Business Context and Reporting Period
Osprey Technology Acquisition Corp. filed this unaudited Form 10-Q for the quarter ended March 31, 2021. Although the requested company is BlackSky Technology Inc., the filing is by Osprey, a special purpose acquisition company that had not yet completed its proposed business combination with BlackSky Holdings, Inc.
Osprey had generated no operating revenue and had not commenced operating activities. Its activities consisted principally of formation, its 2019 initial public offering, identifying a target, and pursuing the proposed BlackSky transaction.
Financial Condition and Results
| Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 |
|---|---|---|
| Operating and formation costs | $2.2 million | $0.3 million |
| Net income (loss) | $(12.9) million | $6.4 million |
| Interest income from Trust Account | $47,155 | $1.2 million |
| Change in warrant liability | $(10.7) million | $5.4 million |
| Net cash used in operating activities | $268,358 | $342,023 |
The quarter’s net loss was driven primarily by a $10.7 million increase in the fair value of warrant liabilities and higher operating and formation costs. The filing does not provide an operating revenue or operating margin because the company had no operating revenue.
- Cash outside the Trust Account was $171,208 at March 31, 2021, compared with $399,516 at December 31, 2020.
- Marketable securities in the Trust Account totaled $318.1 million, substantially invested in U.S. Treasury bills.
- Accounts payable and accrued expenses were $4.1 million; deferred underwriting fees were $11.1 million.
- Warrant liabilities increased to $46.5 million from $35.7 million at December 31, 2020.
- Class A common stock subject to possible redemption was $318.3 million, representing 31.625 million shares.
- Working capital deficit was $3.8 million, excluding $50,000 of franchise taxes payable and $255,364 of prepaid income taxes.
- The company reported no long-term debt, capital lease obligations, operating lease obligations, or off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Net results changed from $6.4 million of income in the first quarter of 2020 to a $12.9 million loss in the first quarter of 2021.
- Operating and formation costs increased from $258,326 to $2.2 million, reflecting increased transaction-related and public-company expenses.
- Trust Account interest income declined from $1.2 million to $47,155.
- The warrant valuation moved from a $5.4 million gain in 2020 to a $10.7 million loss in 2021, materially affecting reported earnings but not operating cash flow.
- Cash used in operating activities improved to $268,358 from $342,023, despite the reported net loss, primarily because the warrant remeasurement was non-cash.
- Stockholders’ equity declined from $5.0 million at December 31, 2020 to a deficit of $61.3 million at March 31, 2021, principally because redeemable shares were reclassified and adjusted to redemption value.
Transaction, Outlook, Risks, and Unusual Items
On February 17, 2021, Osprey entered into a merger agreement with BlackSky Holdings and its wholly owned merger subsidiary. The proposed transaction contemplated approximately $925 million of base merger consideration, subject to adjustments specified in the agreement, paid in newly issued Osprey Class A common stock valued at $10 per share.
In connection with the proposed merger, investors subscribed for 18.0 million shares at $10 per share, representing a $180 million PIPE investment. The proceeds were expected to repay certain BlackSky indebtedness and fund general working capital after closing. The transaction remained subject to specified closing conditions and was not completed as of March 31, 2021.
- Osprey was required to complete a business combination by November 5, 2021 or liquidate, redeeming public shares from the Trust Account. Warrants could expire worthless upon liquidation.
- Management stated that additional capital might be required to fund working capital and transaction costs, but the Sponsor, officers, and directors were not obligated to provide financing.
- These liquidity conditions raised substantial doubt about Osprey’s ability to continue as a going concern through November 5, 2021.
- COVID-19 could adversely affect the search for or completion of a business combination, but the specific financial impact was not determinable.
- The filing disclosed a material weakness in internal control over financial reporting related to the restatement of the 2020 financial statements. Disclosure controls and procedures were therefore concluded to be ineffective as of March 31, 2021.
- Warrants were classified as liabilities and remeasured each reporting period, creating potentially significant non-cash earnings volatility.
- The filing reported no legal proceedings and no material changes to the risk factors in the 2020 Form 10-K/A.
Important Facts for Investors to Verify
- Confirm whether the proposed Osprey-BlackSky merger ultimately closed, its closing date, final consideration, and resulting ownership and dilution.
- Review the final terms and funding status of the $180 million PIPE investment, including any conditions, cancellations, or changes.
- Assess BlackSky’s actual operating revenue, losses, cash flows, debt, liquidity, and backlog separately; those operating metrics are not presented in this Osprey 10-Q.
- Verify the status and remediation of the disclosed material weakness in internal control over financial reporting.
- Evaluate redemption levels, the amount remaining in the Trust Account, Sponsor support obligations, and the risk that the business combination could fail.
- Review the valuation and potential dilution from public warrants, private placement warrants, founder shares, assumed options, and other equity-linked instruments.