BlackSky Technology Inc. General form of registration statement for all companies including face-amount certificate companies

General form of registration statement for all companies including face-amount certificate companies

Fair Value of Financial Instruments

Fair Value of Financial Instruments

6 Months Ended

12 Months Ended

Jun. 30, 2021

Dec. 31, 2020

19.	Fair Value of Financial Instruments

Recurring basis

The following tables present information about the Company’s liabilities that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, as well as indicate the fair value hierarchy level of the valuation techniques and inputs that the Company utilized to determine such fair value:


June 30, 2021	Quoted Prices in Active Markets		Significant Other Observable Input		Significant Other Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Liabilities
Convertible Bridge Notes (1)	$	—	$	—	$	77,574
Class A Common Stock Warrants		—		—		32,889
Consent Fee Liability		—		—		2,983
Series B Preferred Stock Warrants		—		—		1,106
Series C Preferred Stock Warrants		—		—		70

	$	—	$	—	$	114,622

(1)	The Convertible Bridge Notes includes loans from Mithril II, LP in the principal amount of $15 million, VCVC in the principal of $5 million.


December 31, 2020	Quoted Prices in Active Markets		Significant Other Observable Input		Significant Other Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)
Liabilities
Series B Preferred Stock Warrants	$	—	$	—	$	508
Series C Preferred Stock Warrants		—		—		50

	$	—	$	—	$	558

The Company’s warrant and consent fee liability are classified as other current liabilities in the unaudited consolidated condensed balance sheets, and changes in the liability balance are recorded to

unrealized gain or loss in the unaudited consolidated condensed statement of operations. The consent fee liability can be settled in either shares of Class A

Common Stock

at a conversion price of 80% of the deemed closing value on the date of the SPAC Transaction or for a $2.5 million cash payment. As a result, the consent fee is determined to be a freestanding liability under ASC 480,

Distinguishing Liabilities from Equity

, which provides for freestanding instruments that represent obligations to issue a variable number of shares to be classified as liabilities.

The carrying values of the following financial instruments approximated their fair values as of June 30, 2021 and December 31, 2020 based on their short-term maturities: cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, leases payable and short-term debt and other current liabilities.

There were no transfers into or out of any of the levels of the fair value hierarchy during the six months ended June 30, 2021 or 2020.

The following is a summary of changes in the fair value of the Level 3 liabilities during the six months ended June 30, 2021 and 2020:


	Convertible Bridge Notes		Class A Common Stock Warrants		Consent Fee Liability		Preferred Stock Warrant Series B and C

	(in thousands)
Balance, December 31, 2020	$	—	$	—	$	—	$	558
Issuance of financial instruments carried at fair value		77,033		18,800		—		—
Liability recorded at fair value		—		—		2,715		—
Loss from changes in fair value		—		14,089		268	$	618
Changes recorded in other comprehensive income		541		—		—		—

Balance, June 30, 2021	$	77,574	$	32,889	$	2,983	$	1,176

Balance, December 31, 2019							$	1
Loss from changes in fair value of the warrant liabilities								279

Balance, June 30, 2020							$	280

The following tables provide quantitative information associated with the fair value measurement of the Level 3 inputs:


	Fair Value as of June 30, 2021		Valuation Methodology	Transaction	Probability of Occurrence			Period (years)		Discount Rate
	(in thousands)
Convertible Bridge Notes	$	77,574	Probability-Weighted Payoff Approach	Merger		90.0	%		0.17		6.9	%
				Maturity		5.0	%		3.84		8.2	%
				Other		5.0	%		0.17 - 0 .34		6.9%-7.0	%
Consent Fee Liability	$	2,983	Probability-Weighted Payoff Approach	Merger		90.0	%		0.17		6.9	%
				Maturity		5.0	%		3.84		8.2	%
				Other		5.0	%		0.17-0.34		6.9	%


	Fair Value as of June 30, 2021		Valuation Methodology	Transaction		Probability of Occurrence			Period (years)
	(in thousands)
Class A Common Stock Warrants	$	32,889	Option Pricing Method (“OPM”)		Merger		90.0	%		0.17
					Other		10.0	%		0.17


	Fair Value as of June 30, 2021		Valuation Methodology	Significant Other Unobservable Inputs	Inputs
	(in thousands)
Series B Preferred Stock Warrants	$	1,106	Black-Scholes Option Pricing Model	Preferred stock value	$	1.1140
				Exercise price of warrant	$	0.0100
				Term in years		0.17
				Risk-free interest rate		0.05	%
				Volatility		50.0	%


	Fair Value as of June 30, 2021		Valuation Methodology	Significant Other Unobservable Inputs	Inputs
	(in thousands)
Series C Preferred Stock Warrants	$	70	Black-Scholes Option Pricing Model	Preferred stock value	$	4.6506
				Exercise price of warrant	$	4.3177
				Term in years		0.17
				Risk-free interest rate		0.05	%
				Volatility		15.0	%

20.	Fair Value of Financial Instruments

Recurring basis

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2020 and 2019 and indicate the fair value hierarchy level of the valuation techniques and inputs that the Company utilized to determine such fair value:


December 31, 2020	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Input (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)
Liabilities
Series B Preferred Stock Warrants	$	—	$	—	$	508
Series C Preferred Stock Warrants		—		—		50

	$	—	$	—	$	558


December 31, 2019	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Input (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)
Liabilities
Series B Preferred Stock Warrants	$	—	$	—	$	1
Series C Preferred Stock Warrants		—		—		—

	$	—	$	—	$	1

The Company’s warrant liabilities are classified as other current liabilities in the consolidated balance sheets and changes in the liability are recorded to unrealized gain or loss in the consolidated statement of operations.

The carrying values of the following financial instruments approximated their fair values as of December 31, 2020 and 2019 based on their short-term maturities: cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities, leases payable and short-term debt and other current liabilities.

There were no transfers into or out of each of the levels of the fair value hierarchy during the years ended December 31, 2020 or 2019.

The following is a summary of changes in the fair value of the Level 3 warrants liabilities for the years ended December 31, 2020 and 2019:


	December 31,
	2020		2019
	(in thousands)
Balance at the beginning of the year	$	1	$	542
Loss/(gain) from changes in fair value of the warrant liabilities		557		(541	)

Balance at the end of the year	$	558	$	1

In October 2019, the promissory notes issued in 2018 were converted to both common stock and Series C redeemable convertible preferred stock under the 2019 Omnibus Agreement. These promissory notes were measured at fair value, and were classified within Level 3 of the fair value hierarchy. The Company performed a fair value measurement of the promissory Notes immediately prior to conversion, which resulted in a realized gain of $4.1 million. The following is a summary of changes in the fair value of the Level 3 promissory notes for the year ended December 31, 2019:


	December 31,
	2019
	(in thousands)
Balance at the beginning of the year	$	24,000
Accrued interest		2,400
Realized gain on conversion of promissory notes		(4,113	)

Balance at the conversion date, October 31, 2019	$	22,287

Non-recurring

basis

Assets measured at fair value on a

non-recurring

basis consist of certain common stock warrants. The Company’s

non-recurring

financial instruments are classified within Level 3 of the fair value hierarchy as the inputs are unobservable and reflect management’s estimates of assumptions that market participants would use.

In the year ended December 31, 2019, the Company issued 33.7 million of common stock warrants in conjunction with the 2019 Omnibus Agreement, as further described in Note 14. The initial fair value measurement of these

non-recurring

equity warrants is insignificant to the consolidated financial statements.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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