VIRGIN ORBIT HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The following discussion and analysis provides information that Virgin Orbit's
management believes is relevant to an assessment and understanding of Virgin
Orbit's consolidated results of operations and financial condition. You should
read this discussion and analysis of our financial condition and results of
operations together with our financial statements and related notes included
elsewhere in this Annual Report. This discussion may contain forward-looking
statements based upon Virgin Orbit's current expectations, estimates and
projections that involve risks and uncertainties. Actual results could differ
materially from those anticipated in these forward-looking statements due to,
among other considerations, the matters discussed in the sections entitled

Part I. Item 1A. Risk Factors and Cautionary Statement Regarding Forward-Looking Statements .

The following is a discussion and analysis of, and a comparison between, our
results of operations for the years ended December 31, 2022 and 2021. A
discussion and analysis of, and a comparison between, our results of operations
for the years ended December 31, 2021 and 2020 can be found in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021.

Vieco USA, Inc. entered into a Merger Agreement with NextGen on August 22, 2021.
The Business Combination was completed on December 29, 2021, in conjunction with
which NextGen changed its name to Virgin Orbit Holdings, Inc. (hereafter
referred to as "Virgin Orbit", the "Company", "we", "us" or "our", unless the
context otherwise requires).

Overview

We are a vertically integrated space company that provides customers dedicated
and rideshare small-satellite launch capabilities. Our philosophy is to operate
a mobile launch system that can launch "at any time, to any orbit, without
warning." Our vision is to use space to drive positive and lasting change on
Earth, from connecting communities to advancing scientific initiatives;
supporting America's and other nations' space presence, supporting the global
space operations that enhance the way joint and coalition forces fight, and
helping create the next generation of world-changing space technology.

We have been primarily focused on and engaged in designing and developing launch
solutions for small-satellites since our inception in 2017. We have incurred net
losses of $191.2 million, $157.3 million, and $121.7 million for the years ended
December 31, 2022, 2021 and 2020, respectively, and expect to incur significant
losses in the near term.

Liquidity, Voluntary Petitions for Bankruptcy and Going Concern

Since achieving commercialization in January 2021, we have continued to make
significant investments in capital expenditures to build and expand our
production for commercial small-satellite launches, hire top-tier leaders and
innovators, and continue to invest in research and development. However, as
discussed below under   Liquidity and Capital Resources - Liquidity and Going
Concern  , our history of losses and the possibility that we may not be able to
raise sufficient capital to finance our operations raise substantial doubt
regarding our ability to continue as a going concern. Our ability to capitalize
on industry tailwinds and execute on our growth strategy will depend on our
ability to access additional capital. We will require additional financing to
continue our operations and grow our business, and a failure to obtain this
necessary capital when needed on acceptable terms, or at all, would force us to
delay, limit, reduce or terminate our operations, which could have the result of
causing our business to fail and liquidating with little or no return to
investors.

On April 4, 2023, the Debtors commenced voluntary proceedings under Chapter 11
of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
The Chapter 11 proceedings are jointly administered under the caption In re
Virgin Orbit Holdings, Inc., et al. (Case No. 23-10405). (the "Chapter 11
Cases"). The Debtors continue to operate their business as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court. On April 5, 2023, the Debtors have received interim
approval of a variety of "first day" motions containing customary relief
intended to assure the Debtors' ability to continue their ordinary course
operations.

In connection with the Chapter 11 Cases, we and our domestic subsidiaries
entered into a Senior Secured Superpriority Debtor-in-Possession Term Loan
Credit Agreement (the "DIP Credit Agreement") with VIL on April 6, 2023, subject
to final approval of the Bankruptcy Court. Please refer to "-Liquidity and
Capital Resources - Debtor-in-Possession Term Loan Credit Agreement" below for
further information.

The significant risks and uncertainties related to our liquidity and Chapter 11
Cases described above raise substantial doubt about our ability to continue as a
going concern.

Business Combination
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On August 22, 2021, NextGen via Pulsar Merger Sub, Inc. ("Pulsar Merger Sub")
and Vieco USA entered into a Merger Agreement which contemplated Pulsar Merger
Sub merging with and into Vieco USA, with Vieco USA surviving the merger as a
wholly owned subsidiary of NextGen (the "Business Combination"). On December 29,
2021, as contemplated by the Merger Agreement, we consummated the Business
Combination and changed our name to Virgin Orbit Holdings, Inc. The Business
Combination was accounted for as a reverse recapitalization. Virgin Orbit common
stock and warrants commenced trading on the Nasdaq Stock Market LLC ("Nasdaq")
under the symbols "VORB" and "VORBW," respectively, on December 29, 2021.

See Part IV. Note 1. Organization and Business Operations - The Business Combination in the notes to the consolidated financial statements included in this Annual Report for further details.

Key Factors Affecting Our Performance
In addition to our ability to obtain additional capital to continue our
operations as a going concern, we believe that our financial performance depend
on several factors that present significant opportunities for our business, but
also pose risks and challenges, including those discussed below and in   Part I.
Item 1A. Risk Factors   in this Annual Report.

Customer Demand

Since our first test flight in 2020, a broad range of potential customers,
including national security organizations, commercial satellite providers, and
civil service providers have shown significant interest in our service. Our
commercial customers include satellite and constellation providers such as Arqit
and SatRev. Civil customers mostly fall within our spaceport and launch
offerings for civil space agencies with customers including, NASA, Spaceport
Cornwall in the United Kingdom, Spaceport Japan at Oita Airport in Japan, and
Alcantara Launch Center in Brazil. Outside of spaceports, we also provide
dedicated launch services for civil space agencies such as NASA, and we expect
to provide such services to other governments which have space agencies but lack
the infrastructure for domestic space launches. Some national security and
defense customers include the United States Space Force, the U.S. Air Force,
National Reconnaissance Office and the Missile Defense Agency. Leveraging our
four successful orbital launches in 2021 and 2022, we have been able to secure
approximately $192.1 million of binding agreements as of December 31, 2022.

We also believe there is near- and medium-term growth potential in the space
market, driven by rapid advances in launch and satellite technology. As a
result, there has been a proliferation of private sector space companies
pursuing the growing demand for space solutions across multiple applications. As
one of the few proven small-satellite launch providers to have successfully
delivered payloads to their intended orbit, we believe we are well-positioned to
benefit from these attractive industry tailwinds. Therefore, we plan to leverage
our existing launch capabilities and our track record as a systems integrator to
provide end-to-end value-added services for Internet of Things ("IoT") and Earth
Observation ("EO") applications through the combination of agreements with
satellite operators and a satellite constellation we will own and operate. Using
a satellite-as-a-service model, we expect to deploy our own satellites in the
next few years to serve government and commercial customers, both domestically
and internationally.

Technology Innovation

We design, build, and test LauncherOne in-house and operate at the forefront of
composite structures, liquid rocket engines, ultra-responsive launch systems,
ruggedized avionics, optimized flight software, automated flight safety systems,
and advanced manufacturing techniques. We believe the synergy of these
technologies enables greater responsiveness to the commercial and government
small-satellite markets. Our unique air-launch system launches satellites into
space from a rocket carried beneath the wing of a modified Boeing 747-400,
meaning it has greater flexibility, mobility and responsiveness than other
satellite launch systems. To continue establishing market share and attracting
customers, we plan to continue our substantial investments in research and
development for the continued enhancements of LauncherOne and commercialization
of future generations of our rockets.

Manufacturing Capacity

As we plan to continue to scale our production of rockets for our
small-satellite services, we are making significant investments in capital
expenditures for building and enhancing our manufacturing capacity and
facilities. We expect our capital expenditures to continue to increase for the
next several years. The amount and timing of our future manufacturing capacity
requirements, and resulting capital expenditures, will depend on many factors,
including the pace and results of our research and development efforts to meet
technological development milestones, our ability to develop and manufacture
rockets, our ability to achieve sales, and customer demand for our rockets at
the levels we anticipate. Our headquarters in Long Beach, California has
combined facility space of 195,000 square feet and is used for design,
engineering, manufacturing, integration, assembly, test activities, payload
processing and encapsulation. As of December 31, 2022, we had approximately six
rockets in production and the processes, technology and machinery/tooling to
support a production capacity of approximately 20 rockets annually.
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Global Pandemic and Macroeconomic Conditions

We continue to monitor how the COVID-19 pandemic is affecting our employees and
business. While we are no longer experiencing delays from measures taken in
response to the COVID-19 pandemic, the longevity and extent of the COVID-19
pandemic remain uncertain. Measures we may need to take in the future and
challenges that result from the pandemic could affect our operations necessary
to complete the development of our spaceflight systems, our scheduled flight
test programs and commencement of our commercial flights.

Further, the global economy, including credit and financial markets, has
recently experienced extreme volatility and disruptions, including severely
diminished liquidity and credit availability, rising interest and inflation
rates, declines in consumer confidence, declines in economic growth, increases
in unemployment rates and uncertainty about economic stability. All of these
factors could impact our liquidity and future funding requirements, including
but not limited to our ability to raise additional capital when needed on
acceptable terms, if at all. The duration of this economic slowdown is uncertain
and the impact on our business is difficult to predict. See the section entitled

Part I. Item 1A. Risk Factors for further discussion of the impacts of the COVID-19 pandemic and the global economy on our business.

Components of Results of Operations

Revenue

Launch Related Services

Small-satellite launch operations revenue is recognized for providing customer
launch services by placing payloads into orbit. Revenue for each customer
payload is recognized at a point in time when the performance obligation is
complete, which is typically at the point of launch. We began recognizing
revenue for launch services in January 2021 from our initial launch with
NASA. Our second launch was completed in June 2021, with successful deployments
of payloads in each of our core offerings: commercial, civil and defense. As of
the date of this Annual Report, we successfully completed four orbital launches
since 2021, out of Mojave, California. To date, we have delivered 33 satellites
to their desired orbits with high precision. We generated $32.7 million and $6.0
million of launch service revenue during the years ended December 31, 2022 and
2021, respectively, from launch related services. We expect a significant
portion of our future revenue growth to be derived from further
commercialization of our small-satellite launch operations and expansion of our
portfolio of space offerings.

Engineering Services

We also generate revenue by providing engineering services, which primarily
relates to research and studies, to our customers. Revenue is recognized as
control of the performance obligation is transferred over time to the customer.
As of December 31, 2022, we have six engineering service revenue contracts for
which we expect to transfer all remaining performance obligations to the
customers by the year ended December 31, 2027. We expect that we will continue
to earn revenue from engineering services, but that such revenue will represent
a smaller portion of our future revenue growth compared to launch services. We
generated $0.4 million and $1.4 million for the years ended December 31, 2022
and 2021, respectively, from engineering services.

Cost of Revenue

Cost of revenue relates to launch services and engineering services, which
primarily includes costs for materials and human capital, such as payroll and
benefits for our launch and flight operations. We expect that we will continue
to incur cost of revenue from launch services and engineering services. Since
LauncherOne achieved technological feasibility in January 2021, we began
capitalizing and subsequently charging to cost of revenue the costs incurred to
launch small-satellites. Costs associated with launch services include the costs
for rocket manufacturing, overhead, and launch. Costs for rocket manufacturing
include materials, labor, fuel, payroll and benefits for our launch and flight
operations as well as the depreciation of Cosmic Girl, maintenance and
depreciation of facilities and equipment and other allocated overhead expenses.
As we continue to grow our revenue from further commercialization of our
small-satellite launch operations and expansion of our portfolio of space
offerings, we expect that our cost of revenue will increase.

Gross Profit and Gross Margin

Gross profit is calculated as revenue less cost of revenue. Gross margin is the
percentage obtained by dividing gross profit by its revenue. Our gross profit
and gross margin have varied historically based on the mix of revenue from
small-satellite launch services and engineering services. Although our gross
profit and gross margin may continue to vary by offering as we scale our
business, we expect our overall gross profit and gross margin to improve over
time.
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Selling, General and Administrative Expense

Selling, general and administrative expenses consist of personnel-related
expenses related to general corporate functions, primarily including executive
management and administration, finance and accounting, legal, business
development, and government affairs, as well as certain allocated costs.
Personnel-related expenses primarily include salaries and benefits. Allocated
costs include costs related to information technology, facilities, human
resources and safety. Personnel-related expenses also include allocated
sustaining activities relating to launch operations and production processes
support, including required launch system maintenance, updates and
documentation.

As we continue to grow, we expect that our selling, general and administrative
costs will increase. We also expect to incur additional expenses as a result of
operating as a public company, including expenses necessary to comply with the
rules and regulations applicable to companies listed on a national securities
exchange and related to compliance and reporting obligations pursuant to the
rules and regulations of the SEC, as well as higher expenses for fiduciary and
executive liability coverage, investor relations and professional services.

Research and Development Expense

We conduct research and development activities to develop existing and future
technologies that advance our satellite launch and space solution offerings.
Research and development activities include basic research, applied research,
concept formulation studies, design, development and related test program
activities. Costs incurred to develop our LauncherOne rockets primarily include
equipment, material, labor and overhead. Costs incurred for performing test
flights primarily include labor and fuel expenses for launch and flight
operations. Research and development costs also include rent, maintenance, and
depreciation of facilities and equipment and other allocated overhead expenses.
We plan to continue to make substantial investments in research and development
for the continued enhancements of LauncherOne and the development of a third
stage modified LauncherOne for additional services. As LauncherOne achieved
technical feasibility in January 2021, we began capitalizing the production
costs of our LauncherOne rockets.

Interest Expense, net

Interest expense, net relates to the cost of financing our Convertible Notes (as
defined below), finance lease obligations, cost of financing our director and
officer insurance, and income from interest bearing demand deposit accounts.

Change in Fair Value of Equity Investments

Change in fair value of equity investments consists of the changes in fair value of our equity investments.

Change in Fair Value of Liability Classified Warrants

Change in fair value of liability classified warrants relates to remeasurement
of our public and private placement warrants to fair value as of any respective
exercise date and as of each subsequent balance sheet date.

Change in Fair Value of Convertible Notes

Change in fair value of convertible notes relate to remeasurement of our Convertible Notes to fair value as of any respective conversion date and as of each subsequent balance sheet date.

Other Income

Other income consists of sources of income that are not related to our primary operations, including miscellaneous non-operating items, such as income recognized from non-ordinary course of business activities.

Income Tax Provision

Our provision for income taxes consists of an estimate for U.S. federal and
state income taxes based on enacted rates, as adjusted for allowable credits,
deductions, uncertain tax positions, changes in deferred tax assets and
liabilities and changes in the tax law. We maintain a valuation allowance
against the full value of our U.S. and state net deferred tax assets because we
believe it is more likely than not that the recoverability of these deferred tax
assets will not be realized.
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Results of Operations

The following table sets forth our results of operations for the periods presented. The period-to-period comparisons of financial results are not necessarily indicative of future results.

                                                                                             Years Ended December 31,
(In thousands)                                                   2022      2021         2020
Revenue                                                                                        $  33,106          $   7,385          $   3,840
Cost of revenue                                                                                   85,739             37,872              3,168
Gross loss                                                                                       (52,633)           (30,487)               672
Selling, general and administrative expenses                                                     120,467             92,796             43,003
Research and development expenses                                                                 43,263             48,079            137,135
Operating loss                                                                                  (216,363)          (171,362)          (179,466)
Other income (expense), net:
Change in fair value of equity investments                                                        (7,486)             6,792                  -
Change in fair value of liability classified warrants                                             17,592              3,749                  -
Change in fair value of convertible notes                                                          9,101                  -                  -
Interest expense, net                                                                             (1,326)               (24)            (4,852)
Other income                                                                                       7,335              3,560             62,671
Total other income, net:                                                                          25,216             14,077             57,819
Loss before income taxes                                                                        (191,147)          (157,285)          (121,647)
Provision for income taxes                                                                            11                  6                  5
Net loss                                                                                        (191,158)          (157,291)          (121,652)


Revenue

                                                   Years Ended
                                                   December 31,            $            %
(In thousands)              2022      2021         change        change
Revenue                                                  $ 33,106      $ 7,385      $ 25,721       348  %


Revenue increased by $25.7 million, or 348%, for the year ended December 31,
2022 compared to the year ended December 31, 2021 primarily attributable to an
increase of $26.7 million related to launch service revenue from our two
launches and other launch-related service revenue earned, offset by the decrease
in engineering services revenue of $1.0 million for the year ended December 31,
2022.

Revenue increased by $3.5 million, or 92%, for the year ended December 31, 2021
compared to the year ended December 31, 2020 primarily attributable to the
recognition of launch services revenue of $6.0 million from our two launches for
the year ended December 31, 2021. We did not generate any revenue from launch
services during the year ended December 31, 2020. A $0.8 million increase in
revenue from the Royal Air Force pilot training program was offset by a
$0.6 million decrease in revenue from engineering services and $1.9 million
decrease in revenue from bridge ventilators built to help in the fight against
the COVID-19 pandemic during 2020.

Cost of Revenue and Gross Loss

                                                   Years Ended
                                                   December 31,             $             %
(In thousands)              2022      2021                change      change
Revenue                                                 $ 33,106       $  7,385       $ 25,721       348  %
Cost of revenue                                           85,739         37,872         47,867       126  %
Gross loss                                               (52,633)       (30,487)       (22,146)       73  %

Gross margin                                                (159) %        (413) %

Cost of revenue increased by $47.9 million, or 126%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily attributable to our two launches in January and July 2022 and the recognition of contract losses of $30.1 million. For the year ended December 31, 2022, we determined inventory related to certain near-term rocket builds was not recoverable and as a result, we recognized an inventory write-down of $2.0 million to its estimated net

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realizable value. Gross profit decreased by $22.1 million, and gross margin
increased by 254 percentage points for the year ended December 31, 2022 compared
to the year ended December 31, 2021 primarily due to costs of launch-related
service revenue, additional provisions for contract losses booked on future
launches, manufacturing variances, and inventory adjustments to net realizable
value related to certain rocket builds that were not recoverable.

Cost of revenue increased by $34.7 million, or 1095%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020 primarily
attributable to our two launches in January and June 2021 and the recognition of
contract losses of $17.4 million. After the launch in January 2021, we began to
capitalize costs associated with the launch services. For the year ended
December 31, 2021, we determined inventory related to certain near-term rocket
builds was not recoverable and as a result, we recognized an inventory
write-down of $4.1 million to its estimated net realizable value. Gross profit
decreased by $31.2 million, and gross margin decreased by 431 percentage points
for the year ended December 31, 2021 compared to the year ended December 31,
2020 primarily attributable to the shift of revenues from the development of
bridge ventilators in 2020 to launch services with the two launches in 2021.

Selling, General and Administrative Expenses

                                                                               Years Ended
                                                                              December 31,                    $                 %
(In thousands)                                             2022          2021           change            change
Selling, general and administrative expenses                                          $ 120,467          $ 92,796          $ 27,671               30  %


Selling, general and administrative expenses increased by $27.7 million, or 30%,
for the year ended December 31, 2022 compared to the year ended December 31,
2021, which was primarily attributable to the increase in personnel-related
expenses including stock based compensation, and public company costs including
directors and officers insurance and professional fees.

Selling, general and administrative expenses increased by $49.8 million, or
116%, for the year ended December 31, 2021 compared to the year ended
December 31, 2020 primarily attributable to the increase in personnel-related
expenses of $48.1 million, $0.8 million of facilities, overhead and general
corporate expenses, and $0.8 million in professional and legal fees. The
increase in personnel-related expenses is primarily related to sustaining the
launch and production processes during the year ended December 31, 2021. The
sustaining activities relating to launch operations and production processes
support, such as required launch system maintenance, updates and documentation,
increased upon LauncherOne reaching technological feasibility as a result of the
launch in January 2021. The increase in personnel-related expenses also includes
a $4.2 million increase in stock-based compensation expense attributed to stock
options granted to a former employee.

Research and Development Expenses

                                                                     Years Ended
                                                                     December 31,                          %
(In thousands)                                2022      2021         $ change       change
Research and development expenses                                          

$ 43,263 $ 48,079 $ (4,816) (10) %

Research and development expenses decreased by $4.8 million, or 10%, for the
year ended December 31, 2022 compared to the year ended December 31, 2021, which
was primarily attributable to reaching technological feasibility upon our
successful launch in January 2021, with the majority of those launch related
expenses included in research and development. For the full year of 2022,
efforts related to sustaining the launch and production processes were included
in selling, general, and administrative expenses, and efforts related to the
production and launch were included in inventory or costs of goods sold.

Research and development expenses decreased by $89.1 million, or 65%, for the
year ended December 31, 2021 compared to the year ended December 31, 2020
primarily attributable to the decreases in personnel-related expenses of $42.1
million facilities, overhead and payroll related expenses of $45.8 million and
professional services fees of $1.2 million due to LauncherOne reaching technical
feasibility during the year ended December 31, 2021. LauncherOne reached
technological feasibility upon the successful launch in January 2021. Since
then, a portion of the research and development resources to
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develop the LauncherOne technology have shifted focus from technological development to sustaining the launch and production processes as well as capitalized labor and overhead to inventory.

Change in Fair Value of Equity Investments

                                                                                Years Ended
                                                                                December 31,                 $                 %
(In thousands)                                         2022      2021             change            change
Change in fair value of equity investments                                             $ (7,486)         $ 6,792          $ (14,278)             (210) %


Change in fair value of equity investment income decreased by $14.3 million, or
210%, for the year ended December 31, 2022 compared to the year ended
December 31, 2021 primarily due to the net change in fair value of equity
investment in Arqit of $14.5 million, offset by the decrease of $0.2 million
unrealized loss for the equity investment in Sky and Space Global Limited
("SAS").

Change in fair value of equity investments increased by $6.8 million, or 100%,
for the year ended December 31, 2021 compared to the year ended December 31,
2020 attributable to the unrealized gain of $7.0 million from the equity
investment in Arqit, and partially offset by the $0.2 million unrealized loss
for the equity investment in SAS.

Change in Fair Value of Liability Classified Warrants

                                                                                Years Ended
                                                                                December 31,                 $                 %
(In thousands)                                         2022      2021             change           change
Change in fair value of liability classified
warrants                                                                               $ 17,592          $ 3,749          $ 13,843              369  %


Change in fair value of liability classified public and private placement
warrants increased by $13.8 million, or 369%, for the year ended December 31,
2022 compared to the year ended December 31, 2021 resulting in a gain due to the
decrease in fair value of liability classified warrants.

Change in fair value of liability classified warrants increased by $3.7 million,
or 100%, for the year ended December 31, 2021 compared to the year ended
December 31, 2020 as a result of the public and private placement warrants that
were originally issued by NextGen and subsequently assumed by the Company as
part of the Business Combination. The public and private placement warrants are
recorded on the balance sheet at fair value with the carrying amount subject to
remeasurement to fair value as of any respective exercise date and as of each
subsequent balance sheet date.

Change in Fair Value of Convertible Notes

                                                                              Years Ended
                                                                              December 31,           $            %
(In thousands)                                         2022      2021         change      change
Change in fair value of convertible notes                                   

$ 9,101 $ - $ 9,101 100%

The change in fair value of convertible notes created a gain of $9.1 million, or
100%, attributable to the decrease in fair value for the convertible debenture
(the "YA II Convertible Debenture") issued and sold to YA II PN, Ltd. ( the
"Investor") on June 29, 2022 in the principal amount of $50.0 million, and the
two VIL convertible notes totaling $45.0 million issued and sold to Virgin
Investments Limited (the "2022 VIL Convertible Notes"). The 2022 VIL Convertible
Notes are comprised of senior unsecured and secured convertible notes issued on
November 4, 2022 and December 19, 2022, respectively, in the principal amounts
of $25.0 million and $20.0 million, respectively, which are convertible into
shares of our common stock or other qualified securities (each as further
described below). The YA II Convertible Debenture and the 2022 VIL Convertible
Notes are recorded on the balance sheet at fair value with the carrying amount
subject to remeasurement to fair value as of each subsequent balance sheet date.

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Interest Expense, Net

                                                         Years Ended
                                                         December 31,           $            %
(In thousands)                    2022      2021         change       change
Interest expense, net                                          $ (1,326)     $  (24)     $ (1,302)  $ (1,302)    5425  %


Interest expense, net increased by $1.3 million, or 5425%, for the year ended
December 31, 2022 compared to the year ended December 31, 2021 primarily due to
accrued interest expense of $1.7 million related to the YA II Convertible
Debenture and the 2022 VIL Convertible Notes, interest expense for financing of
our director and officer insurance of $0.1 million, offset by the increase in
money market interest income of $0.5 million.

Interest expense, net decreased by $4.8 million, or 100%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020 was attributable
to the loan the Parent Company forgave for the outstanding principal and accrued
interest payable of $235.1 million revolving loan facility ("RLF"). The RLF was
considered extinguished because of such contribution.

Other Income

                                                        Years Ended
                                                        December 31,               $             %
(In thousands)                2022      2021          change       change
Other income, net                                                   7,335       3,560        $ 3,775       106  %


Other income increased by $3.8 million, or 106% for the year ended December 31,
2022 compared to the year ended December 31, 2021 primarily due to revenue
recognition of $7.3 million of the initial launch termination refund related to
the bankruptcy filing of our former largest customer, compared to the
non-recurring SAS income of $3.6 million recognized in 2021, primarily
attributable to $1.7 million for the initial ordinary shares of SAS issued to us
in exchange for the termination of the LSA, as well as a non-refundable deposit
of $1.2 million.

Other income decreased by $59.1 million, or 94% for the year ended December 31,
2021 compared to the year ended December 31, 2020 primarily attributable to the
recognition of $62.2 million of non-refundable deposits received as a result of
the bankruptcy filing of our largest customer for the year ended December 31,
2020. For the year ended December 31, 2021 we received $3.6 million primarily
attributable to $1.7 million for the initial ordinary shares of SAS issued to us
in exchange for the termination of the LSA, as well as a non-refundable deposit
of $1.2 million.

Provision for Income Taxes

Provision for income taxes was immaterial for the years ended December 31, 2022
and 2021. We have accumulated net operating losses at the federal and state
level for the time period during which we had not yet began commercial
operations. We maintain a substantially full valuation allowance against net
deferred tax assets. The income tax expenses are primarily related to minimum
state filing fees in the states where we have operations.

Liquidity and Capital Resources

We only began commercial launch operations in 2021 and have been dependent on
cash flows from financing activities to fund our operations. Our cash and cash
equivalents were $51.2 million as of December 31, 2022, and we will require
additional financing in order to continue and expand our operations and grow our
business. If we are not able to obtain sufficient additional financing, our
business may fail and we may be forced to liquidate with little or no return to
investors.

Liquidity Requirements

We face uncertainty regarding the adequacy of our liquidity and capital
resources and have extremely limited, if any, access to additional financing. In
addition to the cash requirements necessary to fund ongoing operations, we
expect to incur significant costs associated with the bankruptcy process,
including legal, financial and restructuring advisors to the Company and certain
of our creditors, and that we will continue to incur these significant costs
throughout the Chapter 11 Cases. Our ability to obtain confirmation of a
successful plan of reorganization in timely manner to limit these costs is
critical to ensuring our liquidity is sufficient during the bankruptcy process.
Assuming we are able to obtain sufficient additional financing and implement a
plan of reorganization to continue as a going concern, we expect our expenses to
increase in connection with ongoing activities, particularly as we continue to
advance the development of our technologies,
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commercialize our satellite launch operations and continue to develop our space
solution offerings, and continue to build and expand our production of rockets
and aircraft.

Specifically, we expect our operating expenses to increase as we:

•scale up our facilities, manufacturing processes and capabilities to support expanding our volume of rockets;

•pursue further research and development on our satellite launches and space solution offerings, including those related to our research and education efforts;

•hire additional personnel in research and development, manufacturing operations, testing programs and maintenance as we increase the volume of our satellite launches and expand our space solution offerings;

•seek regulatory approval for any changes, upgrades, or improvements to our technologies and operations in the future; and

•hire additional personnel in management to support the expansion of our operational, financial and information technology functions as a public company.

We have several non-cancelable leases primarily related to the lease of our
manufacturing and testing facilities. These leases generally contain renewal
options for periods ranging from three to ten years and require us to pay all
executory costs, such as maintenance and insurance. Our total remaining lease
obligation as of December 31, 2022 is $24.3 million, with $3.4 million due in
less than one year. We also have non-cancelable purchase commitments as of
December 31, 2022 primarily related to supply and engineering services
providers. Total non-cancelable purchase commitments due in the next five years
is approximately $40.9 million, with $20.9 million due in less than one year.

Additionally, we have been expanding our satellite launch operations and space
solution offerings since commercialization. As of December 31, 2022, we had six
rockets in various stages of production and one carrier aircraft in operation.
Assuming we are able to obtain sufficient additional financing to support our
operations, we expect to accelerate our production of rockets to reach an annual
production capacity of approximately 20 rockets. We have significantly reduced
the per unit cost of producing rockets since production began. As such, we
anticipate the costs to manufacture additional rockets to continue to decrease
on a per unit basis as we advance and scale up our manufacturing processes and
capabilities. However, the recent commercialization of our satellite launch and
space solution offerings and the anticipated expansion of our rocket production
have unpredictable costs and are subject to significant risks, uncertainties and
contingencies, many of which are beyond our control, that may affect the timing
and magnitude of these anticipated expenditures. Many of these risks and
uncertainties are described in more detail in   Part I.     I    tem     1A.
Risk Factors   of this Annual Report. Our future capital requirements will
depend on many factors, including rate of revenue growth, ability to reduce
costs per unit, the expansion of research and development activities, hiring
additional personnel, and investment in manufacturing operations. We may sell
equity securities or debt securities or secure other debt financing in one or
more transactions at prices and in a manner as we may determine from time to
time. If we sell any such equity securities in subsequent transactions, our
current investors may be materially diluted. Any debt financing, if available,
may involve restrictive covenants and could reduce our operational flexibility
or profitability.

Liquidity and Going Concern

The accompanying consolidated financial statements included in this Annual
Report have been prepared assuming the Company will continue as a going concern.
The going concern basis of presentation assumes that the Company will continue
in operation one year after the date these consolidated financial statements are
issued and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business.
We have incurred significant losses since our inception and had an accumulated
deficit of $1,011.6 million as of December 31, 2022. Our cash and cash
equivalents was $51.2 million and $194.2 million as of December 31, 2022 and
December 31, 2021, respectively, and we have not generated positive cash flows
from operations. We have not generated sufficient revenues to provide sufficient
cash flows to enable us to finance our operations internally, and may not be
able to raise sufficient capital to do so. In addition, on April 4, 2023, the
Company filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code. As a result of the Company's assessment of going concern
considerations, management has determined that the liquidity condition, our need
to satisfy certain financial and other covenants in our debtor-in-possession
financing, our need to implement a restructuring plan and the costs, risks and
uncertainties surrounding the Chapter 11 Cases raise substantial doubt about the
Company's ability to continue as a going concern for 12 months following the
issuance of the financial statements.

Management's plans to mitigate an expected shortfall of capital to support
future operations by raising additional funds through borrowings or additional
sales of securities or other sources, and managing our working capital may not
overcome
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or alleviate the substantial doubt that was raised. There is no assurance that
additional financing will be available when needed or that management will be
able to obtain financing on terms acceptable to the Company or whether the
Company will become profitable and generate positive operating cash flow. If the
Company is unable to raise substantial additional capital, operations and
production plans may be scaled back or curtailed. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

Convertible Debenture with YA II PN, Ltd.

In June 2022, we entered into a securities purchase agreement (the "2022
Purchase Agreement") with the Investor, pursuant to which we sold and issued to
the Investor a convertible debenture (the "2022 Convertible Debenture") in the
principal amount of $50.0 million, which is convertible into shares of our
common stock, subject to certain conditions and limitations set forth in the
Purchase Agreement.

The 2022 Convertible Debenture bears interest at an annual rate of 6.0% and has
a maturity date of December 29, 2023. The 2022 Convertible Debenture provides a
conversion right, in which any portion of the principal amount of the 2022
Convertible Debenture, together with any accrued but unpaid interest, may be
converted into shares of our common stock at a conversion price equal to the
lower of (i) $4.64 or (ii) 95% of the average of the two lowest daily volume
weighted average price of our common stock during the three (3) trading days
immediately preceding the date of conversion (but not lower than a certain floor
price, currently set at $0.746, that is subject to further adjustment in
accordance with the terms of the convertible debenture).

In connection with the 2022 Purchase Agreement, the Company and Investor entered
into a registration rights agreement pursuant to which we are required to file a
registration statement registering the resale by the Investor of any shares of
our common stock issuable upon conversion of the 2022 Convertible Debenture
under the Securities Act. Pursuant to the registration rights agreement, we are
required to meet certain obligations with respect to, among other things, the
timeliness of the filing and effectiveness of the Registration Statement (as
defined therein).

Any time beginning 90 days after the issuance of a Debenture that the daily VWAP
is less than the Floor Price for 7 trading days in a period of 10 consecutive
trading days (each such occurrence, a "Triggering Event") and only for so long
as such conditions exist after a Triggering Event, we will be required to make
monthly payments in cash. Each monthly payment shall be in an amount equal to
the sum of (i) the principal amount outstanding as of the date of the Triggering
Event divided by the number of months until the maturity date, (ii) a redemption
premium equal to 10% of the principal amount being redeemed, and (iii) accrued
and unpaid interest hereunder as of each payment date. Each monthly payment
obligation shall be reduced by any amounts converted since the last monthly
payment.

Our obligation to make monthly payments ceases if any time after the applicable
Triggering Event, either (i) we provide the Holder a reset notice (each, a
"Floor Reset Notice") setting forth a reduced Floor Price which shall be equal
to no more than 85% of the Closing Bid Price on the Trading Day immediately
prior to such Reset Notice (and in no event greater than $10 per shares) and
takes all steps necessary to implement such Floor Price reset, including,
without limitation, applying for the additional listing of Conversion Shares on
the Primary Market, or (ii) the daily VWAP is greater than the Floor Price for a
period of 10 consecutive Trading Days, unless a subsequent Triggering Event
occurs.

The 2022 Convertible Debenture may not be converted into common stock to the
extent such conversion would result in the Investor and its affiliates having
beneficial ownership of more than 9.99% of our then outstanding shares of common
stock; provided that this limitation may be waived by the Investor upon not less
than 65 days' prior notice to us. The 2022 Convertible Debenture provides us,
subject to certain conditions, with a redemption right pursuant to which, upon
three business days' prior notice to the Investor in the case of a partial
redemption or ten business days' notice in the case of a full redemption, we may
redeem, in whole or in part, any of the outstanding principal and interest
thereon at a redemption price equal to 2.5% of the principal amount being
redeemed up until October 1, 2022, and thereafter at a redemption price equal to
5.0% of the principal amount being redeemed.

On March 27, 2023, we sold and issued to the Investor a convertible debenture,
convertible into shares of our common stock, in the principal amount of $1.0
million on substantially similar terms as the 2022 Convertible Debenture.

Between January 1, 2023 and March 29, 2023, YA II PN, Ltd. converted a total principal amount of $42.5 million and accrued interest of $1.8 million for 53,796,467 shares of common stock.

The filing of the Chapter 11 Cases constitutes an event of default under the 2022 Convertible Debenture.

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Standby Equity Purchase Agreement

In March 2022, we entered into a standby equity purchase agreement (the "SEPA")
with the Investor, pursuant to which we have the right from time to time at our
option to sell to the Investor up to $250.0 million of our common stock, subject
to certain conditions and limitations set forth in the SEPA.

Upon the initial satisfaction of the conditions to the Investor's obligation to
purchase shares of common stock set forth in the SEPA (the "Commencement"),
including that a registration statement registering the resale by the Investor
of the shares of common stock under the Securities Act that may be sold to the
Investor by us under the SEPA (the "Initial Resale Registration Statement") is
declared effective by the Securities and Exchange Commission (the "SEC") and a
final prospectus relating thereto is filed with the SEC, we will have the right,
but not the obligation, from time to time at our sole discretion until the first
day of the month next following the 36-month period from and after the date of
the SEPA, to direct the Investor to purchase up to a specified maximum amount of
shares of common stock as set forth in the SEPA by delivering written notice to
the Investor. The purchase price of the shares of common stock that we may sell
to the Investor pursuant to the SEPA will be 97.5% of the average of the volume
weighted average price of our common stock during each trading day in the three
(3) consecutive trading days commencing on the trading day following delivery of
such notice (other than any trading days excluded pursuant to the terms of the
SEPA). The maximum amount to be sold pursuant to each notice may not exceed $50
million, and a notice cannot be delivered earlier than six trading days
following the pricing period relating to any prior notice. Any shares of common
stock that may be sold by us under the SEPA will be sold in transactions exempt
from registration under the Securities Act in reliance upon the exemption
afforded under Section 4(a)(2).

The SEPA prohibits us from directing the Investor to purchase any shares of
common stock pursuant to the SEPA if those shares, when aggregated with all
other shares of our common stock then beneficially owned by the Investor and its
affiliates, would result in the Investor and its affiliates having beneficial
ownership of more than the 9.99% of our then outstanding shares of common stock.
Additionally, under applicable Nasdaq rules, we may not issue to the Investor
more than 19.99% of the total number of shares of common stock that were
outstanding immediately prior to the execution of the SEPA without prior
stockholder approval, unless certain stipulations are met. The SEPA also
provides that we may request a pre-advance loan from the Investor in a principal
amount not to exceed $50.0 million. Subject to the terms of the SEPA, we have
the right to terminate the SEPA at any time after Commencement, at no cost or
penalty, upon five trading days' prior written notice. In connection with the
execution of the Purchase Agreement in June 2022, we agreed with the Investor
not to sell to the Investor any shares under the SEPA until the earlier of the
date upon which (i) all amounts outstanding under the convertible debenture have
been fully repaid or converted into shares of common stock or (ii) the Investor
no longer has any right or ability to convert any portion of the convertible
debenture into shares of common stock.

Convertible Notes with VIL

We issued and sold to VIL a $25.0 million convertible note on November 4, 2022
(the "November 2022 VIL Convertible Note"), a $20.0 million convertible note on
December 19, 2022 (the "December 2022 VIL Convertible Note"), a $10.0 million
convertible note on January 30, 2023 (the "January 2023 VIL Convertible Note"),
a $5.0 million note on February 28, 2023 (the "February 2023 VIL Convertible
Note") and a $10.9 million convertible note on March 30, 2023 (the "March 2023
VIL Convertible Note" and together with the November 2022 VIL Convertible Note,
the December 2022 VIL Convertible Note, the January 2023 VIL Convertible Note
and February 2023 VIL Convertible Note, the "VIL Convertible Notes"). The VIL
Convertible Notes are convertible into shares of our common stock or other
Qualified Securities (as defined below), subject to certain conditions and
limitations set forth in the VIL Convertible Notes. Each VIL Convertible Note
was sold pursuant to a subscription agreement between us, VIL and our domestic
subsidiaries (the "Guarantors") named therein that are jointly and severally
guaranteeing our obligations under the VIL Convertible Notes. As of the date of
this Annual Report on Form 10-K, no principal or interest has been repaid on any
of the VIL Convertible Notes.

The VIL Convertible Notes contain customary events of default. The November 2022
VIL Convertible Note and the December VIL Convertible Note bear interest at an
annual rate of 6.0% (or 10.0% during the continuance of an event of default
under such VIL Convertible Note), and the January 2023 VIL Convertible Note, the
February 2023 VIL Convertible Note and the March 2023 VIL Convertible Note bear
interest at an annual rate of 12.0% (or 16.0% during the continuance of an event
of default under such VIL Convertible Note), in each case payable in cash
semi-annually. Each of the VIL Convertible Notes has a maturity date of November
4, 2024, unless earlier repurchased, converted or redeemed in accordance with
its terms prior to such date. Subject to any limitations under the rules of the
Nasdaq Stock Market, the VIL Convertible Notes will automatically convert into
Qualified Securities (as defined below) at a conversion price equal to the
purchase price paid by investors in the relevant Qualified Financing (as defined
below) if, prior to the earliest to occur of November 4, 2024, any Fundamental
Change Effective Date and the effective date of any Merger Event (each as
defined in the VIL Convertible Notes), we consummate a bona fide third-party
financing of our common stock or securities convertible into or exchangeable for
our common stock for gross cash proceeds of at least $50.0 million (excluding
any securities purchased by VIL or its affiliates) in one or more related and
substantially similar and simultaneous transactions at the same price (a
"Qualified Financing" and the securities sold in such Qualified Financing, the
"Qualified Securities").
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VIL will have the option to convert all or a portion of the VIL Convertible
Notes in accordance with such terms in a financing by us that would have been a
Qualified Financing but for the gross cash proceeds in such financing being less
than $50.0 million, with such conversion effected as described above as if such
financing were a Qualified Financing. Additionally, on or after October 15,
2024, VIL has the right to convert all or any portion of the VIL Convertible
Notes into shares of common stock at an initial conversion rate of 345.5425
shares of common stock per $1,000 principal amount of the VIL Convertible Notes
(subject to adjustments as provided in the VIL Convertible Notes, the "Fixed
Conversion Rate"). In the event of a Fundamental Change, a Merger Event (each as
defined in the VIL Convertible Notes) or a redemption of the Convertible Notes
by us, or if any automatic conversion in connection with a Qualified Financing
would be subject to limitations set forth in the relevant rules of the Nasdaq
Stock Market, VIL has the right to convert the VIL Convertible Notes at the
Fixed Conversion Rate. Prior to the Maturity Date, we may redeem all or part of
the VIL Convertible Notes for cash at a redemption price equal to 100% of the
principal amount of the VIL Convertible Notes to be redeemed, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date (the "Redemption
Price") upon prior written notice provided in accordance with the Convertible
Note. VIL may also require the Company to redeem for cash all or any portion of
the Convertible Note at the Redemption Price upon prior written notice provided
in accordance with the Convertible Note The VIL Convertible Notes contain a
covenant that restricts our and the Guarantors' ability to incur liens on our
and the Guarantors' assets and properties without VIL's consent. If we undergo a
Fundamental Change (as defined in the VIL Convertible Notes), then, subject to
certain conditions, VIL may require us to repurchase for cash all or any portion
of the VIL Convertible Notes at a fundamental change repurchase price equal to
100% of the principal amount of the VIL Convertible Notes to be repurchased,
plus accrued and unpaid interest, if any, to, but excluding, the fundamental
change repurchase date. Initially, a maximum of an aggregate of 24,498,963
shares of the common stock may be issued upon conversion of the VIL Convertible
Notes at the Fixed Conversion Rate, subject to adjustment provisions included in
the VIL Convertible Notes and subject to conversion in connection with a deemed
Qualified Financing.

In connection with the VIL Convertible Notes, the Company and the Company's
domestic subsidiaries guaranteeing such notes also entered into a Security
Agreement dated January 30, 2023, (the "Security Agreement") with VIL, pursuant
to which the Company and the guarantors granted a first-priority security
interest on substantially all of their respective assets, including all
aircrafts, aircraft engines (including spare aircraft parts) and related assets,
other than certain customary excluded assets and permitted liens described in
the VIL Convertible Notes. Upon the occurrence and continuation of an event of
default under any of the VIL Convertible Notes, VIL is entitled to, among other
things, foreclose on the assets that are the subject of the security interest.

We are obligated to use the net proceeds of the March 2023 VIL Convertible Note
to fund severance and other costs related to the workforce reduction that we
announced on March 30, 2023.

The filing of the Chapter 11 Cases constituted an event of default that accelerated our obligations under the VIL Convertible Notes.

Debtor-in-Possession Credit Agreement

In connection with the Chapter 11 Cases, we and our domestic subsidiaries entered into a Senior Secured Superpriority Debtor-in-Possession Term Loan Credit Agreement (the "DIP Credit Agreement") with VIL on April 6, 2023. Final approval remains subject to the Bankruptcy Court.

If the DIP Credit Agreement is approved on a final basis by the Bankruptcy Court
as proposed, VIL would provide a super-priority senior secured
debtor-in-possession term loan credit facility in an aggregate principal amount
not to exceed $74.1 million (the "DIP Facility"), consisting of up to $31.6
million in principal amount of new money term loan commitments (the "DIP New
Money Loans") and a roll-up of (a) the March 2023 VIL Convertible Note and (b) a
portion of the other VIL Convertible Notes, in each case as described below.
Borrowings under the DIP Facility would be senior secured obligations of us and
our domestic subsidiaries, secured by a super-priority lien on the collateral
under the DIP Facility, which includes substantially all of the assets of us and
our domestic subsidiaries. Following approval of the Interim DIP Order (as
defined below), the March 2023 VIL Convertible Note was converted into a
separate tranche of the DIP Facility (the "Interim Roll-Up Loans") on the date
on which the Bankruptcy Court issues an Interim DIP Order.

Upon the Bankruptcy Court's entry of the interim order approving the DIP
Facility (the "Interim DIP Order") on April 5, 2023, VIL funded $12.25 million
of DIP New Money Loans (the "Interim New Money Loans") on April 6, 2023. Upon
the Bankruptcy Court's entry of a final order approving the DIP Facility (the
"Final DIP Order"), VIL shall fund an additional $15.15 million of DIP New Money
Loans (the "Final New Money Loans" and, together with the Interim New Money
Loans, the "New Money Loans"). The New Money Loans and Interim Roll-Up Loans
shall bear interest at a rate of 12.00% (or 16.0% upon the occurrence and during
the continuance of an event of default) per annum, payable monthly in arrears.

The DIP Credit Agreement also permits, to the extent necessary, one or more
additional fundings in an aggregate principal amount of up to $4.2 million from
the DIP Lender, which shall be made available following entry of (A) an order
approving severance payments to the Debtors' employees (a "Severance Approval
Order") and (B) the Interim DIP Order
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(the "DIP Severance New Money Loans"). The DIP Severance New Money Loans may be
drawn in one or more draws, in each case in an amount not to exceed the amount
of severance payments due and payable and approved by the Bankruptcy Court (the
"Approved Severance Payments"). The DIP Severance New Money Loans are to be used
solely for Approved Severance Payments, which may or may not become necessary.

Pursuant to the DIP Facility, a portion of the other VIL Convertible Notes would
also be converted into a separate tranche of borrowings under the DIP Facility
(the "Final Roll-Up Loans"), and shall bear interest at 18.00%, payable and
compounded monthly in arrears. Additionally, 100% of the interest payable on the
Final Roll-Up Loans shall be paid in-kind and added to the principal amount
thereof.

The DIP Credit Agreement contains various customary events of default. During
the continuance of an event of default, all overdue amounts of principal and
interest under the DIP Facility will bear interest at the applicable rate, plus
an additional 4.00% per annum.

Fees and expenses under the DIP Facility include funding fees of (i) 3.00% of
the aggregate principal amount of Interim New Money Loans due when issued, (ii)
3.00% of the aggregate principal amount of Final New Money Loans due when issued
and (iii) 3.00% of the aggregate principal amount of Severance New Money Loans
due when issued and (iv) 3.00% of the aggregate principal amount of Interim
Roll-Up Loans due upon entry of the Final DIP Order approving such funding fees.

The DIP Credit Agreement also contains milestones for the progress of the
Chapter 11 Cases (the "Milestones"), which include the dates by which we and our
domestic subsidiaries are required to, among other things, obtain certain orders
of the Bankruptcy Court and consummate our emergence from bankruptcy. Among
other dates set forth in the DIP Credit Agreement, the agreement contemplates
that the Bankruptcy Court shall have entered the Final DIP Order no later than
thirty (30) calendar days after the Petition Date.

Cash Flows

Historical Cash Flows

The following table summarizes our cash flows for the years ended December 31,
2022 and 2021:

                                                                      Years Ended
                                                                      December 31,
(In thousands)                                                                2022            2021
Cash used in operating activities                                         $ (219,287)     $ (153,997)
Cash used in investing activities                                            (18,447)        (30,280)
Cash provided by financing activities                                         96,182         352,473
Net (decrease) increase in cash and cash equivalents                      $ 

(141,552) $ 168,196

Net Cash Used in Operating Activities

For the year ended December 31, 2022, net cash used in operating activities was
$219.3 million primarily consisting of $191.2 million of net loss, adjusted for
$15.9 million of non-cash and cash charges, and a decrease in net operating
assets and liabilities of $44.1 million. The non-cash charges primarily included
the charges in stock-based compensation of $18.6 million, depreciation and
amortization of $12.7 million, inventory write-down of $2.0 million, and the
change in fair value of the equity investment in Arqit of $9.1 million, offset
by the change in fair value of convertible notes of $9.1 million and the change
in fair value of liability classified warrants of $17.6 million, partially
offset by the change in its fair value of $0.2 million.

For the year ended December 31, 2021, net cash used in operating activities was
$154.0 million primarily consisting of $157.3 million of net loss, adjusted for
$16.9 million of non-cash charges, and an decrease in net operating assets and
liabilities of $13.6 million. Inventory increased due to capitalizing the raw
materials, labor and overhead costs related to the production of the Company's
rockets after reaching technological feasibility in January 2021. Deferred
revenue decreased due to recognizing revenue for our demo launch in January
2021. The non-cash charges primarily included the charges in stock-based
compensation of $10.6 million, depreciation and amortization of $14.4 million,
inventory write-down of $4.1 million, offset by the change in fair value of the
equity investment in Arqit of $7.0 million, the change in fair value of
liability classified warrants of $3.7 million and the non-cash initial
investment in SAS of $1.7 million, partially offset by the change in its fair
value of $0.2 million.
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Net Cash Used in Investing Activities

For the year ended December 31, 2022, net cash used in investing activities was
$18.4 million consisting of $20.9 million of purchases of property and equipment
offset by $2.4 million of proceeds from sale of investment in Arqit.

For the year ended December 31, 2021, net cash used in investing activities was
$30.3 million consisting of purchases of property and equipment and $5.0 million
of purchases of equity investment in Arqit.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $96.2 million for the year ended
December 31, 2022, consisting of proceeds from the YA II Convertible Debenture
of $50.0 million, proceeds from the November VIL Convertible Note of $25.0
million, and proceeds from the December VIL Convertible Note of $20.0 million,
and proceeds from the exercise of stock options of $1.5 million, offset by
payments of finance lease obligations of $0.3 million.

Net cash provided by financing activities was $352.5 million for the year ended
December 31, 2021, consisting primarily of proceeds from the reverse
recapitalization of $200.1 million, offset by payments of transaction costs
related to the reverse recapitalization of $19.3 million, equity contributions
received from the Parent Company of $169.1 million, proceeds from the exercise
of stock options of $2.8 million and cash received from the sale of
non-controlling interest of $1.7 million, offset by payments of finance lease
obligations of $0.1 million.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included
elsewhere in this Annual Report are prepared in accordance with GAAP. We
evaluated the development and selection of our critical accounting policies and
estimates and believe that the following involve a higher degree of judgment or
complexity and are most significant to reporting our results of operations and
financial position and are therefore discussed as critical. The following
critical accounting policies reflect the significant estimates and judgements
used in the preparation of our consolidated financial statements. Actual results
may differ from these estimates under different assumptions or conditions due to
the inherent uncertainty involved in making those estimates and any such
differences may be material. We re-evaluate our estimates on an ongoing basis.

We believe that the following accounting policies involve a high degree of
judgment and complexity. Accordingly, these are the policies we believe are the
most critical to aid in fully understanding and evaluating our consolidated
financial condition and results of our operations. Refer to   Part IV. Note 2.
Summary of Significant Accounting Policies   to our consolidated financial
statements appearing elsewhere in this Annual Report for a description of other
significant accounting policies.

Going Concern

The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations, realization of
assets and liabilities and commitments in the normal course of business. The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. In connection
with the preparation of the consolidated financial statements for the years
ended December 31, 2022, we conducted an evaluation as to whether there were
conditions and events, considered in the aggregate, which raised substantial
doubt as to our ability to continue as a going concern within one year after the
date of the issuance of such financial statements. Through this evaluation, we
identified liquidity conditions that raises substantial doubt about the
Company's ability to continue as a going concern. This is further discussed in
  Part IV. Note 1. Organization and Business Operations   to the Consolidated
Financial Statements. In addition, management has determined that our need to
satisfy certain financial and other covenants in our debtor-in-possession
financing, our need to implement a restructuring plan and the risks and
uncertainties surrounding the Chapter 11 Cases raise substantial doubt about the
Company's ability to continue as a going concern.

Revenue Recognition

Launch Services

We recognize revenue from launch services when control is transferred to our
customers in an amount that reflects the consideration it expects to be entitled
to in exchange for those services. A launch services agreement generally
consists of multiple launches with each launch being allocated a fixed price.
The revenue of a launch services agreement is recognized at a point-in-time when
the performance obligation is complete, which is typically at the point of
launch. However, as we are in the early stage of commercialization, the costs to
provide the launch services for each contract are still subject to estimates,
including labor costs, material costs, and allocated overhead and facilities and
equipment costs.
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When we determine it is probable that the costs to provide the services
stipulated by the launch services agreement will exceed the allocated fixed
price for each launch, we record a provision for the contract loss. Contract
losses are recorded at the contract level and are recognized when known. To the
extent the contract loss provision is less than the accumulated costs to fulfill
the contract, we record the provision net of inventory and net of contract
assets on the consolidated balance sheet. During the year ended December 31,
2022, we identified certain contracts where the expected costs to fulfill the
contracts were in excess of the estimated transaction price, and as such,
recorded a provision for the related contract loss. The provision for contract
losses outstanding as of December 31, 2022 was $51.6 million, with $35.4 million
recorded net of inventory and $4.4 million net of contract assets on the
consolidated balance sheet.

Long-lived Assets

Long lived assets consist of property, plant and equipment, net and right-of-use
assets and are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group,
which represents a combination of assets that produce distinguishable cash
flows, may not be recoverable. If circumstances require a long-lived asset to be
tested for possible impairment, we first compare undiscounted cash flows
expected to be generated by that asset to the carrying amount. If the carrying
amount of the long-lived asset is not recoverable on an undiscounted cash flow
basis, an impairment is recognized to the extent that the carrying amount
exceeds the fair value. Fair value is determined through various valuation
techniques, including discounted cash flow models, quoted market values, and
third-party independent appraisals, as considered necessary. We have not
recorded any impairment charges during the years presented.

Depreciation on property, plant and equipment is calculated on a straight-line
basis over the estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter period of the estimated useful life or lease term. We
monitor conditions related to these assets to determine whether events and
circumstances warrant a revision to the remaining depreciation period.

Stock-Based Compensation

The Company maintains stock-based compensation plans for its employees, officers, directors and consultants.

Stock-based compensation expense related to the stock-based awards granted to
our employees is measured and recognized in our consolidated financial
statements based on fair value. The fair value of each stock option granted to
employees is estimated on the grant date using the Black-Scholes option-pricing
model. For performance-based stock options, the value of the award is measured
at the grant date as the fair value of the award and is expensed on a
straight-line basis over the graded vesting period, using the accelerated
attribution method, once the performance condition becomes probable of being
achieved.

Determining the grant date fair value of options using the Black-Scholes
option-pricing model requires management to make certain assumptions and
judgments. The determination of the grant date fair value of stock option awards
issued is affected by a number of variables, including the risk-free interest
rates over the expected option term, the expected common share price volatility
over the expected option term, the expected dividend yield of our common shares
over the expected option term, and the fair value of the underlying common
shares.

•Risk-Free Interest Rate - The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards.

•Expected Term - The expected term represents the period that our stock-based
awards are expected to be outstanding and is based on historical experience of
similar awards, considering the contractual terms of the stock-based awards,
vesting schedules and expectations of future employee behavior.

•Expected Volatility - The volatility rate is determined by using an average of
historical volatilities of selected industry peers deemed to be comparable to
our business corresponding to the expected term of the awards as we do not have
sufficient history of trading in our common stock.

•Dividend Yield - The expected dividend yield is zero as we have never declared or paid cash dividends and have no current plans to do so in the near future.

Warrant Liability

The Company accounts for the warrants assumed in connection with the Business
Combination in accordance with the guidance contained in ASC 815-40, Derivatives
and Hedging-Contracts in Entity's Own Equity, under which the warrants do not
meet the criteria for equity treatment and must be recorded as liabilities.
Accordingly, the Company classifies the warrants as liabilities at their fair
value and remeasures the warrants to fair value at each reporting period. This
liability is subject to remeasurement at each balance sheet date until
exercised, and any change in fair value is
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recognized in the consolidated statements of operations and comprehensive loss.
The fair value of the warrants may fluctuate primarily based on the implied
volatility which varies based on future market and industry conditions. These
market and industry factors may materially reduce the market price of our
warrants regardless of our operating performance.

Convertible Notes

The Company accounts for convertible notes in accordance with ASC 825 -
Financial Instruments ("ASC 825") and early adopted ASU 2020-06, Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity, which removes
from GAAP the liability and equity separation model for convertible instruments
with either cash or beneficial conversion features. As a result, convertible
debt instruments would only be separated into multiple components if they were
issued at a substantial premium or if embedded derivatives requiring bifurcation
were identified. As discussed in   Part IV. Note 10. Convertible Notes  , the YA
II Convertible Debenture and VIL Convertible Notes were not issued at a
substantial premium, and the Company analyzed the provisions of the notes and
did not identify any material embedded features which would require bifurcation
from the host debt. As such, the notes are accounted for entirely as a liability
net of unamortized issuance costs. The carrying amount of the liability is
classified as long-term as the instrument does not mature within one year of the
balance sheet date and the holder is not permitted to demand repayment of the
principal within one year of the balance sheet date. However, if conditions to
convertibility are met as described further in   Part IV. Note 10. Convertible
Notes  , the Company may be required to reclassify the carrying amount of the
liability to current. The embedded conversion features are not remeasured as
long as they do not meet the separation requirement of a derivative. Issuance
costs are amortized on a straight-line basis, which approximates the effective
interest rate method, to interest expense over the term of the notes. Changes in
fair value will be recorded in the statements of operations and changes in fair
value related to credit risk will be recorded in other comprehensive loss.
Additionally, ASU 2020-06 requires the application of the if-converted method to
calculate the impact of convertible instruments on diluted earnings per share,
however there was no impact during the year as the convertible instruments were
anti-dilutive.

Recent Accounting Pronouncements

Please refer to Part IV. Note 3. Recently Issued and Adopted Accounting Pronouncements to our consolidated financial statements included elsewhere in this Annual Report for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements.

Emerging Growth Company Accounting Election

Section 102(b)(1) of the JOBS Act exempts "emerging growth companies" as defined
in Section 2(A) of the Securities Act, from being required to comply with new or
revised financial accounting standards until private companies are required to
comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies, and any such election to not take advantage of the extended
transition period is irrevocable. Virgin Orbit is an "emerging growth company"
and has elected to take advantage of the benefits of this extended transition
period.

Virgin Orbit will use this extended transition period for complying with new or
revised accounting standards that have different effective dates for public
business entities and non-public business entities until the earlier of the date
Virgin Orbit (a) is no longer an emerging growth company or (b) affirmatively
and irrevocably opts out of the extended transition period provided in the JOBS
Act. The extended transition period exemptions afforded by Virgin Orbit's
emerging growth company status may make it difficult or impossible to compare
Virgin Orbit's financial results with the financial results of another public
company that is either not an emerging growth company or is an emerging growth
company that has chosen not to take advantage of this exemption because of the
potential differences in accounting standards used. Refer to   Part IV. Note 2.
Summary of Significant Accounting Policies   of our consolidated financial
statements included elsewhere in this Annual Report for the recent accounting
pronouncements adopted and the recent accounting pronouncements not yet adopted
for the years ended December 31, 2022 and 2021.

Virgin Orbit will remain an "emerging growth company" under the JOBS Act until
the earliest of (a) December 31, 2026, (b) the last date of Virgin Orbit's
fiscal year in which Virgin Orbit has total annual gross revenue of at least
$1.24 billion, as increased for inflation, (c) the last date of Virgin Orbit's
fiscal year in which Virgin Orbit is deemed to be a "large accelerated filer"
under the rules of the SEC with at least $700.0 million of outstanding
securities held by non-affiliates or (d) the date on which Virgin Orbit has
issued more than $1.0 billion in non-convertible debt securities during the
previous three years.
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