sale of Nano, we no longer generate revenue and do not expect to generate revenue in future periods until we launch the SpaceMobile Service.

Our future results of operations will be driven by our ability to execute on our strategy and could differ materially from the historical results of operations. We intend to continue to make necessary capital investments to industrialize our AIT facilities,

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procure satellite materials and components for assembly and testing of five Block 1 BB satellites, continue testing of the BW3 test satellite in collaboration with various MNOs, set up ground infrastructure in preparation for commercial service, complete the ASIC development, continue the research and development initiatives for design and development of Block 2 BB satellites, and increase the headcount of our employees and consultants to support the production and launch of the Block 1 BB satellites. All of these factors could result in materially different capital and operating expenses during future periods.

Components of Results of Operations

Revenues

To date, we have not generated any revenues from our SpaceMobile Service. Our former subsidiary, Nano, generated revenue from the development and manufacture of satellite technology, and ancillary sales and services globally. Nano also sold individual satellite parts, subsystems, and software to be configured to customers’ satellites, and entered into “rideshare” type agreements whereby Nano provided hosted payload services using customers’ payloads integrated with Nano-owned satellite buses for scheduled launches. Accordingly, all revenue presented herein exclusively relates to Nano’s sales of goods and services. Following the completion of the sale of Nano on September 6, 2022, we no longer generate revenue and do not expect to generate revenue in future periods until we launch the SpaceMobile Service.

Cost of Sales

Cost of sales includes the purchase price of various products used and services performed to execute Nano’s sales contracts. Cost of sales also includes operational costs to fulfill Nano customer orders, including costs for Nano employees and overhead. Following the completion of the sale of Nano on September 6, 2022, we do not expect to generate revenue and incur associated cost of sales in future periods until we launch the SpaceMobile Service.

Engineering Services

Engineering services costs are charged to expense as incurred. Engineering services costs consist primarily of the expenses associated with our ongoing engineering efforts related to integration, testing, and development of our satellites, as well as the cost of internal staff (such as engineers and consultants) to support these efforts and general expenses related to engineering centers.

General and Administrative Costs

General and administrative costs include the costs of insurance, cost of non-engineering personnel and personnel related expenses such as recruiting and travel and lodging expenses, software licensing and subscriptions, office and facilities expenses, investor relations, and professional services, including public relations, accounting and legal fees.

Research and Development Costs

R&D costs consist principally of non-recurring development activities in which we typically engage third-party vendors. Currently, major R&D activities include engaging with vendors to help design and develop the electronic componentry, software, and mechanical deployment systems to be used in the BB satellites and in connection with the planned SpaceMobile Service.

Depreciation and Amortization

Depreciation and amortization expense includes amounts related to property and equipment as well as definite lived intangible assets. Once the necessary testing to achieve Cellular Broadband communications between BW3 test satellite and a standard/unmodified cellular phone is complete, we expect to depreciate the BW3 test satellite over its expected useful life of two years resulting in a significant increase in future depreciation expense.

Gain (Loss) on Remeasurement of Warrant Liabilities

Public and private placement warrants issued by us are accounted for as liability-classified instruments at their initial fair value on the date of issuance. They are remeasured on each balance sheet date and changes in the estimated fair value are recognized as an unrealized gain or loss in the audited Consolidated Statements of Operations.

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Other Income (Expense), Net

Other income (expense), net consists of the gain from sale of Nano, interest earned on cash and cash equivalents held by us in interest bearing demand deposit accounts, net of any interest expense, as well as transaction costs incurred in connection with the Common Stock Purchase Agreement defined below in Liquidity and Capital Resources, and other miscellaneous non-operating items, including foreign exchange gains or losses.

Income Tax Expense

AST LLC is treated as a partnership for U.S. federal and state income tax purposes. Also, we had a controlling ownership interest in our former subsidiary, Nano, a Lithuanian company, through September 6, 2022, that is subject to foreign income taxes and is also treated as a partnership for U.S. federal and state and local taxes. Accordingly, for U.S. federal and state income tax purposes, all income, losses, and other tax attributes pass through to the members’ income tax returns, and no U.S. federal and state and local provision for income taxes has been recorded for these entities in the audited consolidated financial statements. Certain foreign wholly-owned entities are taxed as corporations in the jurisdictions in which they operate, and accruals for such taxes are included in the audited consolidated financial statements.

We recorded net deferred tax assets of $94.9 million as of December 31, 2022 primarily related to the difference between the book value and tax basis of our investment in AST LLC, and net operating loss carryforwards. We have assessed the realizability of our deferred tax assets and in that analysis have considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. As a result, we have recorded a full valuation allowance against our deferred tax assets.

Noncontrolling Interest

Noncontrolling interest primarily represents the equity interest in AST LLC held by the Existing Equityholders other than us. As of December 31, 2022, the Existing Equityholders’ equity ownership percentage in AST LLC was approximately 64.2%. Also, noncontrolling interest includes approximately 49% equity interests in our former subsidiary, Nano, held by equityholders other than us up to September 6, 2022. On September 6, 2022, the noncontrolling interest was eliminated in connection with the sale of the Company’s 51% interest in Nano. We attribute a portion of net income or loss generated at AST LLC and Nano to the noncontrolling interests based on their ownership interests.

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Results of Operations

We report our results of operations under one operating segment. The following table sets forth a summary of our audited Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 (in thousands) and the discussion that follows compares the year ended December 31, 2022, to the year ended December 31, 2021.

Revenues

Total revenues increased by $1.4 million, or 11%, to $13.8 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase in revenue was primarily attributable to the completion of performance obligations associated with both new and existing Nano customer contracts during the year ended December 31, 2022 prior to the sale of our 51% interest in Nano on September 6, 2022, after which we did not generate revenue.

Cost of Sales

Total cost of sales decreased by $(0.8) million, or (11)%, to $6.7 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The decrease in cost of sales relates to a decrease in cost under new and existing Nano sales contracts during the year ended December 31, 2022 prior to the sale of our 51% interest in Nano on September 6, 2022.

Engineering Services Costs

Total engineering services costs increased by $24.6 million, or 83%, to $54.2 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase was primarily attributable to a $20.7 million increase in payroll and employee related costs, including stock-based compensation expense, as a result of an increase in headcount to support growing engineering operations in 2022. The remaining $3.9 million increase relates to general expenses at engineering centers to support engineering efforts related to the integration, testing, and development of our satellites.

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General and Administrative Costs

Total general and administrative costs increased by $12.7 million, or 36%, to $48.3 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase was primarily due to increased payroll and employee related costs, office related costs, travel expenses, insurance costs and software licensing. To support growing operations in 2022, payroll and employee related costs, including stock-based compensation expense, office related costs and travel expenses increased by $3.8 million, $2.7 million and $2.2 million, respectively. Insurance costs increased by $1.7 million due to increased needs related to D&O insurance, intellectual property insurance and insurance coverage for our expanded facilities. The remaining $2.3 million increase relates to increased professional services fees, software licensing costs, and other miscellaneous expenses.

Research and Development Costs

Total research and development (“R&D”) costs increased by $22.2 million, or 95%, to $45.6 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. R&D costs are primarily attributable to third-party development efforts relating to the BB satellites to be used in the SpaceMobile constellation. Prior to the second quarter of 2021, our operations primarily related to constructing the BW3 test satellite, and therefore R&D efforts were limited. The increase in R&D costs was primarily due to increased design and development efforts for our BB satellites along with achievement of certain milestones of our ASIC development program. R&D costs are expected to fluctuate quarter over quarter, as R&D costs are largely driven by the achievement of milestones that trigger payments.

Depreciation and Amortization

Total depreciation and amortization expense increased by $1.8 million, or 62%, to $4.7 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase was primarily due to the purchase of additional fixed assets and leasehold improvements over the last twelve months ended December 31, 2022.

Gain on Remeasurement of Warrant Liabilities

Decrease in fair value of warrant liabilities resulted in a gain of $19.1 million for the year ended December 31, 2022 as compared to the gain of $15.8 million during the year ended December 31, 2021.

Other Income (expense), net

Total other income (expense), net was $24.2 million for the year ended December 31, 2022 as compared to $(2.0) million in the year ended December 31, 2021. Other income (expense), net for the year ended December 31, 2022 primarily included a net gain of $24.5 million recognized in connection with the Nano Sale on September 6, 2022, $2.4 million of interest income, net of interest expense, from the cash and cash equivalents held at financial institutions, $1.4 million of transaction costs incurred in connection with the Common Stock Purchase Agreement and $1.3 million of foreign exchange loss during the year ended December 31, 2022. Other income (expense), net for the year ended December 31, 2021 primarily included a $2.7 million write-off of deposits for launch service and $0.7 million income from other non operating activities.

Income Tax Expense

The provision for income taxes was $0.6 million for the year ended December 31, 2022 and $0.3 million for the year ended December 31, 2021. The consolidated effective tax rate for years ended December 31, 2022 and 2021 was (1)% and 0%, respectively. The low effective rate is driven by the loss attributable to the noncontrolling interest and the valuation allowance, and the difference in the effective rates between periods is driven by income tax expense assessed against non-U.S earnings. Refer to Note 17: Income Taxes in the accompanying notes to the audited consolidated financial statements for further information.

Net Loss Attributable to Noncontrolling Interest

Net loss attributable to noncontrolling interest was $71.5 million for the year ended December 31, 2022 as compared to $42.7 million in the year ended December 31, 2021. This increase in net loss correlates with the increase in net loss generated at AST LLC given the noncontrolling interest represents a portion of such net loss.

Liquidity and Capital Resources

We do not expect to generate revenue in future periods until we launch the SpaceMobile Service. Accordingly, our current sources of liquidity are cash and cash equivalents on hand and access to equity programs currently in place, which consist of an Equity

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Line of Credit and an At The Market Equity Program (“ATM Equity Program”). As of December 31, 2022, we had $239.3 million of cash and cash equivalents on hand, which includes $0.7 million of restricted cash. We believe our cash and cash equivalents on hand, together with our ability to raise capital through access to the Equity Line of Credit and the ATM Equity Program, will be sufficient to meet our current working capital needs, planned operating and capital expenditures for a period of the next 12 months from the date of this Annual Report on Form 10-K.

The design, assembly, integration, testing and launch of satellites and related ground infrastructure is capital intensive. We currently estimate the capital expenditure required for the design, assembly and launch of our first 5 Block 1 BB satellites to be between approximately $100.0 million and $110.0 million. We currently believe that the average capital expenditure required for the design, assembly and launch of a Block 2 BB satellite to be approximately $16.0 million to $18.0 million. The cost of the satellite configuration has increased due to the impacts of inflation, supply chain disruptions, design changes, and increase in the cost of electronic components, launch costs and other aspects of our design and assembly activities.

We believe we need to launch and operate 25 BB satellites (5 Block 1 BB satellites and 20 Block 2 BB satellites) in order to provide coverage to the most commercially attractive MNO markets. We currently estimate we will need to raise approximately $550.0 million to $650.0 million to fund operating and capital expenditures necessary to design, assemble and launch 20 Block 2 BB satellites and operate a constellation of 25 BB satellites to continue to provide SpaceMobile service.

We require capital to fund our operating and capital expenditures. We intend to seek to raise additional capital prior to the commencement of the commercial services through the issuance of equity, equity related or debt securities, secured loan facilities, or through obtaining credit from government or financial institutions or commercial partners, including through our existing Equity Line of Credit and the ATM Equity Program. Our ability to access the capital markets during this period of volatility may require us to modify our current expectations. The additional capital will be necessary to fund ongoing operations, continue research, development and design efforts, improve infrastructure, and launch satellites. There can be no assurance that additional funds will be available to us on favorable terms or at all. If we cannot raise additional funds when needed, our financial condition, results of operations, business and prospects may be materially and adversely affected.

We have contractual obligations, including non-cancellable operating leases, with terms expiring through November 2033. Rent expense from our operating leases was $0.9 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively, included in General and administrative costs on the audited Consolidated Statements of Operations. Future minimum annual rental payments required under these operating lease agreements as of December 31, 2022 is presented within Note 7: Leases in the accompanying notes to the audited consolidated financial statements. Also, as of December 31, 2022, we had contractual commitments with third parties in the aggregate amount of $49.5 million related to R&D programs, capital improvements, and procurement of BB satellite components. We expect these commitments will continue to increase as we complete the supply chain and electronics development in preparation for the production and launch of the BB satellites.

Common Stock Purchase Agreement

On May 6, 2022, we entered into the Common Stock Purchase Agreement (the “Common Stock Purchase Agreement” or “Equity Line of Credit”) with B. Riley Principal Capital, LLC (“B. Riley”). Pursuant to the Common Stock Purchase Agreement, we have the right, in our sole discretion, to sell to B. Riley up to $75.0 million of shares of our Class A common stock at 97% of the volume weighted average price (“VWAP”) of the Class A common stock calculated in accordance with the Common Stock Purchase Agreement, over a period of 24 months subject to certain limitations and conditions contained in the Common Stock Purchase Agreement. Sales and timing of any sales of Class A common stock are solely at our election, and we are under no obligation to sell any securities to B. Riley under the Common Stock Purchase Agreement. As consideration for B. Riley’s commitment to purchase shares of the Company’s Class A common stock, we have issued 43,938 shares of our Class A common stock as commitment shares and will issue up to an aggregate of 43,938 shares of our Class A common stock if certain conditions are met. Other than the issuance of the commitment shares of our Class A common stock to B. Riley, we issued 1,756,993 shares of our Class A common stock to raise capital under the Common Stock Purchase Agreement as of December 31, 2022, aggregating to net proceeds of $13.4 million under the Common Stock Purchase Agreement. Proceeds from the sale of our Class A common stock under the Common Stock Purchase Agreement were and will continue to be used for general corporate purposes.

Equity Distribution Agreement

On September 8, 2022, we entered into an Equity Distribution Agreement (the “Sales Agreement” or “ATM Equity Program”) with Evercore Group L.L.C. and B. Riley Securities, Inc. (collectively, the “agents”) to sell shares of our Class A common stock having an aggregate sales price of up to $150.0 million through an “at the market offering” program under which the agents will act as sales agents. The agents are entitled to total compensation at a commission rate of up to 3.0% of the gross sales price per share sold. Under the Sales Agreement, the Company issued 2,697,091 shares of its Class A common stock as of December 31,

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2022 aggregating to proceeds of $20.0 million, net of commissions paid to agents and transaction costs. Proceeds from the sale of our Class A common stock under the Sales Agreement were and will continue to be used for general corporate purposes.

Common Stock Offering

On December 2, 2022, we completed a public offering of 13,636,364 shares of Class A common stock, raising proceeds of $68.6 million, net of underwriting commissions of $5.3 million and transaction costs of $1.1 million. We provided a 30-day option to the underwriting agent to purchase up to an additional 2,045,454 shares to cover over-allotments, if any, which was not exercised. Proceeds from the sale of the Company’s Class A common stock were and will continue to be used for general corporate purposes.

Texas Financing Agreement

In December 2021, concurrent with the purchase of real property and equipment in Midland, Texas, our wholly owned subsidiary, AST & Science Texas, LLC (“AST Texas”), entered into a new Credit Agreement providing for a $5.0 million term loan secured by the property. Borrowings under the term loan bear interest at a fixed rate equal to 4.20% per annum until December 7, 2026, and from December 8, 2026 until December 8, 2028 at a fixed rate per annum equal to 4.20% subject to adjustment if the index rate as defined in the Credit Agreement is greater than 4.20%. Refer to Note 10: Debt in the accompanying notes to the audited consolidated financial statements for further information.

In connection with the term loan, we deposited into a reserve account $2.8 million of restricted cash which was used during 2022 to fund capital improvements related to the AIT facility located in Midland, Texas.

The Credit Agreement contains certain customary events of default, and certain covenants that limit AST Texas’ ability to, among other things, create liens on collateral, consolidate, merge, sell, or otherwise dispose of all or substantially all of its assets; and enter into certain transactions with its affiliates. If AST Texas fails to perform its obligations under these and other covenants, or should any event of default occur, the term loan may be terminated and any outstanding borrowings, together with unpaid accrued interest, could be declared immediately due and payable, and the lender will be authorized to take possession of the collateral.

Rakuten

On February 4, 2020, we entered into a commercial agreement with Rakuten, for our development of exclusive network capabilities in Japan compatible with the mobile network of Rakuten and its affiliates, which agreement was amended and restated as of December 15, 2020 (the “Rakuten Agreement”).

The Rakuten Agreement includes key performance indicators (“KPIs”) associated with the number of satellites launched, timing and coverage of our SpaceMobile Service in Japan in a phased manner that we must meet. If we do not meet the applicable KPIs for the last two phases noted in the Rakuten Agreement by June 2023, or if AST LLC becomes subject to any bankruptcy proceeding or becomes insolvent, we are required to pay Rakuten an amount of $10.0 million. Payment of the amount can be made by issuing a promissory note bearing interest at 8.0% per annum and payable in 12 quarterly installments over a three-year term, which can be prepaid at our election. No payments have been made to date between us and Rakuten under the Rakuten Agreement. The term of the Rakuten Agreement shall remain in effect until we fulfill our obligations under the Rakuten Agreement.

We do not expect to meet the applicable KPIs by June 2023. We and Rakuten are in discussions in light of our current business plan, planned deployment timeline, and commercialization strategy. However, there can be no assurance that Rakuten will agree to amend or waive the $10.0 million payment that would be due for not meeting the KPIs. If Rakuten does not agree to amend or waive this $10.0 million payment, we expect to issue a promissory note in the aggregate principal amount of $10.0 million in June 2023.

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Cash Flows

Historical Cash Flows

The following table summarizes our sources and uses of cash for the years ended December 31, 2022 and 2021 (in thousands):

Operating activities

Cash used in operating activities was $156.5 million for the year ended December 31, 2022, including $14.8 million of deposits paid to a launch provider related to the launch of five Block 1 BB satellites, as compared to cash used in operating activities of $80.1 million for the year ended December 31, 2021. The $61.6 million increase in cash used in operating activities, excluding the above mentioned deposits paid to the launch provider, was attributable to higher operating expenses as a result of an increase in headcount, research and development efforts, software license costs, professional services fees and other office related expenses, and an increase in advances paid to vendors for development and procurement of long-lead components for our BB satellites.

Investing activities

Cash used in investing activities was $31.4 million for the year ended December 31, 2022, as compared to cash used in investing activities of $54.8 million for the year ended December 31, 2021. The $23.4 million decrease in cash used in investing activities was primarily attributable to proceeds, net of transaction costs and cash balance of Nano deconsolidated as of the date of sale, of $25.9 million received from the Nano Share Sale and a $12.7 million decrease in BW3 test satellite assembly and testing costs offset by $15.2 million increase in purchases of property and equipment including construction costs incurred at our Texas and Israel facilities.

Financing activities

Cash provided by financing activities was $102.3 million for the year ended December 31, 2022, as compared to cash provided by financing activities of $416.9 million for the year ended December 31, 2021. Cash provided by financing activities for the year ended December 31, 2021 was attributable to the proceeds from the Business Combination. Cash provided by financing activities for the year ended December 31, 2022 was primarily attributable to the sale of shares of Class A common stock under the Equity Line of Credit, ATM Equity Program and Common Stock Offering.

Impact of inflation

While inflation may impact our capital and operating expenditures, we believe the effects of inflation on our historical results of operations and financial condition have not been significant. However, there can be no assurance that our results of operations, capital cost estimates, and financial condition will not be materially impacted by the current heightened levels of inflation.

Funding Requirements

We believe our existing cash and cash equivalents and access to the Equity Line of Credit and ATM Equity Program will be sufficient to meet anticipated cash requirements for the next 12 months from the date hereof. However, our forecast of the period of time through which our financial resources will be adequate to support operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend capital resources sooner than we expect.

Future capital requirements will depend on many factors, including:

•
Establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support our satellite development;

•
Technological or manufacturing and assembling difficulties, design issues or other unforeseen matters;

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•
Negotiation of launch agreements (including launch costs), launch delays or failures, deployment failures, or in-orbit satellite failures;

•
Timing of the launch of our satellites and subsequent initiation of service in various markets, delays in which will result in increased operating expenses;

•
Addressing any competing technological and market developments;

•
Seeking and obtaining market access approvals; and

•
Attracting, hiring, and retaining qualified personnel.

Until such time, if ever, as we can generate substantial revenues to support our cost structure, we expect to finance cash needs through a combination of equity offerings, debt financings, commercial and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through commercial agreements or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies and/or future revenue streams, or grant licenses on terms that may not be favorable to us and/or may reduce the value of our Class A common stock. Also, our ability to raise necessary financing could be impacted by the COVID-19 pandemic, recent geopolitical events, and inflationary economic conditions and their effects on the market conditions. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our development and commercialization efforts or grant rights to develop and market other services even if we would otherwise prefer to develop and market these services ourselves, or potentially discontinue operations.

Critical Accounting Policies

Our audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Preparation of the financial statements requires our management to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates and assumptions could have a material impact on our audited consolidated financial statements. Our significant accounting policies are described in Note 2: Summary of Significant Accounting Policies of the audited consolidated financial statements included elsewhere in this Report. Our critical accounting policies are described below.

BlueWalker 3 Capitalization

We account for research and development costs related to the BW3 test satellite in accordance with ASC 730 – Research and Development (“ASC 730”). We have determined there is an alternative future use for the BW3 test satellite as defined in this guidance. As such, certain costs related to the assembly of the BW3 test satellite are capitalized and reported as construction-in-progress (“CIP”) on our audited Consolidated Balance Sheets. We capitalize only those expenditures and ancillary costs that are directly attributable to assembly and testing and necessarily incurred to place the BW3 test satellite into its intended location and use. To date, capitalized expenditures include the costs for satellite parts, launch cost, and other non-recurring costs directly associated with the BW3 test satellite developments. The other non-recurring costs primarily include third-party engineers who are hired solely for the design, assembly and testing of the BW3 test satellite and are responsible for the value and progression of the project. The costs for internal, recurrent engineers and consultants are expensed as engineering services and not capitalized to the CIP account on our audited Consolidated Balance Sheets, as these employees are not directly associated with the development of the BW3 test satellite. We expect the BW3 test satellite to be ready for its intended use after establishing the technical feasibility of satellite to Cellular Broadband connection, at which point we will start depreciating the BW3 test satellite over its estimated useful life of two years.

Warrant Liabilities

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 - Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815 - Derivatives and Hedging (“ASC 815”). Our assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of our

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control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance. Issued or modified warrants that do not meet all the criteria for equity classification are recorded at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as an unrealized gain or loss in the audited Consolidated Statements of Operations.

Goodwill and Long-Lived Assets

Our goodwill balance was eliminated following the deconsolidation of Nano from our audited consolidated financial statements on September 6, 2022.

Prior to the deconsolidation, we assessed goodwill for impairment at least annually in the fourth quarter, on a reporting unit basis, or more frequently, when events and circumstances occur indicating that the recorded goodwill may be impaired. We first performed a qualitative assessment of goodwill, a Step 0 analysis, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative impairment analysis consisted of evaluating macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, relevant entity-specific events, events affecting a specific reporting unit, and sustained decrease in the share price. If we determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value we performed a quantitative impairment test. This test identifies both the existence of and the amount of goodwill impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount goodwill is not impaired. If the carrying amount of a reporting unit exceeded its fair value an impairment loss is recognized in amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit. When performing a quantitative impairment test we made various estimates and assumptions in determining the estimated fair value of the reporting unit, including estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit.

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner that we use the acquired asset and significant negative industry or economic trends.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2022.