ITEM
1. BUSINESS
Company
Overview
Founded
in 2012, we are a vertically integrated provider of Space-as-a-Service solutions including end-to-end satellite support. The company
combines mission critical hardware manufacturing; multi-disciplinary engineering services; satellite design, manufacture, launch planning,
mission operations and in-orbit support; and space-based data collection with a vision to enable space flight heritage status for new
technologies and deliver data and predictive analytics to both domestic and global customers. We have over ten (10) years of commercial,
military and government manufacturing experience combined with space qualification experience, existing customers and pipeline, and International
Space Station (ISS) heritage hardware.
In
addition, we are building a multi-mission satellite constellation using our hybrid 3D printed multipurpose satellite to provide continuous,
near real-time Earth Observation and Internet-of-Things (IOT) data for the global space economy. We have designed and are manufacturing
LizzieSat (LS) for our LEO satellite constellation operating in diverse orbits (28°-98° inclination, 300-650km altitude) as approved
by the International Telecommunication Union (ITU) in February 2021. LS is expected to begin operations in 2023. Initial launches are
planned via NASA CRS2 program agreement and launch service rideshare contracts. Each LS is 100kg with 35kg dedicated to payloads including
remote sensing instruments. Payloads (Sidus or customer owned) can collect data over multiple Earth based locations, record it onboard,
and downlink via ground passes to Sidus Mission Control Center (MCC) in Merritt Island, FL.
Leveraging
our existing manufacturing operations, flight hardware manufacturing experience and commercial off the shelf subsystem hardware, we believe
we can deliver customer sensors to orbit in months, rather than years. In addition, we intend on delivering high-impact data for insights
on aviation, maritime, weather, space services, earth intelligence and observation, financial technology (Fintech) and the Internet of
Things. While our business has historically been centered on the design and manufacture of space hardware, our expansion into manufacture
of spacecraft as well as on-orbit constellation management services and space data applications has led us to innovating in the area
of space data applications. We continue to patent our products including our satellites, external platforms and other innovations. Sidus
offerings include a broad area of market sub-segments, such as:
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Mission
Critical Hardware Manufacturing |
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Multi-Disciplinary
Engineering Services |
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Satellite
Design, Production, Launch Planning, Mission Operations, and In-Orbit Support |
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On-Orbit
Testing of Space Ecosystem Technologies and Hardware |
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Data
and Analytics Derived from Satellite Missions |
Each
of these areas and initiatives addresses a critical component of our cradle-to-grave solution and value proposition for the space economy
as a Space-as-a-Service company. The majority of our revenues to date have been from our space related hardware manufacturing, however,
2022 revenue includes revenue related to our multi-mission constellation and our hybrid 3D printed LizzieSat satellite.
We
support a broad range of international and domestic government and commercial companies with its hardware manufacturing including the
Department of State, the Department of Defense, NASA, Collins Aerospace, Lockheed Martin, Teledyne Marine, Bechtel, and L3Harris in areas
that include launch vehicles, satellite hardware, and autonomous underwater vehicles. Planned services that benefit not only current
customers but additional such as Mission Helios include providing the ability for customers to demonstrate that a technology (hardware
or software) performs successfully in the harsh environment of space and delivering space-based data that can provide critical insight
for agriculture, commodities tracking, disaster assessment, illegal trafficking monitoring, energy, mining, oil and gas, fire monitoring,
classification of vegetation, soil moisture, carbon mass, Maritime AIS, Aviation ADS, weather monitoring, and space services. We plan
to own and operate one of the industry’s leading U.S. based low earth orbit (“LEO”) small satellite (“smallsat”
or “smallsats”) constellations. Our operating strategy is to continue to enhance the capabilities of our satellite constellation,
to increase our international and domestic partnerships and to expand our analytics offerings in order to increase the value we deliver
to our customers. Our two operating assets—our satellite constellation and hardware manufacturing capability—are mutually
reinforcing and are a result of years of heritage and innovation.
Our
strategy is to capitalize on the rapid growth and deployment of millions of low-cost GPS enabled terrestrial, IoT, and space-based sensors
to provide data to global customers in near real-time. As we are now entering a new commercial space age, the number of commercial sensors
on orbit has expanded from a handful of large expensive commercial satellites just a few years ago to now hundreds and in the near future
thousands of sensors that will ultimately change the way we see and understand our world. Our mission is to enable our existing and future
customers to prove out new technologies for the space ecosystem rapidly and at low cost and also have access to space-based data on-demand
for any problem set or business need. We believe we can deliver this at a lower cost than legacy providers due to our vertically integrated
cost-efficiencies, capital efficient constellation design, and improved pricing models with improved data accessibility. We believe the
combination of the proven flight heritage and years of industry experience of a traditional space company with the disruptive innovation
of a new space startup such as our 3D printing of spacecraft and focus on intellectual property makes us very well positioned in the
global space economy.
Key
Factors Affecting Our Results and Prospects
We
believe that our performance and future success depend on several factors that present significant opportunities but also pose risks
and challenges, including competition from better known and well-capitalized companies, the risk of actual or perceived safety issues
and their consequences for our reputation and the other factors discussed under “Risk Factors.” We believe the factors discussed
below are key to our success.
Growing
our experienced space hardware operations
We
are on track to grow our space and defense hardware operations, with a goal of expanding to two and a half shifts with an increased customer
base in the future. With current customers in space, marine, and defense industries, our contract revenue is growing, and we are in active
discussions with numerous potential customers, including government agencies, large defense contractors and private companies, to add
to our contracted revenue. In the past decade, we have fabricated ground and flight products for the NASA SLS Rocket and Mobile Launcher
as well as other commercial space and satellite companies. Customers supported include Boeing, Lockheed Martin, Northrop Grumman, Dynetics/Leidos,
Blue Origin, United Launch Alliance, Collins Aerospace, L3Harris, OneWeb and Space Systems Loral/Maxar. Various products have been manufactured
including fluid, hydraulic and pneumatic systems, electrical control systems, cable harnesses, hardware lifting frames, umbilical plates,
purge and hazardous gas disconnects, frangible bolts, reef cutters, wave guides, customized platforms, and other precision machined and
electrical component parts for all types of Rockets, Ground, Flight and Satellite systems. In June 2022, the NASA xEVAS, 12 year, $3.5
Billion multiple award contract was awarded to Collins Aerospace and Axiom Space. We are a member of the Collins Aerospace team and expect
to support this contract upon execution of task orders issued by NASA and contracts with independent commercial entities. The Exploration
Extravehicular Activity Services, or xEVAS Program is expected to include the design, development, production, hardware processing, and
sustainment of an integrated Extravehicular Activity (EVA) capability that includes a new Spacesuit and ancillary hardware, such as Vehicle
Interface Equipment and EVA tools. This EVA capability is to be provided as a service for the NASA International Space Station (ISS),
Artemis Program (Gateway and Human Landing System), and Commercial Space missions.
Commencing
and Expanding Commercial Satellite Operations
Our
goal is to help customers understand how space-based data can be impactful to day-to-day business. Our strategy includes increasing the
demand downstream by starting out as end user focused. While others are focused on data verticalization strategy specializing on a key
sectors or problem set, we believe that flexibility in production, low-cost bespoke design and ‘Bringing Space Down to Earth’
for consumers will provide a scalable model for growth. Critical Design Review (CDR) was successfully completed in the third fiscal quarter
of 2022. Initial contracts for launch were signed in December of 2021 with NASA and Mission Helios, a blockchain company. We are in active
discussions with numerous potential customers, including domestic and international government agencies, for payload hosting and data
related to our planned satellite launches over the next 24 months.
We
filed for X-band and S-band radio frequencies licensing in February 2021 and were granted approval through a published filing by the
ITU on April 4, 2021. Such licenses are held through Aurea Alas, Ltd., an Isle of Man company, which is a variable interest entity (“VIE”)to
us. Our filing contains approved spectrum use for multiple X-Band and S-Band frequencies and five different orbital planes. Additionally,
we filed and received approval for a NOAA license related to our initial launch. Any delays in commencing our commercial launch operations,
including due to delays or cost overruns in obtaining NOAA licenses or other regulatory approvals for future operations or frequency
requirements, could adversely impact our results and growth plans.
Our
Vertically Integrated Space Platform
We
are designing, developing, manufacturing, and plan to operate a constellation of proprietary smallsats. These satellites are designed
to for multiple missions and customers and form the foundation of our satellite platform. Weighing approximately 100 kilograms each,
these hybrid 3D printed, modular satellites are more functional than cubesats and nanosatellites and less expensive to manufacture than
the larger satellites in the 200-600kg range. Launched into a LEO and operating in diverse orbits (28°-98° inclination, 300-650km
altitude) as approved by the International Telecommunication Union (ITU) in February 2021, our constellation will be optimally distributed
to provide maximum coverage for our customers in the government and commercial sectors. With six initial globally distributed ground
stations, our constellation is designed for rapid tasking, collection, and delivery of high-revisit, high-resolution imagery and data
analytics. Our planned average daily revisit rate, from dawn to dusk, is 10 times a day or approximately 90 minutes. As our satellite
constellation grows, the amount of data we collect will scale, and we expect our revisit rate will improve.
Our
cost efficient smallsats are designed from the ground-up to optimize performance per unit cost. We can integrate technologies and deliver
data on demand at lower costs than legacy providers due to our vertical integration, use of COTS proven systems, cost-efficiencies, capital
efficient constellation design, and adaptable pricing models.
We
are manufacturing our satellites at our Cape Canaveral facility. Our current configuration and facility is designed to manufacture 5-10
satellites a month. Our vertical integration enables us to control our satellites through the entire design, manufacturing, and operation
process. Our years of experience manufacturing space hardware means that we are able to leverage our manufacturing expertise and commercial
best practices for satellite production. Additionally, leveraging both in-house and partner-provided subsystem components and in-house
design and integration services, as well as operational support of satellites on orbit, to provide turn-key delivery of entire constellations
offer “concept to constellation” in months instead of years. Specifically, our Space-as-a-Service offerings encompass all
aspects of hosted satellite and constellation services, including hosting customer payloads onto our satellites, and delivering services
to customers from our space platform. These services are expected to allow customers to focus on developing innovative payloads rather
than having to design or develop complete satellite buses or satellites or constellations, which we will provide, along with ancillary
services that are likely to include telemetry, tracking and control (“TT&C”), communications, processing, as well as
software development and maintenance. Our patented technologies include a print head for regolith-polymer mixture and associated feedstock;
a heat transfer system for regolith; a method for establishing a wastewater bioreactor environment; vertical takeoff and landing pad
and interlocking pavers to construct same; and high-load vacuum chamber motion feedthrough systems and methods. Regolith is a blanket
of unconsolidated, loose, heterogeneous superficial deposits covering solid rock. It includes dust, broken rocks, and other related materials
and is present on Earth, the Moon, Mars, some asteroids, and other terrestrial planets and moons. We continue to patent our products
including our satellites, external platforms and other innovations.
Revenue
Generation
We
generate revenue by selling payload space on our satellite platform, providing engineering and systems integration services to strategic
customers on project-by-project basis, and manufacturing space hardware. This support is typically contracted to both commercial and
government customers under fixed price contracts and often includes other services. Additionally, we intend to add to our revenue by
selling geospatial data captured through our constellation. Our data monetization strategy includes selling data directly to other companies
and consumers, selling data to data aggregation firms, listing our data on a data marketplace and leveraging a white label data commerce
platform.
Lowering
Manufacturing Cost and Schedule
We
are developing a manufacturing model that provides for rapid response to customer requirements including integration of customers technologies
and space-based data delivery. Our planned satellites are being designed to integrate Customer Off the Shelf (COTS) subsystems that are
space-proven, can be rapidly integrated into the satellite and replaced rapidly when customer needs changed or evolve. Our vertically
integrated manufacturing processes give us the flexibility to make changes during the production cycle without impacting launch or costs.
Our
satellite production process is based around normally readily available materials and COTS systems and is highly scalable. We believe
that our ongoing innovations in design and manufacturing will further reduce our per satellite costs. We invested approximately $16 million
in our business and manufacturing facility through December 31, 2022, and we expect the facility will be at full capacity by the end
of 2024. We anticipate that this will enable us to increase the pace of satellite manufacturing and launch cadence. While we believe
that our estimate is reliable, the development of our manufacturing facility may take longer than planned, including due to delays in
obtaining federal and state regulatory approvals of our final construction plans or any changes that are required to be made to those
plans. Any delays in our achieving full manufacturing capacity could adversely impact our results and growth plans.
Environmental,
social, and corporate governance
We
are developing an Environmental, Social and Governance (ESG) policy that will implement the tracking of several indicators we believe
are critical to ensure we are doing our part to continue sustainable growth and maximize shareholder value. We have been in business
for ten years manufacturing space hardware and components, and in that time, implementation of policies and processes to mitigate environmental
impact have been of upmost importance. Furthermore, since our inception, we have recognized the value of our employees and have always
endeavored to prioritize employee well-being. We also understand that our efforts to promote value and well-being are not limited to
our employees. We are committed to the communities we belong to and have endeavored to provide tangible benefits back to the community
that supports us.
Environmental
As
the global awareness and importance of environmental sustainability increases, we recognize our duty to implement developments that not
only facilitate the evolution of aerospace solutions, but also promote environmentally conscious protocols yielding measurable results
toward the conservation of our planet. A key component of our focus on sustainability is found in our utilization of in-house 3D printing
technology as a primary manufacturing asset. The development of 3D printing is host to a variety of manufacturing improvements but perhaps
one of the chief benefits is the reduced environmental Impact of our manufacturing. Our LizzieSat constellation will contribute to this
reduced impact as a portion of the satellite bus is 3D printed.
Manufacturing
parts with a 3D printer reduces overall energy consumption and waste, reducing our carbon footprint compared to its predecessor of conventional
machining. Additional benefits include the removal of waste and unnecessary energy associated with conventional machining, often resulting
in the production of more scrapped material per part than the material that part is composed of. While these are among the biggest impacts,
the effects to can be seen in smaller scales. Due to the massive reduction in weight 3D printing provides, energy spent using cargo ships
and commercial vehicles for transportation sees a significant decrease. This reduction in weight is accompanied by a reduction in space
requirements for housing the material, cutting out the need for large storage spaces and the energy needed to maintain those facilities.
Looking
toward the future, the potential for exciting developments in the field of sustainability are of upmost importance. These developments
include the planned use of more biodegradable and/or recycled materials that can be used to manufacture parts and further benefit the
environment. Until these developments occur, we are doing our part through the practice of recycling of metal and any used oil and coolant.
As technologies continue to advance, we remain dedicated to preserving the Earth and continuing to evolve with newer technologies as
they develop.
Social
We
recognize the importance of our employees, the community with which we are situated as well as the global community. This recognition
has led us to implement a variety of actions that support society from the individual to global scale.
Employee
well-being is at the heart of our commitment to provide a positive impact on all. We understand the importance of diversity in the workplace
because we were built on diversity. Being a service-disabled, veteran-owned, woman-owned, and Hispanic minority-owned business reflects
the open and diverse environment we provide to all who are a part of it.
Community
on all scales is fundamental to our success, and because of that, we are committed to leaving a lasting impact on the community that
supports us. This commitment brought forth Sidus Serves, our way of actively improving life on earth. Community involvement is key to
our culture, and we believe in the power of volunteerism. We actively invest in the communities of our employees and are passionate about
the improvement of their communities through individual efforts and partnership with local, regional, and national organizations. We
also believe it is important to bridge the gap in the aerospace field by supporting young professionals through establishing partnerships
with several organizations dedicated to providing STEM learning opportunities to a diverse array of students.
Governance
Our
governance structure is designed to promote transparency, efficiency, and ethics. Through a qualified and diverse chain of command, we
are confident that our decision making will carry out performance at the highest degree. Our Board of Directors consists of professionals
with strong executive experience, business strategy and leadership skills. Our board consists of 3 independent directors alongside our
CEO and CTO including 2 women.
Our
Growth Strategies
We
are focused on empowering end users, developers, channel partners and the organizations they serve to quickly and easily access and integrate
real-time geospatial intelligence into their daily operations and also prove out technologies to further grow the space ecosystem. Our
growth strategy is driven by the following objectives:
Increase
our overall customer base. We are an established heritage aerospace firm that is a part of the political and secular shift towards
space-based data coming from commercial satellite and intelligence providers. We have the opportunity to expand our current customer
base through a combination of direct and indirect sales strategies. We also plan to grow our direct sales teams and indirect sales channels.
Expand
within our current customer base. As our space-as-a-service offerings grows and delivers results, we expect that our current customers
will increase their spending on our services.
Continue
to penetrate international markets. We have increased our focus on international markets. We have a current pipeline of prospective
small underrepresented international governments and firms that can benefit from our support and services.
Grow
distribution channels and channel partner ecosystem. We plan to invest in distribution channels and in our relationships with technology
partners, solution providers, strategic global system integrators, solution partners, and value-added-resellers to help us enter into
and expand in new markets while complementing our direct sales efforts. We have also established a Joint Cooperation and Marketing Agreement
with Dhruva, India’s first private space company, to co-market, and sell our services in other countries.
Global
Space Economy Overview
In
recent years, the importance of the space economy has been growing as technological advances in both satellites and supporting terrestrial
technologies have enabled new commercial use cases. These use cases include satellite broadband, remote imaging, Internet-of-Things (“IOT”)/Machine-to-Machine
(“M2M”) communications, defense-related applications, as well as others. As a result, several new and existing operators
have announced new satellite constellations to serve these use cases. Many of these announced constellations will consist of small LEO
satellites rather than large GEO satellites. According to a October 2019 SpaceNews report, SpaceX alone has filed for up to 30,000, and
Amazon and OneWeb have also announced plans to launch a significant number of satellites.
According
to Morgan Stanley research, as reported in February 2021, the $350 billion global space industry could surge to over $1 trillion by 2040.
In addition, Euroconsult expects that over the next decade, the total manufacturing and launch market value for small satellites is expected
to reach $54.2 billion, more than three times the market value over 2011-2020. Although this indicates significant growth, it does not
reflect the four-fold increase in the number of satellites resulting from the rise of cubesats, constellations and the introduction of
low-cost systems for both manufacturing and launch, which will reduce average costs and market value. 4
Rapid
growth in private investment in the commercial space industry has led to a wave of new companies reinventing major elements of the traditional
space industry, including human spaceflight, satellites, and launch, in addition to unlocking entirely new market segments. Furthermore,
government agencies have realized the value of the private commercial space industry and have become increasingly more supportive and
reliant on private companies to catalyze innovation and advance national space objectives. In the United States, this has been evidenced
by notable policy initiatives and by commercial contractors’ growing share of space activity.
Launch
Market
We
are witnessing a shift in the launch requirements of satellite operators, as the launch industry adjusts to the increasing volume of
launches and the shift from larger satellites to smallsats. According to a study, conducted and published by the NASA Ames Research Center
in 2016, in recent years, the satellite market has been undergoing a major evolution with new space companies replacing the traditional
approach of deploying a few large, complex and costly satellites with a multitude of smaller, less complex and cheaper satellites. This
new approach has created a sharp increase in the number of launched satellites and so the historic trends are no longer representative.
The
launch industry’s initial response was the introduction of ridesharing, allowing multiple operators to share the cost of a large
launch vehicle. This combined with the emergence of new launch vehicles reduced launch costs and increased access to space for small
satellite operators. However, operators must wait until a particular rideshare is full for their launch. In addition, all small satellites
on a single rideshare are delivered to a single orbital destination. From there, small satellites must either complete a time-consuming
orbit raise to their desired orbit, requiring a significant on-board propulsion system or an in-space shuttle. While in-space shuttling
reduces the need for satellite propulsion capability, shuttles add significant expense and take weeks or months to reach the desired
orbit.
Small
Satellite Market
Another
paradigm shift in the commercial space market is the rise of the small satellite market. Starting several years ago in 2018, the space
industry began a dramatic transformation. Demand for large geosynchronous communications satellites dramatically declined as companies
prepared to launch constellations of hundreds or thousands of smaller, less expensive broadband satellites in low and medium Earth orbits.
Euroconsult anticipates that about 13,910 satellites <500 kg will be launched in the next ten years, according to the 7th edition
of its small satellite market report released in April 2021. This total represents a 38% increase over the 10,100 satellites that were
expected in its previous edition.
Moreover,
the rise of this market has also created a new market segment in nanosatellites and microsatellites, weighing less than 10 kg and between
10 and 100 kg, respectively. While these satellites can be deployed individually, they can also be operated as part of a constellation,
a large group of satellites interconnected to provide a service, such as the Starlink satellite constellation’s offering of global
internet connectivity. According to Euroconsult’s April 2021 small satellite market report, the next decade will be defined primarily
by the rollout of multiple constellations, which will account for 84% of smallsats, mainly for commercial operators.
The
number of small satellites launched has increased from 39 in 2011 to 1,202 in 2020. In just the period between 2019 to 2020 there has
been over 300% growth going from 289 to 1202. According to a report published in 2021 by Bryce Space & Technology, 40% of all smallsats
launched in last 10 years were launched in 2020.
The
growth in the satellite constellations market is being driven by technological advances in ground equipment, new business models, expanded
funding, and growing demand for high bandwidth and lower latency. Though this satellite constellations market remains nascent in maturity,
we anticipate considerable growth over the coming years in the launch industry as companies continue to seek versatile and low-cost ways
to deliver single satellites to specific orbits or deploy their satellite constellations. Furthermore, we anticipate the growth of the
satellite constellations market to contribute business to our Satellite Services offerings. LEO satellite constellations have relatively
short lifespans on orbit, resulting in a requirement to launch replenishment satellites every few years.
According
to Prospects for the Small Satellite Market – A Euroconsult Report 7th Edition April 2021, smallsats are often viewed by entrepreneurs
as enablers of disruptive business models because of the growing data needs of the digital economy. Rapid, constant improvement of smallsats
from one generation to the next means new capabilities and possibilities may constantly be developed. Further, investment in the space
industry is still accelerating from 2020 and beyond. Vertically-integrated players attract the most funding. In the growing smallsat
industry, with lower entry barriers and shorter timeframes, tangible investment opportunities in manufacturing are available. Just between
2018 and 2020, start-ups involved in smallsat integration raised $1.4B (SpaceX excluded) while pure smallsat subsystems manufacturers,
$0.2B. Among integrators, by far the most successful recipients of funding are vertically-integrated players who produce and operate
their own constellation while directly providing service to the end user. Vertical integration becomes especially relevant when there
is a recurring production need (e.g. limited lifetimes, need for cyclical replacements) and when economies of scale are possible. It
can also be driven by the need to secure its supply chain and keeping key differentiators in house, or when no compatible supply is available.
Our
Products and Services
Space
Services
We
provide the following services to our customers:
Satellite/Space
Hardware Manufacturing
For
over a decade, we have manufactured space-rated and human-rated hardware and components. During this time, we have provided components
and systems for the International Space Station, the Boeing Starliner, NASA’s SLS, Lockheed Martin’s Orion, and several other
programs and customers.
At
a combined 35,000 square-feet, our manufacturing facilities are all encompassing allowing us to vertically integrate and pipeline the
manufacturing process without the need for outsourcing of precision machining, electronics assembly and testing, or 3D printing.
LEO
Launch and Deployment Services
We
strive to become a trusted platform for providing an affordable approach for launch, payload hosting, and deployment services in space.
Our planned diverse range of launch, in-orbit, and deployment platforms is planned to be tailored to complement any mission.
Space-Based
Geospatial Intel, Imagery and Data Analytics
We
anticipate delivering reliable high-impact analytics and insights to international and domestic customers by combining our platform with
multiple imaging solutions to increase the efficacy and emergence of data. We intend to collect, analyze, enrich, and deliver data gathered
from our custom constellation to provide intelligent analytics to its customers. Our comprehensive data collection is expected to create
a repository of insights for aviation, maritime, weather, space services, earth intelligence and observation, and federal industries
from the ultimate vantage point – space.
Space
Platforms
We
anticipate offering a variety of affordable space platforms which allow our clients to conduct full missions and/or test new technologies
in space at a reduced schedule and cost. Our platforms include:
External
Flight Test Platform (EFTP)
Our
External Flight Test Platform offers multiple industries to develop, test, and fly experiments, hardware, materials, and advanced electronics
on the ISS at a reduced cost and schedule. Potential payloads include optical communications, materials, satellite components, electroplating,
and pharmaceutical testing. The EFTP includes integration and delivery to the ISS and has a typical deployment period of 15 weeks. All
payloads can be returned after the mission if requested by the payload provider. Our EFTP is characterized by:
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Highly
reconfigurable platform |
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Available
space: 1100 in3 (payloads are NOT required to conform to CubeSat form factors) |
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Power:
28V connectors (up to 2 available) |
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Flight
computer available to support a wide array of sensor data |
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Additive
and traditional manufacturing available to support payload development |
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Two
left-hand circular polarized (LHCP) spiral antennae available with a frequency band of 2 to 18 GHz (nadir and zenith facing) |
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GPS
patch antenna option |
LizzieSatTM
(LS)
LizzieSat
(LS) is currently in development as a hybrid 3D manufactured Low Earth Orbit (LEO) microsatellite that focuses on rapid, cost-effective
development and testing of innovative spacecraft technologies for multiple customers. LS is planned to combine static component testing
and LEO spacecraft development and deployment to provide complete life cycle services to commercial and government customers for Internal
Research & Development (IR&D), data analytics and/or proof of concept. We anticipate that LS will leverage our in-house low-cost
additive manufacturing of satellites using the Markforged X7, an industrial 3D printer featuring a dual nozzle print system that supports
continuous carbon fiber and Kevlar reinforcement, to provide rapid, agile development of spacecraft due to its modular design.
Controlling
the satellite production process from design through manufacturing enables us to upgrade our satellites during production and also integrate
customer technologies at varying points during the build process. This allows us to continuously improve our satellites’ capabilities
as well as build out and maintain our constellation at a relatively low cost.
SSIKLOPS
(Space Station Integrated Kinetic Launcher for Orbital Payload Systems)
We
provide turnkey services to manage and execute the successful integration and on-orbit operations of satellite payloads using the International
Space Station Integrated Kinetic Launcher for Orbital Payload Systems (SSIKLOPS). SSIKLOPS fills the payload deployment gap between small
CubeSat launchers and major payloads by supporting the Low Earth Orbit (LEO) microsatellite market (up to 116kg). The SSIKLOPS is a mechanism
used to robotically deploy satellites from the ISS and is designed to provide a method to transfer internally stowed satellites to the
external environment.
On
November 5, 2018 we were awarded a 5-year indefinite delivery indefinite quantity contract by NASA to provide services to manage and
perform the work for the successful integration and on-orbit operations of the platform for U.S. government customers with the option
to utilize the platform for commercial efforts as well. Pursuant to the agreement, we are responsible for marketing and operating the
SSIKLOPS as well as sustaining the SSIKLOPS and associated hardware.
Our
offerings include operation, engineering, and manufacturing to provide full life-cycle payload support. SSIKLOPS utilizes NASA’s
ISS resupply vehicles to launch small satellites to the ISS in a controlled pressurized environment in soft stow bags. The satellites
are processed through the ISS pressurized environment by the astronaut crew allowing satellite system diagnostics prior to orbit insertion.
Orbit insertion is achieved through use of the Japanese Aerospace Exploration Agency’s Experiment Module Robotic Airlock (JEM Airlock),
and one of the ISS Robotic Arms. Sidus and SSIKLOPS provide small satellites the infrastructure to be deployed from the ISS into LEO
with minimal technical, environmental, logistical, and cost challenges.
Phoenix
Deployer
Phoenix
is currently in development as a CubeSat deployer utilizing the SSIKLOPS deployment platform to deploy CubeSats from the ISS. Phoenix
offers a low-cost and high availability deployer option for CubeSats within the 3U to 12U range. U refers to the standard ‘Cubesat’
dimensions (Units or “U”) of 10 cm x 10 cm x 10 cm which are used to describe space on spacecraft). We anticipate that Phoenix
will offer:
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3U
CubeSats (Up to 12) |
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6U
CubeSats (Up to 6) |
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12U
CubeSats (Up to 3) |
Aerospace
and Defense Manufacturing Services
Our
manufacturing capabilities combine our design engineering, precision machining, waterjet cutting, and wire harness fabrication experience
to provide the highest quality and performance for mission critical systems.
Precision
Machining and Assembly
Our
growing team of engineers and technicians, combined with state-of-the-art equipment support precision machining, fabrication, and assembly
for prototypes, test articles, one-offs, low-rate initial production up through high volume Swiss screw machining production. We utilize
the latest CNC machining and turning processes to deliver high-quality, complex and on-demand parts for specialized industries including
the space sector.
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CNC
Swiss Screw Machining |
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CMM,
VCMM Quality Inspection |
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EDM
Wire and Waterjet Cutting |
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3-D
Printing |
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Welding |
3D
Printing
From
early-stage product development to functional finished parts, Sidus offers commercial and industrial-grade additive manufacturing solutions.
Our 3D printers enable us to provide rapid manufacturing with industrial micron-level laser scanning accuracy and 50 µm repeatability.
Using Continuous Fiber Fabrication technology, we can produce parts at an enhanced schedule that are stronger than 6061 Aluminum and
40% lighter. Sidus provides internal engineering support to optimize the functional performance, product life cycle, and accuracy of
its customers’ specific 3D printed technology to ensure repeatability and consistency across prints. Our 3D printing capabilities
include:
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Functional
Prototypes and Models |
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Production
Parts |
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End-life
Production |
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Tool
Development |
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Patterns
and Molds |
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Jigs
and Fixtures |
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● |
Fly-Away
Parts |
Mechanical/Electrical
Assembly and Test
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● |
Flight/Ground
Cable and Wire Harnesses |
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● |
Ground
Support Equipment |
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● |
Manned
Spaceflight Rated Hardware |
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Satellite
Components |
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Part
Task Trainer Hardware |
As
part of our 35,000 square foot manufacturing facility, we have a reconfigurable electronics and cable harness fabrication lab with the
necessary equipment, staff and square footage to produce space flight and ground cables and electronic chassis. Our experience and capabilities
include manufacturing, assembly and testing of a wide selection of electrical control cabinet and electronic cabinet modification and
fabrication processes. We have extensive experience assembling electronics, including soldering, crimping, multi-pinned connector terminations,
fusion splicing, molding, potting, and testing.
Certifications
include NASA 8739.4, NASA 8739.5, J STD 001 and IPC A 610. Our IPC-J-STD-001 accredited technicians adhere to NASA work standards KSC-E-165,
KSC-GP-864, KSC-STD-132, all required for NASA 8739.4 credentials with other industry-standard certifications.
Design
Engineering
We
provide quality in-house design engineering services from up-front analysis to integration, assembly, and test. Our ISO 9001:2015 / AS9100D
certified engineering capabilities include the ability to perform initial design concepts or value-add engineering change recommendations
to existing engineering. Our multidisciplinary engineering experience and talent cover a broad spectrum of capabilities, enabling an
even more comprehensive range of projects. Our design engineering capabilities include:
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● |
Requirements
Definition – Product development and process optimization |
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● |
Verification/Validation
(multiple checks and balance) – Meets specification and intended purpose |
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Model
Based Systems Engineering – Use of visual modeling vs document-based information exchange |
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3D
CAD & 2D Engineering Release – Managing, planning, scheduling, and controlling |
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Test
Procedures and Performance – Meets customer driven requirements |
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Operations/Maintenance
Manuals – Fully integrated and procedurally driven |
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System
Integration – Horizontal sub-system integration approach to projects and programs |
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Design
for Life Cycle Cost & Manufacturing – Incorporation of innovative design manufacturing |
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Model
Based Data Control – Complex design verification/validation |
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● |
Finite
Element and Failure Mode & Effects Analysis |
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Design
for Manufacturability |
Program
Management
We
provide Program and Project Management to help improve project performance and provide oversight of complex projects and contracts through
day-to-day support and expert knowledge. With a business culture that always puts the customer first, we provide dedicated project management
services throughout the lifecycle of our customer’s project or program to ensure the project goes according to schedule. Program
management services include:
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● |
Supply
chain management |
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Customer
requirement compliance |
|
● |
Logistics
and configuration management |
|
● |
Resource
and budget control |
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Schedule |
Customer
/ Market Research
The
need to provide commercial testing capabilities in space has been growing for many years and has become a requirement for many innovating
companies. According to Euroconsult’s Prospectus for the Small Satellite Market, 8th Edition released in July of 2022, Euroconsult
reported 1,738 small satellites were launched in 2021 which is 1.5x more than 2020 (1,195 small satellites launched in 2020). The small
satellite industry is gearing up for significant expansion in terms of capabilities and demand. According to Euroconsult’s report,
the number of satellites to be launched from 2022 to 2031 is estimated to be 18,500. As the small satellite market grows, the requirement
for rapid flight proven testing is becoming more crucial. Although ground-based testing is available, it does not provide a mirrored
testing environment for spacecraft and subcomponent testing. We intend to address this need with our Sidus Constellation. Furthermore,
customization of the Sidus Constellation with appropriate technology can provide subscription data and imagery services for customers
whose needs prompt consideration for a separate constellation. Currently, our core market corresponds most directly with satellite manufacturing
and offering LEO space-as-a-service solutions. However, we believe our addressable market can also continue to expand in similar and
adjacent industries such as government and defense manufacturing. We have generated space-related manufacturing revenue since 2012, and
we have been generating revenue from our commercial constellation space offering since the first quarter of 2022 as we continue to finalize
customers for LizzieSat-1 (LS-1) and subsequent missions. We signed a multi-launch agreement with SpaceX for five LizzieSat rideshare
missions beginning in 2023. These five satellite missions support previously announced customers as well as potential future customers
as we continue to layer new missions into our pipeline.
Sales
and Marketing
We
market our services to both government and commercial customers. Initially we are leveraging our existing relationships to help promote
our expanded service offerings. We believe our executive management team has extensive reach in the space and satellite industry.
Our
marketing efforts focus on communicating the benefits of our solutions and educating our customers, the media and analysts about the
advantages of our innovative technology. We strive to raise the awareness of our company, market our products and generate sales leads
through industry events, public relations efforts, marketing materials, social media and our website. Attendance at key industry events
is an important component of our marketing efforts. Our CEO, Carol Craig, has been invited to speak and participate in panel discussions
at industry events and will continue to take advantage of these opportunities to spread awareness of our services. We believe a combination
of these efforts strengthens our brand and may enhance our market position in our industry.
Competition
The
small satellite services industry at-large is highly competitive but has significant barriers to entry, including the cost and difficulty
associated with successfully developing, building, and launching a satellite constellation and obtaining various governmental and regulatory
approvals. In addition to cost, there is a significant amount of lead time associated with obtaining the required licenses, building,
and launching the satellite constellation, and developing and deploying the ground station technology. We currently face substantial
general competition from other service providers that offer a range of space-based data collection options. There are also several competitors
working to develop innovative solutions to compete in this industry.
Our
Competitive Differentiation
We
believe that we are well-positioned to compete with legacy space-based data providers and other emergent providers due to our vertical
integration strategy that combines rapid production with flexible technology insertion points. This approach enables us to address three
primary barriers that have limited the legacy industry in achieving a broader market adoption and penetration including: easy access
to data and information, access to low-cost data, and customized, bespoke response to customer needs. Key elements of our competitive
differentiation include the following:
Low-cost
sensor data capture. Our smallsat constellation is leveraging the disruptive economics of small satellites to enable us to capture
data in a more cost-effective manner than legacy satellite providers. We can deliver our proprietary geospatial imagery on demand at
a lower cost than legacy providers due to our cost-efficiencies, capital efficient constellation design, and adaptable, disruptive pricing
models, among other things, which enables us to expand our customer base to commercial organizations that have previously been priced
out of the geospatial intelligence market.
On-demand
delivery of low-cost geospatial analytics through subscription contracts to commercial customers. Geospatial intelligence and analytics
have generally been prohibitively expensive for many commercial customers, with price points geared towards government end users. Our
constellation is designed to provide our services to commercial customers at a low cost, which we expect will expand our base of potential
customers. Our data monetization strategy includes selling data directly to other companies and consumers, selling data to data aggregation
firms, listing our data on a data marketplace and leveraging a white label data commerce platform.
Proprietary,
low-cost smallsat assembly. We design satellites and manufacture our satellites in-house. Controlling the satellite production process
from design through manufacturing enables us to upgrade our satellites during production, integrate customer technologies and data needs
at various points during the entire production cycle and continuously improve our satellites’ capabilities, as well as build out
and maintain our optimal constellation size at a relatively low cost. Our low-cost satellites benefit from longer life and decreasing
launch and on-orbit costs and our planned multi-mission constellation with vertical integration equals efficient use of capital expenses.
Our
Intellectual Property
We
continually invest in innovative solutions and as of December 31, 2022 have 6 space related patents approved or pending, which ownership
was transferred to us by our majority shareholder, Craig Technologies, at no charge. Our patented technologies include a print head for
regolith-polymer mixture and associated feedstock for which a notice of allowance was received by us in October 2021; a heat transfer
system for regolith which patent expires in June 2039; a method for establishing a wastewater bioreactor environment which patent expires
in July 2039; vertical takeoff and landing pad and interlocking pavers to construct same which patent expires in April 2039; and high-load
vacuum chamber motion feedthrough systems and methods which patent expires in May 2039.
We
seek to establish and maintain our proprietary rights in our technology and products through a combination of patents, copyrights, trademarks,
trade secrets and contractual rights. We also seek to maintain our trade secrets and confidential information through nondisclosure policies,
the use of appropriate confidentiality agreements and other security measures. We have registered a number of patents and trademarks
in the United States and in other countries and have a number of patent filings pending determination. There can be no assurance, however,
that these rights can be successfully enforced against competitive products in any particular jurisdiction. Although we believe the protection
afforded by our patents, copyrights, trademarks, trade secrets and contracts has value, the rapidly changing technology in the satellite
and wireless communications industries and uncertainties in the legal process make our future success dependent primarily on the innovative
skills, technological expertise and management abilities of our employees rather than on the protections afforded by patent, copyright,
trademark and trade secret laws and contractual rights.
Certain
of our products include software or other intellectual property licensed from third parties. While it may be necessary in the future
to seek or renew licenses relating to various aspects of our products, we believe, based upon past experience and standard industry practice,
that such licenses generally could be obtained on commercially reasonable terms. Nonetheless, there can be no assurance that the necessary
licenses would be available on acceptable terms, if at all.
The
industry in which we compete is characterized by rapidly changing technology, a large number of patents, and frequent claims and related
litigation regarding patent and other intellectual property rights. We cannot assure you that our patents and other proprietary rights
will not be challenged, invalidated or circumvented, that others will not assert intellectual property rights to technologies that are
relevant, or that our rights will give us a competitive advantage. In addition, the laws of some foreign countries may not protect our
proprietary rights to the same extent as the laws of the United States.
The
commercial space industry is driven by rapidly changing technologies and innovation, and our success will require significant expenditure
in Research and Development to develop new technologies, services, products, and offerings. Thus far, we have not established a Research
and Development department, nor have we incurred research and development expenses. We do not currently perform formal R&D and instead
we engineer our solutions with additional enhancements and innovations as part of our normal design and engineering efforts. We intend
on setting up a formal Research and Development team in the future so we can more easily streamline our new products and get to market
faster. If we fail to raise adequate funds to develop a robust Research and Development department and strategy, we will likely be unable
to execute on our business plan.
Regulatory
Our
business is subject to extensive rules, regulations, statutes, orders and policies imposed by the government in the United States and
in foreign jurisdictions.
International
Telecommunications Union (ITU)
We
are required to comply with the laws and regulations of, and often obtain approvals from, national and local authorities in connection
with our services. As we expand service to additional countries and regions, we will become subject to additional governmental approvals
and regulations. We will provide a number of services that rely on the use of radio-frequency spectrum, and the provision of such services
is highly regulated. Satellites are to be operated in a manner consistent with the regulations and procedures of the International Telecommunication
Union (“ITU”), a specialized agency of the United Nations, which require the coordination of the operation of satellite systems
in certain circumstances, and more generally are intended to avoid the occurrence of harmful interference among different users of the
radio spectrum.
We
have received approval of International Telecommunications Union (ITU) spectrum licensing for both X-Band and S-Band frequencies. We
filed for X-Band and S-Band Radio Frequencies licensing in February 2021 and were granted approval through a published filing by the
International Telecommunications Union (ITU) on April 4, 2021. The ITU is the specialized agency responsible for principles and licensing
of the use of orbit and spectrum. Before a satellite can use the spectrum and orbital resources it needs to fulfil its mission, it requires
an associated ‘satellite filing’. The filing is a tool to obtain international recognition of these resources.
International
Traffic in Arms Regulations (“ITAR”) and Export Controls
Our
business is subject to, and we must comply with, stringent U.S. import and export control laws, including the ITAR and Export Administration
Regulations (“EAR”) of the Bureau of Industry and Security of the U.S. Department of Commerce. The ITAR generally restricts
the export of hardware, software, technical data, and services that have defense or strategic applications. The EAR similarly regulates
the export of hardware, software, and technology that has commercial or “dual-use” applications (i.e., for both military
and commercial applications) or that have less sensitive military or space-related applications that are not subject to the ITAR. The
regulations exist to advance the national security and foreign policy interests of the U.S.
The
U.S. government agencies responsible for administering the ITAR and the EAR have significant discretion in the interpretation and enforcement
of these regulations. The agencies also have significant discretion in approving, denying, or conditioning authorizations to engage in
controlled activities. Such decisions are influenced by the U.S. government’s commitments to multilateral export control regimes,
particularly the Missile Technology Control Regime concerning the spaceflight business.
Many
different types of internal controls and measures are required to ensure compliance with such export control rules. In particular, we
are required to maintain registration under the ITAR; determine the proper licensing jurisdiction and classification of products, software,
and technology; and obtain licenses or other forms of U.S. government authorizations to engage in activities, including the performance
by foreign persons, related to and who support our spaceflight business. Under the ITAR, we must receive permission from the Directorate
of Defense Trade Controls to release controlled technology to foreign person employees and other foreign persons.
Employees/Human
Capital
As
of December 31, 2022, we had 64 full-time employees and 7 part-time employees. We are not party to any collective bargaining agreements.
Our workforce is concentrated in the “Florida Space Coast,” however we are accustomed to working as a cohesive team with
remote workers which should be beneficial as we expand and add employees in different geographical areas nationwide and worldwide. Our
management team is comprised of our CEO and six (6) of her direct reports who, collectively, have management responsibility for our business.
Our management team places significant focus and attention on matters concerning our human capital assets, particularly our diversity,
capability development, and succession planning. Accordingly, we regularly review employee development and succession plans for each
of our functions to identify and develop our pipeline of talent.
Available
Information
Our
website address is www.sidusspace.com. The contents of, or information accessible through, our website are not part of this Annual
Report on Form 10-K, and our website address is included in this document as an inactive textual reference only. We make our filings
with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments
to those reports, available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish
such reports to, the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other
information. The address of the SEC’s website is www.sec.gov. The information contained in the SEC’s website is not
intended to be a part of this filing.
ITEM
1A. RISK FACTORS.
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other
information in this Annual Report on Form 10-K before investing in our common stock. Our business and results of operations could be
seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition
and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be
materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part
of your investment.
Risk
Factors Relating to Our Operations and Business
Our
limited operating history makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.
Our
limited operating history makes it difficult to evaluate our future prospects and the risks and challenges it may encounter. Risks and
challenges we have faced or expects to face include our ability to:
|
● |
forecast
our revenue and budget for and manage our expenses; |
|
|
|
|
● |
attract
new customers and retain existing customers; |
|
|
|
|
● |
effectively
manage our growth and business operations, including planning for and managing capital expenditures for our current and future space
and space-related systems and services, managing our supply chain and supplier relationships related to our current and future product
and service offerings, and integrating acquisitions; |
|
|
|
|
● |
anticipate
and respond to macroeconomic changes and changes in the markets in which we operate; |
|
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|
● |
maintain
and enhance the value of our reputation and brand; |
|
|
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|
● |
develop
and protect intellectual property; and |
|
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|
● |
hire,
integrate and retain talented people at all levels of our organization. |
If
we fail to address the risks and difficulties that we face, including those associated with the challenges listed above as well as those
described elsewhere in this “Risk Factors” section, our business, financial condition and results of operations could
be adversely affected. Further, because we have limited historical financial data and operate in a rapidly evolving market, any predictions
about its future revenue and expenses may not be as accurate as they would be if it had a longer operating history or operated in a more
developed market. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by
growing companies with limited operating histories in rapidly changing industries. If our assumptions regarding these risks and uncertainties,
which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results
of operations could differ materially from its expectations and its business, financial condition and results of operations could be
adversely affected.
We
have incurred significant losses since inception, we expect to incur losses in the future, and we may not be able to achieve or maintain
profitability.
We
have incurred significant losses since our inception. We incurred net losses of $12,839,968 and $3,746,138 for the years ended December
31, 2022 and 2021, respectively. While we have generated limited revenue to date, we have not yet achieved production level satellite
manufacturing, launch and data activities, and it is difficult for us to predict our future operating results. As a result, our losses
may be larger than anticipated, and we may not achieve profitability when expected, or at all, and even if we do, we may not be able
to maintain or increase profitability.
We
expect our operating expenses to increase over the next several years as we commence production level satellite manufacturing and satellite
launch activities, continue to refine and streamline our design and manufacturing processes, make technical improvements, increase our
launch cadence, hire additional employees and initiate research and development efforts relating to new products and technologies, including
our space services business. These efforts may be more costly than we expect and may not result in increased revenue or growth in our
business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from
achieving or maintaining profitability or positive cash flow. Furthermore, if our future growth and operating performance fail to meet
investor or analyst expectations, or if we have future negative cash flow or losses resulting from our investment in acquiring customers
or expanding our operations, this could have a material adverse effect on our business, financial condition and results of operations.
We
may require substantial additional funding to finance our operations, but adequate additional financing may not be available when we
need it, on acceptable terms or at all.
In
the future, we could be required to raise capital through public or private financing or other arrangements. Such financing may not be
available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. For example, the global
COVID-19 health crisis and related financial impact has resulted in, and may continue to result in, significant disruption and volatility
of global financial markets that could adversely impact our ability to access capital. We may sell equity securities or debt securities
in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such 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. If we cannot raise funds on acceptable terms, we may not be able to grow our
business or respond to competitive pressures.
The
success of our business will be highly dependent on our ability to effectively market and sell our commercial satellite manufacturing,
launch, and data services for small LEO satellites.
We
expect that our success will be highly dependent, especially in the foreseeable future, on our ability to effectively forecast, market
and sell our launch and data services for small LEO satellites. We have limited experience in forecasting, marketing and selling such
services, and if we are unable to utilize our current or future sales organization effectively in order to adequately target and engage
our potential customers, our business may be adversely affected.
Our
success depends, in part, on our ability to attract new customers in a cost-effective manner. We expect that we will need to make significant
investments in order to attract new customers. Our sales growth is dependent upon our ability to implement strategic initiatives, and
these initiatives may not be effective in generating sales growth. In addition, marketing campaigns, which we have not historically utilized,
can be expensive and may not result in the acquisition of customers in a cost-effective manner, if at all. Further, as our brand becomes
more widely known, future marketing campaigns or brand content may not attract new customers at the same rate as past campaigns or brand
content. If we are unable to attract new customers, our business, financial condition and results of operations will be harmed.
We
have not yet delivered our 3D printed satellites into orbit, and any setbacks we may experience during our first commercial satellite
launch and other demonstration and commercial missions could have a material adverse effect on our business, financial condition and
results of operation, and could harm our reputation.
The
success of our launch and satellite services business will depend on our ability to successfully and regularly deliver customer satellites
into orbit. In November 2019, we successfully launched EFTP, our on-orbit external experimental facility hosted on the NanoRacks International
Space Station External Platform (NREP). Additionally, in January of 2020, a microsatellite was successfully launched from the ISS using
our SSIKLOPS platform for the STP program office.
There
is no guarantee that our planned commercial launches or subsequent commercial launches thereafter will be successful. While we believe
that our launch partners have built operational processes to ensure that the design, manufacture, performance and servicing of their
launch vehicles and rockets meet rigorous performance goals, there can be no assurance that our launch partners will not experience operational
or process failures and other problems during our first commercial launch or any planned launches thereafter. Any failures or setbacks,
particularly on our first commercial launches, could harm our reputation and have a material adverse effect on our business, financial
condition and results of operation.
The
market for commercial satellite manufacturing, launch and data services for small LEO satellites is not well established, is still emerging
and may not achieve the growth potential we expect or may grow more slowly than expected.
The
market for in-space infrastructure services, in particular commercial satellite manufacturing, launch and data services for small LEO
satellites, has not been well established and is still emerging. Our estimates for the total addressable launch market and satellite
market are based on several internal and third-party estimates, including our contracted revenue, the number of potential customers who
have expressed interest in our satellite launch and data services, assumed prices and production costs for our services, assumed flight
cadence, our ability to leverage our current manufacturing and operational processes and general market conditions. While we believe
our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions
supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors.
As a result, our estimates of the annual total addressable market for our services, as well as the expected growth rate for the total
addressable market for our services, may prove to be incorrect.
Our
ability to grow our business depends on the successful development of our satellites and related technology, which is subject to many
uncertainties, some of which are beyond our control.
Our
current objectives focus on the development of small satellites and integration capabilities and related technology. If we do not complete
this development in our anticipated timeframes or at all, our ability to grow our business will be adversely affected. The successful
development of our satellite capabilities and related technology involves many uncertainties, some of which are beyond our control, including,
but not limited to:
|
● |
timing
in making further enhancements to our product design and specifications; |
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● |
successful
completion of our planned commercial satellite launches; |
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● |
our
ability to obtain additional applicable approvals, licenses or certifications from regulatory agencies, if required, and maintaining
current approvals, licenses or certifications; |
|
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|
● |
performance
of our manufacturing facilities despite risks that disrupt productions, such as natural disasters and hazardous materials; |
|
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● |
performance
of a limited number of suppliers for certain raw materials and supplied components; |
|
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● |
performance
of our third-party contractors that support our future research and development activities; |
|
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● |
our
ability to maintain rights from third parties for intellectual properties critical to our future research and development activities;
|
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● |
our
ability to fund and maintain our future research and development activities, particularly the development of various enhancements
that increase the data transfer capacity of our satellite; and |
|
|
|
|
● |
the
impact of the COVID-19 pandemic on us, our customers, suppliers and distributors, and the global economy. |
We
routinely conduct hazardous operations in testing of our satellite subsystems, which could result in damage to property or persons. Unsatisfactory
performance or failure of our satellites and related technology at launch or during operation could have a material adverse effect on
our business, financial condition and results of operation.
We
manufacture and operate highly sophisticated products for the commercial space, aerospace and defense industries and conduct activities
that depend on complex technology. Although there have been and will continue to be technological advances in spaceflight, our operations
remain an inherently hazardous and risky activity. Launch failures, explosions and other accidents on launch or during flight have occurred
for others and will likely occur in the future.
While
we have built operational processes to ensure that the design, manufacture, performance and servicing of our products and related technologies
meet rigorous quality standards, there can be no assurance that we will not experience operational or process failures and other problems,
including through manufacturing or design defects, cyber-attacks or other intentional acts, that could result in potential safety risks.
We may experience a total loss of our customers’ payloads and our own payloads if there is an accident or failure at launch or
during the journey into space, which could have a material adverse effect on our results of operations and financial condition. For some
missions, we or our customers can elect to buy launch insurance, which can reduce our monetary losses from any launch failure, but even
in this case we will have losses associated with our inability to test our technology in space and delays with further technology development.
Any insurance we or our customers have may not be adequate to cover our or their loss, respectively.
Any
actual or perceived safety or reliability issues may result in significant reputational harm to our businesses, in addition to tort liability,
maintenance, increased safety infrastructure and other costs that may arise. Such issues could result in delaying or cancelling planned
launches, increased regulation or other systemic consequences. Our inability to meet our safety standards or adverse publicity affecting
our reputation as a result of accidents, mechanical failures, damages to customer property or medical complications could have a material
adverse effect on our business, financial condition and results of operation.
We
may experience a total loss of our technology and products and our customers’ payloads if there is an accident on launch or during
the journey into space, and any insurance we have may not be adequate to cover our loss.
Although
there have been and will continue to be technological advances in spaceflight, it is still an inherently dangerous activity. Explosions
and other accidents on launch or during the flight have occurred and will likely occur in the future. If such incident should occur,
we will likely experience a total loss of our systems, products, technologies and services and our customers’ payloads. The total
or partial loss of one or more of our products or customer payloads could have a material adverse effect on our results of operations
and financial condition. For some missions, we can elect to buy launch insurance, which can reduce our monetary losses from the launch
failure, but even in this case we will have losses associated with our inability to test our technology in space and delays with further
technology development.
Any
delays in the development and manufacture of satellites and related technology may adversely impact our business, financial condition
and results of operations.
We
have previously experienced, and may experience in the future, delays or other complications in the design, manufacture, launch, production,
delivery and servicing ramp of satellites and related technology. If delays like this arise or recur, if our remediation measures and
process changes do not continue to be successful or if we experience issues with planned manufacturing improvements or design and safety,
we could experience issues in sustaining the ramp of our spaceflight system or delays in increasing production further.
If
we encounter difficulties in scaling our delivery or servicing capabilities, if we fail to develop and successfully commercialize our
satellites and related technologies, if we fail to develop such technologies before our competitors, or if such technologies fail to
perform as expected, are inferior to those of our competitors or are perceived as less safe than those of our competitors, our business,
financial condition and results of operations could be materially and adversely impacted.
Our
customized hardware and software may be difficult and expensive to service, upgrade or replace.
Some
of the hardware and software we use in operations is significantly customized and tailored to meet our requirements and specifications
and could be difficult and expensive to service, upgrade or replace. Although we expect to maintain inventories of some spare parts,
it nonetheless may be difficult, expensive or impossible to obtain replacement parts for the hardware due to a limited number of those
parts being manufactured to our requirements and specifications. Also, our business plan contemplates updating or replacing some of the
hardware and software in our network as technology advances, but the complexity of our requirements and specifications may present us
with technical and operational challenges that complicate or otherwise make it expensive or infeasible to carry out such upgrades and
replacements. If we are not able to suitably service, upgrade or replace our equipment, our ability to provide our services and therefore
to generate revenue could be harmed.
Our
satellites may collide with space debris or another spacecraft, which could adversely affect our operations.
Although
we expect to comply with best practices and international orbital debris mitigation requirements to actively maneuver our satellites
to avoid potential collisions with space debris or other spacecraft, these abilities are limited by, among other factors, uncertainties
and inaccuracies in the projected orbit location of, and predicted collisions with, debris objects tracked and cataloged by governments
or other entities. Additionally, some space debris is too small to be tracked and therefore its orbital location is unknown; nevertheless,
this debris is still large enough to potentially cause severe damage or a failure of our satellites should a collision occur. If our
satellites collide with space debris or other spacecraft, our products and services could be impaired. Also, a failure of one or more
of our satellites or the occurrence of equipment failures, collision damage, or other related problems that may result during the de-orbiting
process could constitute an uninsured loss and could materially harm our financial condition.
If
we are unable to adapt to and satisfy customer demands in a timely and cost-effective manner, or if we are unable to manufacture our
products at a quantity and quality that our customers demand, our ability to grow our business may suffer.
The
success of our business depends in part on effectively managing and maintaining our space services, manufacturing our products, conducting
a sufficient number of launches to meet customer demand and providing customers with an experience that meets or exceeds their expectations.
Even if we succeed in developing our products and completing launches within our targeted timeline, we could thereafter fail to develop
the ability to produce these products at quantity with a quality management system that ensures that each unit performs as required.
Any delay in our ability to produce products or complete launches at rate and with a reliable quality management system could have a
material adverse on our business.
If
our current or future space services do not meet expected performance or quality standards, including with respect to customer safety
and satisfaction, this could cause operational delays. Further, launching satellites within restricted airspace require advance scheduling
and coordination with government agencies and range owners and other users, and any high priority national defense assets will have priority
in the use of these resources, which may impact our cadence of our space operations or could result in cancellations or rescheduling.
Any operational or manufacturing delays or other unplanned changes to our ability to conduct our launches could have a material adverse
effect on our business, financial condition and results of operations.
We
may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
If
our operations continue to grow as planned, of which there can be no assurance, we will need to expand our sales and marketing, customer
and commercial strategy, products and services, supply, and manufacturing and distribution functions and initiate research and development.
We will also need to continue to leverage our manufacturing and operational systems and processes, and there is no guarantee that we
will be able to scale the business and the manufacture of spacecraft as currently planned or within the planned timeframe. The continued
expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support,
and there is no guarantee that we will be able to find suitable locations or partners for the manufacture and operation of our products.
Our
continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in
hiring, training and managing an increasing number of employees, finding manufacturing capacity to produce our products and related equipment,
and delays in production and launches. These difficulties may result in the erosion of our brand image, divert the attention of management
and key employees and impact financial and operational results. In addition, in order to continue to expand our presence around the globe,
we expect to incur substantial expenses as we continue to attempt to streamline our manufacturing process, increase our launch cadence,
hire more employees, and fund research and development efforts relating to new products and technologies and expand our business. If
we are unable to drive commensurate growth, these costs, which include lease commitments, headcount and capital assets, could result
in decreased margins, which could have a material adverse effect on our business, financial condition and results of operations.
Our
prospects and operations may be adversely affected by changes in consumer preferences and economic conditions that affect demand for
satellite services.
Because
our business is currently concentrated on commercial satellite manufacturing, launch and data services, we are vulnerable to changes
in consumer preferences or other market changes. The global economy has in the past, and will in the future, experience recessionary
periods and periods of economic instability. During such periods, our potential customers may choose not to expend the amounts that we
anticipate based on our expectations with respect to the addressable market for satellite services. There could be a number of other
effects from adverse general business and economic conditions on our business, including insolvency of any of our third-party suppliers
or contractors, decreased consumer confidence, decreased discretionary spending and reduced customer or governmental demand for satellites
and other products we produce, which could have a material adverse effect on our business, financial condition and results of operations.
Adverse
publicity stemming from any incident involving us or our competitors, could have a material adverse effect on our business, financial
condition and results of operations.
We
are at risk of adverse publicity stemming from any public incident involving our company, our people or our brand. If any of our launch
partners’ vehicles or our satellites or those of one of our competitors were to be involved in a public incident, accident or catastrophe,
this could create an adverse public perception of satellite launch or manufacturing activities and result in decreased customer demand
for launch and satellite services, which could cause a material adverse effect on our business, financial conditions and results of operations.
Further, if our launch partners’ vehicles or rockets were to be involved in a public incident, accident or catastrophe, we could
be exposed to significant reputational harm or potential legal liability. Any reputational harm to our business could cause customers
with existing contracts with us to cancel their contracts and could significantly impact our ability to make future sales. The insurance
we carry may be inapplicable or inadequate to cover any such incident, accident or catastrophe. In the event that our insurance is inapplicable
or not adequate, we may be forced to bear substantial losses from an incident or accident.
If
we are unable to maintain relationships with our existing launch partners or enter into relationships with new launch partners, we may
be unable to reach our targeted annual launch rate, which could have an adverse effect on our ability to grow our business.
We
do not own or operate our own launch vehicles. We rely on third party launch partners to launch our and our customers’ satellites.
Part of our strategy involves increasing our launch cadence and reaching 100 satellites launched by 2026. Our ability to achieve such
launch cadence targets will depend on our ability to maintain our relationships with our existing launch partners and add new launch
partners in the future. We currently have agreements with the International Space Station and Vaya Space and expect to enter into a variety
of arrangements to secure additional launch partners. We may in the future experience delays in our efforts to secure additional launch
partners. Challenges as a result of regulatory processes or in the ability of our partners to secure the necessary permissions to establish
launch sites could delay our ability to achieve our target cadence and could adversely affect our business.
We
are dependent on third-party launch vehicles to deliver our systems, products, and technologies into space. If the number of companies
offering launch services or the number of launches does not grow in the future or there is a consolidation among companies who offer
these services, this could result in a shortage of space on these launch vehicles, which may cause delays in our ability to meet our
customers’ needs. Additionally, a shortage of space available on launch vehicles may cause prices to increase or cause delays in
our ability to meet our customers’ needs. Either of these situations could have a material adverse effect on our results of operations
and financial condition.
Further,
if a launch is delayed, our timing for recognition of revenue may be impacted depending on the length of the delay and the nature of
the contract with the customers with payloads on such delayed flight. Such a delay in recognizing revenue could materially impact our
financial statements or result in negative impacts to our earnings during a specified time period, which could have a material effect
on our results of operations and financial condition.
We
rely on a limited number of suppliers for certain raw materials and supplied components. We may not be able to obtain sufficient raw
materials or supplied components to meet our manufacturing and operating needs, or obtain such materials on favorable terms, which could
impair our ability to fulfill our orders in a timely manner or increase our costs of production.
Our
ability to manufacture our products is dependent upon sufficient availability of raw materials and supplied components, which we secure
from a limited number of suppliers. Our reliance on suppliers to secure these raw materials and supplied components exposes us to volatility
in the prices and availability of these materials. We may not be able to obtain sufficient supply of raw materials or supplied components,
on favorable terms or at all, which could result in delays in manufacture of our products or increased costs.
In
addition, we have in the past and may in the future experience delays in manufacture or operation as we go through the requalification
process with any replacement third-party supplier, as well as the limitations imposed by International Traffic in Arms Regulations and
other restrictions on transfer of sensitive technologies. Additionally, the imposition of tariffs on such raw materials or supplied components
could have a material adverse effect on our operations. Prolonged disruptions in the supply of any of our key raw materials or components,
difficulty qualifying new sources of supply, implementing use of replacement materials or new sources of supply or any volatility in
prices could have a material adverse effect on our ability to operate in a cost-efficient, timely manner and could cause us to experience
cancellations or delays of scheduled launches, customer cancellations or reductions in our prices and margins, any of which could harm
our business, financial condition and results of operations.
Failure
of third-party contractors could adversely affect our business.
We
are dependent on various third-party contractors to develop and provide certain of our components of and processes to our products. Should
we experience complications with any of these components and services, we may need to delay our manufacturing activities or delay or
cancel scheduled launches. We face the risk that any of our contractors may not fulfill their contracts and deliver their products or
services on a timely basis, or at all. We have in the past experienced, and may in the future experience, operational complications with
our contractors. The ability of our contractors to effectively satisfy our requirements could also be impacted by such contractors’
financial difficulty or damage to their operations caused by fire, terrorist attack, natural disaster, or other events. The failure of
any contractors to perform to our expectations could result in shortages of certain manufacturing or operational components for our spacecraft
or delays in spaceflights and harm our business. Our reliance on contractors and inability to fully control any operational difficulties
with our third-party contractors could have a material adverse effect on our business, financial condition, and results of operations.
We
expect to face intense competition in the commercial space market and other industries in which we may operate.
We
face intense competition in the commercial space market and amongst our competitors. Currently, our primary competitors in the commercial
satellite market are Blacksky, Spire, Hawkeye 360, LoftOrbital, and IceEye. In addition, we are aware of a significant number of entities
actively engaged in developing commercial launch capabilities for small and medium sized satellite payloads, including Virgin Orbit,
Relativity, ABL, and Firefly, among others. Many of our current and potential competitors are larger and have substantially greater financial
or other resources than we currently have or expect to have in the future, and thus may be better positioned to exploit the market need
for small payloads and targeted orbital delivery, which is the focus of our business. They may also be able to devote greater resources
to the development of their current and future technologies, which could overlap with our technologies, or the promotion and sale of
their products and services. Our competitors could offer small launch vehicles at lower prices, which could undercut our business strategy
and potential competitive edge. Our current and potential competitors may also establish cooperative or strategic relationships amongst
themselves or with third parties that may further enhance their resources and offerings relative to ours. Further, it is possible that
domestic or foreign companies or governments, some with greater experience in the aerospace industry or greater financial resources than
we possess, will seek to provide products or services that compete directly or indirectly with ours in the future. Any such foreign competitor,
for example, could benefit from subsidies from, or other protective measures by, its home country.
We
believe our ability to compete successfully as a commercial provider of launch and satellite services does and will depend on a number
of factors, which may change in the future due to increased competition, including the price of our products and services, consumer satisfaction
for the experiences we offer, and the frequency and availability of our products and services. If we are unable to compete successfully,
our business, financial condition and results of operations could be adversely affected.
We
may in the future invest significant resources in developing new service offerings and exploring the application of our proprietary technologies
for other uses and those opportunities may never materialize.
While
our primary focus for the foreseeable future will be on commencing our commercial launch activities, increasing our launch cadence, and
fully expanding our satellite operations center, we may also invest significant resources in developing new technologies, services, products,
and offerings. However, we may not realize the expected benefits of these investments. These anticipated technologies, however, are unproven
and these products or technologies may never materialize or be commercialized in a way that would allow us to generate ancillary revenue
streams. Relatedly, if such technologies become viable offerings in the future, we may be subject to competition from our competitors
within the commercial launch and satellite industries, some of which may have substantially greater monetary and knowledge resources
than we have and expect to have in the future to devote to the development of these technologies. Such competition or any limitations
on our ability to take advantage of such technologies could impact our market share, which could have a material adverse effect on our
business, financial condition, and results of operations.
Such
research and development initiatives may also have a high degree of risk and involve unproven business strategies and technologies with
which we have limited operating or development experience. They may involve claims and liabilities (including, but not limited to, personal
injury claims), expenses, regulatory challenges, and other risks that we may not be able to anticipate. There can be no assurance that
customer demand for such initiatives will exist or be sustained at the levels that we anticipate, or that any of these initiatives will
gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with
these new investments. Further, any such research and development efforts could distract management from current operations and would
divert capital and other resources from our more established offerings and technologies. Even if we were to be successful in developing
new products, services, offerings or technologies, regulatory authorities may subject us to new rules or restrictions in response to
our innovations that may increase our expenses or prevent us from successfully commercializing new products, services, offerings, or
technologies.
If
we fail to adequately protect our proprietary intellectual property rights, our competitive position could be impaired and we may lose
valuable assets, generate reduced revenue and incur costly litigation to protect our rights.
Our
success depends, in part, on our ability to protect our proprietary intellectual property rights, including certain methodologies, practices,
tools, technologies and technical expertise we utilize in designing, developing, implementing, and maintaining applications and processes
used in our satellite systems and related technologies. To date, we have relied primarily on trade secrets and other intellectual property
laws, non-disclosure agreements with our employees, consultants and other relevant persons and other measures to protect our intellectual
property and intend to continue to rely on these and other means, including patent protection, in the future. However, the steps we take
to protect our intellectual property may be inadequate, and we may choose not to pursue or maintain protection for our intellectual property
in the United States or foreign jurisdictions. We will not be able to protect our intellectual property if we are unable to enforce our
rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized
third parties to copy our technology and use information that we regard as proprietary to create technology that competes with ours.
Further,
the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for
enforcement of intellectual property rights in some foreign countries may be inadequate. To the extent we expand our international activities,
our exposure to unauthorized copying and use of our technologies and proprietary information may increase. Accordingly, despite our efforts,
we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our technology and intellectual
property.
We
rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although
we enter into non-disclosure and invention assignment agreements with our employees, enter into non-disclosure agreements with our customers,
consultants, and other parties with whom we have strategic relationships and business alliances and enter into intellectual property
assignment agreements with our consultants and vendors, no assurance can be given that these agreements will be effective in controlling
access to and distribution of our technology and proprietary information. Further, these agreements do not prevent our competitors from
independently developing technologies that are substantially equivalent or superior to our products.
Protecting
and defending against intellectual property claims may have a material adverse effect on our business.
Our
success depends in part upon successful prosecution, maintenance, enforcement and protection of our owned and licensed intellectual property.
To
protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation
may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be
costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property.
Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking
the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology, as well as
any costly litigation or diversion of our management’s attention and resources, could disrupt our business, as well as have a material
adverse effect on our financial condition and results of operations. The results of intellectual property litigation are difficult to
predict and may require us to stop using certain technologies or offering certain services or may result in significant damage awards
or settlement costs. There is no guarantee that any action to defend, maintain or enforce our owned or licensed intellectual property
rights will be successful, and an adverse result in any such proceeding could have a material adverse impact on our business, financial
condition, operating results, and prospects.
In
addition, we may from time-to-time face allegations that we are infringing, misappropriating or otherwise violating the intellectual
property rights of third parties, including the intellectual property rights of our competitors. We may be unaware of the intellectual
property rights that others may claim cover some or all of our technology or services. Irrespective of the validity of any such claims,
we could incur significant costs and diversion of resources in defending against them, and there is no guarantee any such defense would
be successful, which could have a material adverse effect on our business, contracts, financial condition, operating results, liquidity,
and prospects.
Even
if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and
the time and resources necessary to litigate or resolve them, could divert the time and resources of our management team, and harm our
business, our operating results and our reputation.
The
majority of our customer contracts may be terminated by the customer at any time for convenience as well as other provisions permitting
the customer to discontinue contract performance for cause (for example, if we do not achieve certain milestones on a timely basis).
If our contracts are terminated or if we experience any other contract-related risks, our results of operations may be adversely impacted.
In addition, some of our customers are government entities, which subjects us to additional risks including early termination, audits,
investigations, sanctions, and penalties.
We
are subject to a variety of contract-related risks. Some of our existing customer contracts, including those with the government, include
provisions allowing the customers to terminate their contracts for convenience, with a termination penalty for at least the amounts already
paid, or to terminate the contracts for cause (for example, if we do not achieve certain milestones on a timely basis). Customers that
terminate such contracts may also be entitled to a pro rata refund of the amount of the customer’s deposit. In addition, some of
our customers are pre-revenue startups or otherwise not fully established companies, which exposes us to a degree of counterparty credit
risk.
Part
of our strategy is to market our space and satellite manufacturing and launch and data services to key government customers. We expect
we may derive limited revenue from contracts with NASA and the U.S. government and may enter into further contracts with the U.S. or
foreign governments in the future, and this subjects us to statutes and regulations applicable to companies doing business with the U.S.
government, including the Federal Acquisition Regulation. These U.S. government contracts customarily contain provisions that give the
government substantial rights and remedies, many of which are not typically found in commercial contracts, and which are unfavorable
to contractors. For instance, most U.S. government agencies include provisions that allow the government to unilaterally terminate or
modify contracts for convenience, in which case the counterparty to the contract may generally recover only its incurred or committed
costs and settlement expenses and profit on work completed prior to the termination. If the government terminates a contract for default,
the defaulting party may be liable for any extra costs incurred by the government in procuring undelivered items from another source.
Our
government contracts may be subject to the approval of appropriations being made by the U.S. Congress to fund the expenditures under
these contracts. In addition, government contracts normally contain additional requirements that may increase our costs of doing business,
reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for
example:
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specialized
disclosure and accounting requirements unique to government contracts; |
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financial
and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds
have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with
the U.S. government; |
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public
disclosures of certain contract and company information; and |
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mandatory
socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental
compliance requirements. |
Government
contracts are also generally subject to greater scrutiny by the government, which can initiate reviews, audits, and investigations regarding
our compliance with government contract requirements. In addition, if we fail to comply with government contract laws, regulations and
contract requirements, our contracts may be subject to termination, and we may be subject to financial and/or other liability under our
contracts, the Federal Civil False Claims Act (including treble damages and other penalties), or criminal law. In particular, the False
Claims Act’s “whistleblower” provisions also allow private individuals, including present and former employees, to
sue on behalf of the U.S. government. Any penalties, damages, fines, suspension, or damages could adversely affect our ability to operate
our business and our financial results. If any customer were to unexpectedly terminate, cancel, or decline to exercise an option to renew
with respect to one or more of our significant contracts for any reason, including as a result of our failure to meet certain performance
milestones, or if a government customer were to suspend or debar us from doing business with such government, our business, financial
condition, and results of operations would be materially harmed.
If
we commercialize outside the United States, we will be exposed to a variety of risks associated with international operations that could
materially and adversely affect our business.
As
part of our growth, we aim to establish offices and partnerships outside of the United States. We plan to continue to build our pipeline
of global customers to include joint ventures and strategic partnerships. As we expand internationally, we expect that we would be subject
to additional risks related to entering into international business relationships, including:
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restructuring
our operations to comply with local regulatory regimes; |
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identifying,
hiring and training highly skilled personnel; |
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unexpected
changes in tariffs, trade barriers and regulatory requirements, including through the International Traffic in Arms Regulations,
or ITAR, Export Administration Regulations, or EAR, and Office of Foreign Assets Control, or OFAC; |
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economic
weakness, including inflation, or political instability in foreign economies and markets; |
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compliance
with tax, employment, immigration, and labor laws for employees living or traveling abroad; |
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foreign
taxes, including withholding of payroll taxes; |
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the
need for U.S. government approval to operate our spaceflight systems outside the United States; |
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foreign
currency fluctuations, which could result in increased operating expenses and reduced revenue; |
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government
appropriation of assets; |
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workforce
uncertainty in countries where labor unrest is more common than in the United States; and |
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disadvantages
of competing against companies from countries that are not subject to U.S. laws and regulations, including the U.S. Foreign Corrupt
Practices Act, or FCPA, OFAC regulations and U.S. anti-money laundering regulations, as well as exposure of our foreign operations
to liability under these regulatory regimes. |
Our
business is subject to a wide variety of extensive and evolving government laws and regulations. Failure to comply with such laws and
regulations could have a material adverse effect on our business.
We
are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to our satellite
system operations, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws
and regulations at the foreign, federal, state, and local levels frequently change, especially in relation to new and emerging industries,
and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future regulatory or administrative
changes. We monitor these developments and devote a significant amount of management’s time and external resources towards compliance
with these laws, regulations and guidelines, and such compliance places a significant burden on management’s time and other resources,
and it may limit our ability to expand into certain jurisdictions. Moreover, changes in law, the imposition of new or additional regulations
or the enactment of any new or more stringent legislation that impacts our business could require us to change the way we operate and
could have a material adverse effect on our sales, profitability, cash flows and financial condition.
Failure
to comply with these laws, such as with respect to obtaining and maintaining licenses, certificates, authorizations and permits critical
for the operation of our business, may result in civil penalties or private lawsuits, or the suspension or revocation of licenses, certificates,
authorizations or permits, which would prevent us from operating our business. For example, deploying space assets such as satellites
in the United States require licenses and permits from certain agencies of the Department of Transportation, including the Federal Aviation
Administration, or FAA, and review by other agencies of the U.S. Government, including the National Oceanic and Atmospheric Administration,
or “NOAA”, the Department of Defense, Department of State, NASA, Federal Communications Commission, or the “FCC”
and the International Telecommunications Union, or the “ITU”. License approval includes an interagency review of safety,
operational, national security, and foreign policy and international obligations implications, as well as a review of foreign ownership.
Delays in licensing and approvals allowing us to deploy our commercial satellites could adversely affect our ability to operate our business
and our financial results.
Moreover,
regulation of our industry is still evolving, and new or different laws or regulations could affect our operations, increase direct compliance
costs for us or cause any third-party suppliers or contractors to raise the prices they charge us because of increased compliance costs.
Application of these laws to our business may negatively impact our performance in various ways, limiting the collaborations we may pursue,
further regulating the export and re-export of our products, services, and technology from the United States and abroad, and increasing
our costs and the time necessary to obtain required authorization. The adoption of a multi-layered regulatory approach to any one of
the laws or regulations to which we are or may become subject, particularly where the layers are in conflict, could require alteration
of our manufacturing processes or operational parameters which may adversely impact our business. We may not be in complete compliance
with all such requirements at all times and, even when we believe we are in complete compliance, a regulatory agency may determine that
we are not. The timing of our satellite deployments may depend on the ability of our partners to secure regulatory licenses from the
FAA and the FCC/ITU.
A
component of our near-term strategy involves increasing our launch cadence by accelerating our development and production efforts and
adding additional launch partners. Our ability to achieve this increased launch cadence within the timeframe in which we hope to do so
will depend on the ability of our launch partners to secure the necessary regulatory licenses from the FAA, the FCC/ITU and other regulatory
authorities. If our launch partners fail to obtain the licenses necessary to support our anticipated launch cadence, or any delays or
hurdles that present in our interactions with the FAA, the FCC/ITU or other regulatory authorities, could impact our ability to grow
our business, could delay our ability to execute on our existing and future customer contracts and could adversely affect our business
and results of operations.
We
are subject to stringent U.S. export and import control laws and regulations. Unfavorable changes in these laws and regulations or U.S.
government licensing policies, our failure to secure timely U.S. government authorizations under these laws and regulations, or our failure
to comply with these laws and regulations could have a material adverse effect on our business, financial condition, and results of operation.
Our
business is subject to stringent U.S. import and export control laws and regulations as well as economic sanctions laws and regulations.
We are required to import and export our products, software, technology, and services, as well as run our operations in the United States,
in full compliance with such laws and regulations, which include the EAR, the ITAR, and economic sanctions administered by the Treasury
Department’s OFAC. Similar laws that impact our business exist in other jurisdictions. These foreign trade controls prohibit, restrict,
or regulate our ability to, directly or indirectly, export, deemed export, re-export, deemed re-export or transfer certain hardware,
technical data, technology, software, or services to certain countries and territories, entities, and individuals, and for end uses.
If we are found to be in violation of these laws and regulations, it could result in civil and criminal, monetary and non-monetary penalties,
the loss of export or import privileges, debarment, and reputational harm.
Pursuant
to these foreign trade control laws and regulations, we are required, among other things, to (i) maintain a registration under the ITAR,
(ii) determine the proper licensing jurisdiction and export classification of products, software, and technology, and (iii) obtain licenses
or other forms of U.S. government authorization to engage in the conduct of our spaceflight business. The authorization requirements
include the need to get permission to release controlled technology to foreign person employees and other foreign persons. Changes in
U.S. foreign trade control laws and regulations, or reclassifications of our products or technologies, may restrict our operations. The
inability to secure and maintain necessary licenses and other authorizations could negatively impact our ability to compete successfully
or to operate our spaceflight business as planned. Any changes in the export control regulations or U.S. government licensing policy,
such as those necessary to implement U.S. government commitments to multilateral control regimes, may restrict our operations. Given
the great discretion the government has in issuing or denying such authorizations to advance U.S. national security and foreign policy
interests, there can be no assurance we will be successful in our future efforts to secure and maintain necessary licenses, registrations,
or other U.S. government regulatory approvals.
Under
the “Exon-Florio Amendment” to the U.S. Defense Production Act of 1950, as amended (the “DPA”), the U.S. President
has the power to disrupt or block certain foreign investments in U.S. businesses if he determines that such a transaction threatens U.S.
national security. The Committee on Foreign Investment in the United States (“CFIUS”) has been delegated the authority to
conduct national security reviews of certain foreign investments. CFIUS may impose mitigation conditions to grant clearance of a transaction.
The
Foreign Investment Risk Review Modernization Act (“FIRRMA”), enacted in 2018, amended the DPA to, among other things, expand
CFIUS’s jurisdiction beyond acquisitions of control of U.S. businesses. Under FIRRMA, CFIUS also has jurisdiction over certain
foreign non-controlling investments in U.S. businesses that are involved with critical technology or critical infrastructure, or that
collect and maintain sensitive personal data of U.S. citizens (“TID U.S. Businesses”), if the foreign investor receives specified
triggering rights in connection with its investment. We are a TID U.S. Business because we develop and design technologies that would
be considered critical technologies. Certain foreign investments in TID U.S. Businesses are subject to mandatory filing with CFIUS. These
restrictions on the ability of foreign persons to invest in us could limit our ability to engage in strategic transactions that could
benefit our stockholders, including a change of control, and could also affect the price that an investor may be willing to pay for our
common stock.
Failure
to comply with federal, state, and foreign laws and regulations relating to privacy, data protection and consumer protection, or the
expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could
adversely affect our business and our financial condition.
We
collect, store, process, and use personal information and other customer data, and we rely in part on third parties that are not directly
under our control to manage certain of these operations and to collect, store, process and use payment information. Due to the volume
and sensitivity of the personal information and data we and these third parties manage and expect to manage in the future, as well as
the nature of our customer base, the security features of our information systems are critical. A variety of federal, state, and foreign
laws and regulations govern the collection, use, retention, sharing and security of this information. Laws and regulations relating to
privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements
may not be harmonized, may be interpreted, and applied in a manner that is inconsistent from one jurisdiction to another or may conflict
with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws,
regulations, requirements, and obligations.
We
expect that new industry standards, laws and regulations will continue to be proposed regarding privacy, data protection and information
security in many jurisdictions. We cannot yet determine the impact such future laws, regulations and standards may have on our business.
Complying with these evolving obligations is costly.
As
we expand our international presence, we may also become subject to additional privacy rules, many of which, such as the General Data
Protection Regulation promulgated by the European Union (the “GDPR”) and national laws supplementing the GDPR, such as in
the United Kingdom, are significantly more stringent than those currently enforced in the United States. The law requires companies to
meet stringent requirements regarding the handling of personal data of individuals located in the EEA. These more stringent requirements
include expanded disclosures to inform customers about how we may use their personal data through external privacy notices, increased
controls on profiling customers and increased rights for data subjects (including customers and employees) to access, control and delete
their personal data. In addition, there are mandatory data breach notification requirements. The law also includes significant penalties
for non-compliance, which may result in monetary penalties of up to the higher of €20.0 million or 4% of a group’s worldwide
turnover for the preceding financial year for the most serious violations. The GDPR and other similar regulations require companies to
give specific types of notice and informed consent is required for the placement of a cookie or similar technologies on a user’s
device for online tracking for behavioral advertising and other purposes and for direct electronic marketing, and the GDPR also imposes
additional conditions in order to satisfy such consent, such as a prohibition on pre-checked tick boxes and bundled consents, thereby
requiring customers to affirmatively consent for a given purpose through separate tick boxes or other affirmative action.
A
significant data breach or any failure, or perceived failure, by us to comply with any federal, state or foreign privacy or consumer
protection-related laws, regulations or other principles or orders to which we may be subject or other legal obligations relating to
privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings
or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or
cease using certain data sets. Depending on the nature of the information compromised, we may also have obligations to notify users,
law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds, for the individuals
affected by the incident.
Failures
in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.
If
our main data center were to fail, or if we were to suffer an interruption or degradation of services at our main data center, we could
lose important manufacturing and technical data, which could harm our business. Our facilities are vulnerable to damage or interruption
from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and
similar events. In the event that our or any third-party provider’s systems or service abilities are hindered by any of the events
discussed above, our ability to operate may be impaired. A decision to close the facilities without adequate notice, or other unanticipated
problems, could adversely impact our operations. Any of the aforementioned risks may be augmented if our or any third-party provider’s
business continuity and disaster recovery plans prove to be inadequate. The facilities also could be subject to break-ins, computer viruses,
sabotage, intentional acts of vandalism and other misconduct. Any security breach, including personal data breaches, or incident, including
cybersecurity incidents, that we experience could result in unauthorized access to, misuse of or unauthorized acquisition of our or our
customers’ data, the loss, corruption or alteration of this data, interruptions in our operations or damage to our computer hardware
or systems or those of our customers. Moreover, negative publicity arising from these types of disruptions could damage our reputation.
We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that
cause interruptions in our service. Significant unavailability of our services due to attacks could cause users to cease using our services
and materially and adversely affect our business, prospects, financial condition, and results of operations.
We
are highly dependent on our senior management team and other highly skilled personnel, and if we are not successful in attracting or
retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our
success depends, in significant part, on the continued services of our senior management team and on our ability to attract, motivate,
develop, and retain a sufficient number of other highly skilled personnel, including engineers, manufacturing and quality assurance,
design, finance, marketing, sales and support personnel. Our senior management team has extensive experience in the aerospace industry,
and we believe that their depth of experience is instrumental to our continued success. The loss of any one or more members of our senior
management team, for any reason, including resignation or retirement, could impair our ability to execute our business strategy and have
a material adverse effect on our business, financial condition, and results of operations.
Competition
for qualified highly skilled personnel can be strong, and we can provide no assurance that we will be successful in attracting or retaining
such personnel now or in the future. We have not yet started production level satellite manufacturing, launch and data operations, and
our estimates of the required team size to support our estimated flight rates may require increases in staffing levels that may require
significant capital expenditure. Further, any inability to recruit, develop and retain qualified employees may result in high employee
turnover and may force us to pay significantly higher wages, which may harm our profitability. Additionally, we only carry key man insurance
for our Chief Executive Officer, and the loss of any key employee or our inability to recruit, develop and retain these individuals as
needed, could have a material adverse effect on our business, financial condition, and results of operations.
Any
acquisitions, partnerships, or joint ventures that we enter into could disrupt our operations and have a material adverse effect on our
business, financial condition and results of operations.
From
time to time, we may evaluate potential strategic acquisitions of businesses, including partnerships or joint ventures with third parties,
both domestic and international. We may not be successful in identifying acquisition, partnership, and joint venture candidates. In addition,
we may not be able to continue the operational success of such businesses or successfully finance or integrate any businesses that we
acquire or with which we form a partnership or joint venture. We may have potential write-offs of acquired assets and/or an impairment
of any goodwill recorded as a result of acquisitions. Furthermore, the integration of any acquisition may divert management’s time
and resources from our core business and disrupt our operations or may result in conflicts with our business. Any acquisition, partnership
or joint venture may not be successful, may reduce our cash reserves, may negatively affect our earnings and financial performance and,
to the extent financed with the proceeds of debt, may increase our indebtedness. We cannot ensure that any acquisition, partnership,
or joint venture we make will not have a material adverse effect on our business, financial condition, and results of operations.
We
may experience difficulties in integrating the operations of acquired companies into our business and in realizing the expected benefits
of these acquisitions.
Acquisitions
involve numerous risks, any of which could harm our business and negatively affect our financial condition and results of operations.
The success of any acquisition will depend in part on our ability to realize the anticipated business opportunities from combining their
and our operations in an efficient and effective manner. These integration processes could take longer than anticipated and could result
in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies
in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain
relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the acquisitions,
and could harm our financial performance. If we are unable to successfully or timely integrate the operations of an acquired company
with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated
benefits resulting from the acquisitions, or fully offset the costs of the acquisition, and our business, results of operations and financial
condition could be materially and adversely affected.
We
are subject to many hazards and operational risks that can disrupt our business, including interruptions or disruptions in service at
our primary facilities, which could have a material adverse effect on our business, financial condition, and results of operations.
Our
operations are subject to many hazards and operational risks inherent to our business, including general business risks, product liability
and damage to third parties, our infrastructure or properties that may be caused by fires, floods and other natural disasters, power
losses, telecommunications failures, terrorist attacks, human errors and similar events. Additionally, our manufacturing operations are
hazardous at times and may expose us to safety risks, including environmental risks and health and safety hazards to our employees or
third parties.
Moreover,
our operations are entirely based in and around our Cape Canaveral, Florida facility, where our machine shop, production facilities,
administrative offices, and engineering functions are located. Any significant interruption due to any of the above hazards and operational
to the manufacturing or operation of our facilities, including from weather conditions, growth constraints, performance by third-party
providers (such as electric, utility or telecommunications providers), failure to properly handle and use hazardous materials, failure
of computer systems, power supplies, fuel supplies, infrastructure damage, disagreements with the owners of the land on which our facilities
are located could result in manufacturing delays or the delay or cancellation of our planned commercial satellite launches and, as a
result, could have a material adverse effect on our business, financial condition and results of operations.
In
addition, our insurance coverage may be inadequate to cover our liabilities related to such hazards or operational risks. Moreover, we
may not be able to maintain adequate insurance in the future at rates we consider reasonable and commercially justifiable, and insurance
may not continue to be available on terms as favorable as our current arrangements. The occurrence of a significant uninsured claim,
or a claim in excess of the insurance coverage limits maintained by us, could harm our business, financial condition and results of operations.
We
have not historically obtained and may not maintain launch or in-orbit insurance coverage for our satellites to address the risk of potential
systemic anomalies, failures, collisions with our satellites or other satellites or debris, or catastrophic events affecting the existing
satellite system. If one or more of our launches result in catastrophic failure or one or more of our in-orbit satellites or payloads
fail, and we have not obtained insurance coverage, we could be required to record significant impairment charges for the satellite or
payload.
We
have not historically obtained and may not maintain launch or in-orbit insurance coverage for our satellites to address the risk of potential
systemic anomalies, failures, collisions with our satellites or other satellites or debris, or catastrophic events affecting the existing
satellite system. If one or more of our in-orbit uninsured satellites or payloads fail, or one or more of our uninsured satellites is
destroyed during failed launch, we could be required to record significant impairment charges for the satellite or payload. We may review
the purchase of launch insurance on a case-by-case basis evaluating the launch history of our launch provider, number of satellites to
be deployed on the launch vehicle, the status of our constellation, our ability to launch additional satellites in the near term, and
the cost of insurance, among other factors. As a result of our case-by-case evaluation process, we have procured launch insurance for
our next four upcoming launches, which policies are subject to the typical terms and conditions regarding, among other things, cancellation
and scope of coverage. We do not maintain third-party liability insurance with respect to our satellites. Accordingly, we currently have
no insurance to cover any third-party damages that may be caused by any of our satellites, including personal and property insurance.
If we experience significant uninsured losses, such events could have a material adverse impact on our business, financial condition
and results of operations.
Natural
disasters, unusual weather conditions, epidemic outbreaks, global health crises, terrorist acts and political events could disrupt our
business and flight schedule.
The
occurrence of one or more natural disasters such as tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions,
epidemic outbreaks, terrorist attacks or disruptive political events in certain regions where our facilities are located, or where our
third-party contractors’ and suppliers’ facilities are located, could adversely affect our business, financial condition,
and results of operations. Severe weather, such as rainfall, snowfall, or extreme temperatures, may impact the ability of our satellite
launch and data services to be carried out as planned, resulting in additional expense to reschedule such service, thereby reducing our
sales and profitability. Terrorist attacks, actual or threatened acts of war or the escalation of current hostilities, or any other military
or trade disruptions impacting our domestic or foreign suppliers of components of our products, may impact our operations by, among other
things, causing supply chain disruptions and increases in commodity prices, which could adversely affect our raw materials or transportation
costs. These events also could cause or act to prolong an economic recession in the United States or abroad. To the extent these events
also impact one or more of our suppliers or contractors or result in the closure of any of their facilities or our facilities, commence
our commercial satellite launch activities as planned or thereafter increase our launch cadence. In addition, the disaster recovery and
business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster
or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity
plans and, more generally, any of these events could cause consumer confidence and spending to decrease, which could adversely impact
our commercial satellite manufacturing, launch and data operations.
Our
operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating
results to fall below expectations or any guidance we may provide.
Our
quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:
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the
number of satellite launch missions we schedule for a period, the price at which we sell them and our ability schedule additional
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unexpected
weather patterns, maintenance issues, natural disasters or other events that force us to cancel or reschedule launches; |
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the
cost of raw materials or supplied components critical for the manufacture and operation of our satellite equipment; |
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the
timing and cost of, and level of investment in, research and development relating to our technologies and our current or future facilities;
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developments
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changes
in governmental regulations or in the status of our regulatory approvals or applications; |
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future
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general
market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our
competitors. |
The
individual or cumulative effects of factors discussed above could result in large fluctuations and unpredictability in our quarterly
and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful.
This
variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors
for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any guidance we may
provide, or if the guidance we provide is below the expectations of analysts or investors, the price of our common stock could decline
substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.
We
may become involved in litigation that may materially adversely affect us.
From
time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business,
including intellectual property, commercial, product liability, employment, class action, whistleblower and other litigation and claims,
and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention
and resources from the operation of our business, and cause us to incur significant expenses or liability or require us to change our
business practices. Because of the potential risks, expenses, and uncertainties of litigation, we may, from time to time, settle disputes,
even where we believe that we have meritorious claims or defenses. Because litigation is inherently unpredictable, we cannot assure you
that the results of any of these actions will not have a material adverse effect on our business.
We
have been focused on developing satellite manufacturing and launch capabilities and services since 2013. This limited operating history
makes it difficult to evaluate our future prospects and the risks and challenges it may encounter.
Because
we have limited historical financial data and operate in a rapidly evolving market, any predictions about its future revenue and expenses
may not be as accurate as they would be if it had a longer operating history or operated in a more developed market. We have encountered
in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating
histories in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate
our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially
from our expectations and our business, financial condition and results of operations could be adversely affected.
The
markets for commercial satellite manufacturing, launch and data services have not been well established as the commercialization of space
is a relatively new development and is rapidly evolving. Our estimates for the total addressable markets for satellite launch and data
services are based on a number of internal and third-party estimates, including our contracted revenue and sales pipeline, assumed prices
at which we can offer services, assumed frequency of service, our ability to leverage our current manufacturing and operational processes
and general market conditions. As a result, our estimates of the annual total addressable markets for in-space infrastructure services,
as well as the expected growth rate for the total addressable market for that experience, may prove to be incorrect.
We
are subject to environmental regulation and may incur substantial costs.
We
are subject to federal, state, local and foreign laws, regulations, and ordinances relating to the protection of the environment, including
those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water, greenhouse gases and the management
of hazardous substances, oils and waste materials. Federal, state, and local laws and regulations relating to the protection of the environment
may require a current or previous owner or operator of real estate to investigate and remediate hazardous or toxic substances or petroleum
product releases at or from the property. Under federal law, generators of waste materials, and current and former owners or operators
of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring
response actions. Compliance with environmental laws and regulations can require significant expenditures. In addition, we could incur
costs to comply with such current or future laws and regulations, the violation of which could lead to substantial fines and penalties.
We
may have to pay governmental entities or third parties for property damage and for investigation and remediation costs that they incurred
in connection with any contamination at our current and former properties without regard to whether we knew of or caused the presence
of the contaminants. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning
up environmental contamination regardless of fault or the amount of waste directly attributable to us. Even if more than one person may
have been responsible for the contamination, each person covered by these environmental laws may be held responsible for all of the clean-up
costs incurred. Environmental liabilities could arise and have a material adverse effect on our financial condition and performance.
We do not believe, however, that pending environmental regulatory developments in this area will have a material effect on our capital
expenditures or otherwise materially adversely affect its operations, operating costs, or competitive position.
The
COVID-19 pandemic has and could continue to negatively affect various aspects of our business, make it more difficult for us to meet
our obligations to our customers, and result in reduced demand for our products and services, which could have a material adverse effect
on our business, financial condition, results of operations, or cash flows.
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, and it has since spread throughout other
parts of the world, including the United States. Any outbreak of contagious diseases or other adverse public health developments could
have a material adverse effect on our business operations. These impacts to our operations have included and could again in the future
include disruptions or restrictions on the ability of our employees and customers to travel or our ability to pursue collaborations and
other business transactions, travel to customers and/or conduct live demonstrations of our products, oversee the activities of our third-party
manufacturers and suppliers. We may also be impacted by the temporary closure of the facilities of suppliers, manufacturers, or customers.
Changes
in tax laws or regulations may increase tax uncertainty and adversely affect results of our operations and our effective tax rate.
We
will be subject to taxes in the United States and certain foreign jurisdictions. Due to economic and political conditions, tax rates
in various jurisdictions, including the United States, may be subject to change. Our future effective tax rates could be affected by
changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities
and changes in tax laws or their interpretation. In addition, we may be subject to income tax audits by various tax jurisdictions. Although
we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an
adverse resolution by one or more taxing authorities could have a material impact on the results of our operations. Further, we may be
unable to utilize our net operating losses in the event a change in control is determined to have occurred.
Our
Chief Executive Officer, Carol Craig, is also the Chief Executive Officer of CTC, our principal stockholder, and may allocate her time
to such other business thereby causing conflicts of interest in her determination as to how much time to devote to our affairs. This
could have a negative impact on our ability to implement our plan of operation.
Our
Chief Executive Officer, Carol Craig, is also the Chief Executive Officer of CTC and may not commit her full time to our affairs, which
may result in a conflict of interest in allocating her time between our business and the other business. Ms. Craig spends approximately
50 hours per week working for us. Furthermore, our Chief Executive Officer is not obligated to contribute any specific number of her
hours per week to our affairs. If other business affairs require our Chief Executive Officer to devote more amounts of time to other
affairs, including the business of CTC, it could limit their ability to devote time to our affairs and could have a negative impact on
our ability to implement our plan of operation.
Risks
Related to our Relationship with Craig Technical Consulting, Inc.
CTC
controls the direction of our business, and the concentrated ownership of our common stock will prevent you and other stockholders from
influencing significant decisions.
CTC
owns a 92.6% of the economic interest and voting power of our outstanding common stock as of December 31, 2022. As long as CTC beneficially
controls a majority of the voting power of our outstanding Class B common stock, it will generally be able to determine the outcome of
all corporate actions requiring stockholder approval, including the election and removal of directors. Even if CTC were to control less
than a majority of the voting power of our outstanding Class B common stock, it may influence the outcome of such corporate actions so
long as it owns a significant portion of our Class B common stock. If CTC continues to hold its shares of our Class B common stock, it
could remain our controlling stockholder for an extended period of time or indefinitely.
We
may be a “controlled company” within the meaning of the Nasdaq rules and, as a result, may qualify for, and may rely on,
exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
As
a result of the concentration of ownership of our outstanding common stock, we may be a “controlled company” within the meaning
of the corporate governance standards of the Nasdaq rules. Under these rules, a listed company of which more than 50% of the voting power
is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate
governance requirements.
As
a controlled company, we may rely on certain exemptions from the Nasdaq standards that may enable us not to comply with certain Nasdaq
corporate governance requirements if CTC continues to control a majority of the voting power of our outstanding common stock. Accordingly,
you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements
of The Nasdaq Capital Market.
The
ownership by our Chief Executive Officer of shares of CTC common stock may create, or may create the appearance of, conflicts of interest.
The
ownership by our Chief Executive Officer of shares of CTC common stock may create, or may create the appearance of, conflicts of interest.
Ownership by our Chief Executive Officer of common stock of CTC, creates, or, may create the appearance of, conflicts of interest when
she is faced with decisions that could have different implications for CTC than the decisions have for us. Our Chief Executive Officer
has agreed to recuse herself with respect to voting on any matter coming before either CTC’s or our board of directors related
to our relationship with CTC, although she will still be permitted to participate in discussions and negotiations. Any perceived conflicts
of interest resulting from investors questioning the independence of our management or the integrity of corporate governance procedures
may materially affect our stock price.
Risks
Related to Our Class A Common Stock
We
are currently listed on The Nasdaq Capital Market. If we are unable to maintain listing of our securities on Nasdaq or any stock exchange,
our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired and
it may be more difficult for our stockholders to sell their securities.
Although
our common stock is currently listed on The Nasdaq Capital Market, we may not be able to continue to meet the exchange’s minimum
listing requirements or those of any other national exchange. If we are unable to maintain listing on Nasdaq or if a liquid market for
our common stock does not develop or is sustained, our common stock may remain thinly traded.
The
listing rules of Nasdaq require listing issuers to comply with certain standards in order to remain listed on its exchange. If, for any
reason, we should fail to maintain compliance with these listing standards and Nasdaq should delist our securities from trading on its
exchange and we are unable to obtain listing on another national securities exchange, a reduction in some or all of the following may
occur, each of which could have a material adverse effect on our stockholders:
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market price of our common stock; |
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ability to obtain financing for the continuation of our operations; |
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the
number of institutional and general investors that will consider investing in our common stock; |
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the
number of investors in general that will consider investing in our common stock; |
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the
number of market makers in our common stock; |
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The
dual-class structure of our common stock as contained in our amended and restated certificate of incorporation, as amended, has the effect
of concentrating voting control with those stockholders who held our Class B common stock prior to our initial public offering. This
ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our
organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transactions
requiring stockholder approval, and that may adversely affect the trading price of our Class A common stock.
Our
Class B common stock has ten votes per share, and our Class A common stock, which is the stock that we sold in our initial public offering,
has one vote per share. CTC holds all of the issued and outstanding shares of our Class B common stock, representing approximately 92.6%
of the voting power of our outstanding capital stock. In addition, because of the ten-to-one voting ratio between our Class B and Class
A common stock, the holder of our Class B common stock could continue to control a majority of the combined voting power of our common
stock and therefore control all matters submitted to our stockholders for approval until converted by our Class B common stockholder.
This concentrated control may limit or preclude your ability to influence corporate matters for the foreseeable future, including the
election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of
our assets or other major corporate transactions requiring stockholder approval. In addition, this concentrated control may prevent or
discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our
stockholders. As a result, such concentrated control may adversely affect the market price of our Class A common stock.
Future
transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited
exceptions as specified in our amended and restated certificate of incorporation, such as transfers to family members and certain transfers
effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time,
of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. As a result,
it is possible that one or more of the persons or entities holding our Class B common stock could gain significant voting control as
other holders of Class B common stock sell or otherwise convert their shares into Class A common stock.
We
cannot predict the effect our dual-class structure may have on the market price of our Class A common stock.
We
cannot predict whether our dual-class structure will result in a lower or more volatile market price of our Class A common stock, adverse
publicity or other adverse consequences. For example, certain index providers have announced and implemented restrictions on including
companies with multiple-class share structures in certain of their indices. In July 2017, FTSE Russell announced that it would require
new constituents of its indices to have greater than 5% of the company’s voting rights in the hands of public stockholders, and
S&P Dow Jones announced that it would no longer admit companies with multiple-class share structures to certain of its indices. Affected
indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P
Composite 1500. Also in 2017, MSCI, a leading stock index provider, opened public consultations on its treatment of no-vote and multi-class
structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its
decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically
includes voting rights in its eligibility criteria. Under such announced and implemented policies, the dual-class structure of our common
stock would make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds and other investment
vehicles that attempt to passively track those indices would not invest in our Class A common stock. These policies are relatively new
and it is unclear what effect, if any, they will have on the valuations of publicly-traded companies excluded from such indices, but
it is possible that they may adversely affect valuations, as compared to similar companies that are included. Due to the dual-class structure
of our common stock, we will likely be excluded from certain indices and we cannot assure you that other stock indices will not take
similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from
certain stock indices would likely preclude investment by many of these funds and could make our Class A common stock less attractive
to other investors. As a result, the market price of our Class A common stock could be adversely affected.+
Our
principal stockholders will continue to have significant influence over the election of our board of directors and approval of any significant
corporate actions, including any sale of the company.
Our
founders, executive officers, directors, and other principal stockholders, in the aggregate, beneficially own a majority of our outstanding
stock. These stockholders currently have, and likely will continue to have, significant influence with respect to the election of our
board of directors and approval or disapproval of all significant corporate actions. The concentrated voting power of these stockholders
could have the effect of delaying or preventing an acquisition of the company or another significant corporate transaction.
We
could be subject to securities class action litigation.
In
the past, securities class action litigation has often been brought against companies following a decline in the market price of their
securities. This risk is especially relevant for us because biotechnology companies have experienced significant share price volatility
in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and
resources, which could harm our business.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market
price for the shares and trading volume could decline.
The
trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish
about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts
who covers us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our business, the market price
for our Class A common stock would likely decline. If one or more of these analysts cease coverage of our company or fail to publish
reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume
for our common stock to decline.
We
do not expect to pay dividends in the foreseeable future, and you must rely on price appreciation of your shares of Class A common stock
for return on your investment.
We
have paid no cash dividends on any class of our stock to date, and we do not anticipate paying cash dividends in the near term. For the
foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate
paying any cash dividends on our stock. Accordingly, investors must be prepared to rely on sales of their shares after price appreciation
to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our shares. Any determination
to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations,
financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.
We
will incur increased costs as a public company, and our management will be required to devote substantial time to new compliance initiatives
and corporate governance practices.
As
a public company, and particularly after we no longer qualify as an emerging growth company, we will incur significant legal, accounting,
and other expenses that we did not incur previously. The Sarbanes-Oxley Act of 2002 (“SOX”), the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various
requirements on U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls
and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance
initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities
more time-consuming and costly. For example, we expect that these rules and regulations may make it more expensive for us to obtain director
and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified senior management
personnel or members for our board of directors. In addition, these rules and regulations are often subject to varying interpretations,
and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure
and governance practices. Pursuant to Section 404 of SOX (“Section 404”), we will be required to furnish a report by our
senior management on our internal control over financial reporting.
While
we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting
issued by our independent registered public accounting firm. To prepare for eventual compliance with Section 404, once we no longer qualify
as an emerging growth company, we will be engaged in a process to document and evaluate our internal control over financial reporting,
which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside
consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue
steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement
a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that
we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective
as required by Section 404.
We
are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make
our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“the JOBS Act”). For
as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies, including exemption from compliance with the auditor
attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth
anniversary of the closing of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion
or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock held by non-affiliates
exceeds $700 million as of the end of our prior second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion
in non-convertible debt during the prior three-year period.
In
addition, under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards until such time as those
standards apply to private companies. We may elect not to avail ourselves of this exemption from new or revised accounting standards
and, therefore, may be subject to the same new or revised accounting standards as other public companies that are not emerging growth
companies.
We
cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find
our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may
be more volatile.
Anti-takeover
provisions contained in our certificate of incorporation and bylaws as well as provisions of Delaware law, could impair a takeover attempt.
Our
certificate of incorporation, bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying
or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:
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authorizing
“blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain
voting, liquidation, dividend, and other rights superior to our common stock; |
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limiting
the liability of, and providing indemnification to, our directors and officers; |
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limiting
the ability of our stockholders to call and bring business before special meetings; |
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requiring
advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates
for election to our board of directors; |
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controlling
the procedures for the conduct and scheduling of board of directors and stockholder meetings; and |
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providing
our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled
special meetings. |
These
provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
As
a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation
law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations
without approval of the holders of substantially all of our outstanding common stock.
Any
provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control
could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect
the price that some investors are willing to pay for our Class A common stock.
Our
amended and restated certificate of incorporation, as amended, designates the Court of Chancery of the State of Delaware as the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our
certificate of incorporation requires that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery
of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:
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any
derivative action or proceeding brought on our behalf; |
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any
action asserting a claim for breach of any fiduciary duty owed by any director, officer, or other employee of ours to the Company
or our stockholders, creditors or other constituents; |
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any
action asserting a claim against us or any director or officer of ours arising pursuant to, or a claim against us or any of our directors
or officers, with respect to the interpretation or application of any provision of, the DGCL, our certificate of incorporation or
bylaws; or |
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provided,
that, if and only if the Court of Chancery of the State of Delaware dismisses any of the foregoing actions for lack of subject matter
jurisdiction, any such action or actions may be brought in another state court sitting in the State of Delaware.
The
exclusive forum provision is limited to the extent permitted by law, and it will not apply to claims arising under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), the Securities Act of 1933, as amended (the “Securities Act”),
or for any other federal securities laws which provide for exclusive federal jurisdiction.
Our
Amended and Restated Certificate of Incorporation, as amended, provides that unless we consent in writing to the selection of an alternative
forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act or the Securities Exchange Act of 1934, as amended. Any person or entity purchasing
or otherwise acquiring any interest in shares of our capital stock are deemed to have notice of and consented to this provision.
Furthermore,
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly,
both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions
and the threat of inconsistent or contrary rulings by different courts, among other considerations, our second amended and restated certificate
of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving
any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice
of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against
us, our directors, officers, or other employees in a venue other than in the federal district courts of the United States of America.
In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our second
amended and restated certificate of incorporation.
Although
we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits
to which it applies, this provision may limit or discourage a stockholder’s ability to bring a claim in a judicial forum that it
finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and
our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate
of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions, which could adversely affect our business and financial condition.
We
note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the
federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased
consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging
lawsuits against our directors and officers.