As filed with the Securities and Exchange Commission on May 6, 2021

 

Registration No. 333-

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM S-1


REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

AST SpaceMobile, Inc.
(Exact name of registrant as specified in its charter)

 

 

 

Delaware   4812   84-2027232

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(IRS Employer

Identification Number)

 

Midland International Air & Space Port

2901 Enterprise Lane

Midland, Texas 79706
(432) 276-3966
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

Brian Heller
Executive Vice President, General Counsel and Secretary
Midland International Air & Space Port

2901 Enterprise Lane

Midland, Texas 79706
(432) 276-3966
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

With copies to:

Bradley A. Helms, Esq.
Brent T. Epstein, Esq.
355 South Grand Avenue

Los Angeles, CA 90071

(213) 485-1234

 

 

 

Approximate date of commencement of proposed offer to the public: From time to time after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the “Securities Act”) check the following box: [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
    Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered   Amount
to be
registered
    Proposed
maximum
offering
price per
security
    Proposed
maximum
aggregate
offering
price
    Amount of
registration
fee
 
                         
Class A common stock(1)     28,750,000     $ 7.68 (2)   $ 220,800,000 (2)   $ 24,089.28  
Warrants     6,100,000     $ 2.76 (3)   $ 16,836,000 (3)   $ 1,836.81  
Class A common stock underlying warrants(1) (4)     17,600,000     $ 11.50 (5)   $ 202,400,000     $ 22,081.84  
Total                   $ 440,036,000     $ 48,007.93  

 

 

(1) Pursuant to Rule 416 under the Securities Act, the registrant is also registering an indeterminate number of additional shares of Class A common stock issuable by reason of any stock dividend, stock split, recapitalization or other similar transaction.
   
(2) Estimated solely for the purpose of calculating the registration fee, based on the average of the high and low prices of the shares of Class A common stock on The Nasdaq Global Market on May 5, 2021 (such date being within five business days of the date that this registration statement was first filed with the Securities and Exchange Commission (the “SEC”)). This calculation is in accordance with Rule 457(c) of the Securities Act.
   
(3) Estimated solely for the purpose of calculating the registration fee, based on the average of the high and low prices of the public warrants on The Nasdaq Global Market on May 5, 2021 (such date being within five business days of the date that this registration statement was first filed with the SEC). This calculation is in accordance with Rule 457(c) of the Securities Act.
   
(4) Reflects the shares of Class A common stock that may be issued upon exercise of the warrants, with each warrant exercisable for one share of Class A common stock, subject to adjustment, for an exercise price of $11.50 per share.
   
(5) Calculated pursuant to Rule 457(g) under the Securities Act, based on the exercise price of the warrants.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the U.S. Securities and Exchange Commission is effective. The preliminary prospectus is not an offer to sell these securities and does not constitute the solicitation of offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 6, 2021

 

HTTPS:||AST-SCIENCE.COM|WP-CONTENT|UPLOADS|2021|04|AST-SM-STACK_ORANGE.PNG

 

AST SPACEMOBILE, INC.

 

28,750,000 SHARES OF CLASS A COMMON STOCK
6,100,000 WARRANTS TO PURCHASE SHARES OF CLASS A COMMON STOCK

17,600,000 SHARES OF CLASS A COMMON STOCK UNDERLYING WARRANTS

 

This prospectus relates to the resale from time to time of (i) an aggregate of 28,750,000 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), of AST SpaceMobile, Inc., a Delaware corporation, and (ii) 6,100,000 warrants to purchase Class A Common Stock at an exercise price of $11.50 per share (the “private placement warrants”) by the selling stockholders named in this prospectus (each a “Selling Stockholder” and, collectively, the “Selling Stockholders”). This prospectus also relates to the issuance by us of up to 17,600,000 shares of Class A Common Stock upon the exercise of outstanding public warrants (the “public warrants”) and private placement warrants (collectively, the “warrants”).

 

On April 6, 2021, we completed the business combination (the “Business Combination”) contemplated by the equity purchase agreement, dated as of December 15, 2020 (the “Equity Purchase Agreement”), by and among us (formerly known as New Providence Acquisition Corp.), AST & Science, LLC, a Delaware limited liability company (“AST”), the existing equityholders of AST (the “Existing Equityholders”), New Providence Acquisition Management LLC, a Delaware limited liability company (“Sponsor”), and Abel Avellan (“Avellan” or “Existing Equityholder Representative”) in his capacity as Existing Equityholder Representative, under which, among other transactions, we acquired AST and changed our name from New Providence Acquisition Corp. to AST SpaceMobile, Inc.

 

We are registering the resale of shares of Class A Common Stock and private placement warrants as required by (i) a registration and stockholder rights agreement, dated as of September 13, 2019 (the “2019 Registration Rights Agreement”), entered into by and among us, the Sponsor and the other parties thereto, (ii) a registration rights agreement, dated as of April 6, 2021 (the “2021 Registration Rights Agreement” and, together with the 2019 Registration Rights Agreement, the “Registration Rights Agreements”), entered into by and among us, the Sponsor and the Existing Equityholders and (iii) those certain subscription agreements (the “PIPE Subscription Agreements”), each dated December 15, 2020, entered into by us and certain qualified institutional buyers and accredited investors that purchased shares of Class A Common Stock in private placements consummated in connection with the Business Combination.

 

We will receive the proceeds from any exercise of the warrants for cash, but not from the resale of the shares of Class A Common Stock or private placement warrants by the Selling Stockholders.

 

We will bear all costs, expenses and fees in connection with the registration of the shares of Class A Common Stock and warrants. The Selling Stockholders will bear all commissions and discounts, if any, attributable to their respective sales of the shares of Class A Common Stock and warrants.

 

Our shares of Class A Common Stock are listed on The Nasdaq Capital Market LLC (“Nasdaq”) under the symbol “ASTS.” On May 5, 2021, the closing sale price per share of our Class A Common Stock was $7.68. Our public warrants are listed on The Nasdaq Capital Market under the symbol “ASTSW.” On May 5, 2021, the closing sale price per warrant of our public warrants was $2.76.

 

Investing in shares of our Class A Common Stock or warrants involves risks that are described in the “Risk Factors” section beginning on page 5 of this prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is                              , 2021.

 

 

 

 

TABLE OF CONTENTS

 

  Page
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS vii
   
SUMMARY OF THE PROSPECTUS 1
   
RISK FACTORS 5
   
USE OF PROCEEDS 31
   
MARKET PRICE OF OUR CLASS A COMMON STOCK AND DIVIDENDS 32
   
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 33
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 47
   
BUSINESS 54
   
MANAGEMENT 66
   
EXECUTIVE AND DIRECTOR COMPENSATION 73
   
DESCRIPTION OF CAPITAL STOCK 80
   
BENEFICIAL OWNERSHIP OF SECURITIES 88
   
SELLING STOCKHOLDERS 90
   
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 93
   
PLAN OF DISTRIBUTION 102
   
LEGAL MATTERS 104
   
EXPERTS 104
   
WHERE YOU CAN FIND ADDITIONAL INFORMATION 104
   
INDEX TO FINANCIAL STATEMENTS F-1

 

You should rely only on the information contained in this prospectus. No one has been authorized to provide you with information that is different from that contained in this prospectus. This prospectus is dated as of the date set forth on the cover hereof. You should not assume that the information contained in this prospectus is accurate as of any date other than that date.

 

TRADEMARKS

 

This document contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

ii

 

 

CERTAIN DEFINED TERMS

 

Unless the context otherwise requires, references in this prospectus to:

 

  “2019 Registration Rights Agreement” refers to that certain Registration and Stockholder Rights Agreement, dated as of September 13, 2019, by and among the Company, the Sponsor and the other parties thereto.
     
  “2021 Registration Rights Agreement” refers to that certain Registration Rights Agreement, dated as of April 6, 2021, by and among the Company, the Sponsor and the Existing Equityholders.
     
  “A&R Operating Agreement” refers to that certain Fifth Amended and Restated Limited Liability Company Operating Agreement of AST.
     
  “American Tower” refers to ATC TRS II LLC, a Delaware limited liability company.
     
  “AST” refers to AST & Science, LLC, a Delaware limited liability corporation.
     
  “AST Common Unit” means a unit of ownership interest in AST which entitles the holder thereof to the distributions, allocations, and other rights under the A&R Operating Agreement.
     
  “AST Equityholders” refers to Avellan, Invesat, Vodafone, American Tower and Rakuten USA.
     
  “AST Incentive Equity Unit” means a unit of ownership interest which entitles the holder thereof to the distributions, allocations, and other rights that are accorded holders of Incentive Equity Units under the A&R Operating Agreement.
     
  “AST Incentive Plan” refers to the AST 2019 Equity Incentive Plan.
     
  “AST Options” refers to each outstanding option to purchase Existing AST Common Units granted pursuant to the AST Incentive Plan and the Prior AST Operating Agreement.
     
  “AST Series A Preferred Units” mean the series A preferred units of AST that were issued pursuant to the Prior AST Operating Agreement.
     
  “AST Series B Preferred Units” mean the series B preferred units of AST that were issued pursuant to the Prior AST Operating Agreement.
     
  “Avellan” refers to Abel Avellan.
     
   “Blocker Corporation” refers to a Blocker Corporation as defined in the Tax Receivable Agreement.
     
  “Board of Directors” refers to our board of directors.
     
  “Business Combination” refers to the transactions contemplated by the Equity Purchase Agreement.
     
  “Bylaws” are to our Amended and Restated Bylaws.
     
  “Charter” are to our Second Amended and Restated Certificate of Incorporation.
     
   “Class A Common Stock” means the shares of class A common stock, par value $0.0001 per share of the Company.
     
  “Class B Common Stock” means the shares of class B common stock, par value $0.0001 per share of the Company.

 

iii

 

 

  “Class C Common Stock” means the shares of class C common stock, par value $0.0001 per share of the Company.
     
  “Class C Share Voting Amount” are to the “Class C Share Voting Amount,” as such term is defined in the A&R Certificate of Incorporation, which is a number of votes per share equal to (i) (x) 88.31%, minus (y) the total voting power of the outstanding stock of SpaceMobile (other than Class C Common Stock) owned or controlled by the Key Holders, divided by (ii) the number of shares of Class C Common Stock then outstanding.
     
  “Closing” refers to the completion of the Business Combination.
     
  “Closing Class C Percentage” means 88.31%.
     
  “Closing Date” means April 6, 2021.
     
  “Code” refers to the U.S. Internal Revenue Code of 1986, as amended.
     
  “Common Stock” refers collectively to Class A Common Stock, Class B Common Stock and Class C Common Stock.
     
  “Equity Purchase Agreement” refers to that certain Equity Purchase Agreement, dated as of December 15, 2020, by and among AST & Science LLC, New Providence Acquisition Corp., New Providence Management LLC, the AST Existing Equityholder Representative and the AST Existing Equityholders.
     
  “ESPP” refers to the AST SpaceMobile, Inc. 2020 Employee Stock Purchase Plan.
     
  “Exchange Act” refers to the Securities Exchange Act of 1934, as amended.
     
  “Existing AST Common Units” refers to those AST Common Units that were issued pursuant to the Prior AST Operating Agreement.
     
  “Existing AST Incentive Units” mean the AST incentive units that were issued pursuant to the Prior AST Operating Agreement.
     
  “Existing AST Units” means the Existing AST Incentive Units, the Existing AST Common Units, the AST Series A Preferred Units and the AST Series B Preferred Units, collectively.
     
  “Existing Equityholders” refers to the equityholders of AST pursuant to the Prior AST Operating Agreement.
     
  “Existing Equityholder Representative” refers to Avellan in his capacity as Existing Equityholder Representative pursuant to the Equity Purchase Agreement.
     
  “Includible Shares” are to any shares of the outstanding voting stock of SpaceMobile issuable in connection with the exercise (assuming, solely for this purpose, full exercise and not net exercise) of all outstanding options, warrants, exchange rights, conversion rights or similar rights to receive voting stock of the Company, in each case owned or controlled, directly or indirectly, by the Key Holders, but excluding the number of shares of Class A Common Stock issuable in connection with the exchange of AST Common Units, as a result of any redemption or direct exchange of AST Common Units effectuated pursuant the A&R Operating Agreement.
     
  “Invesat” refers to Invesat LLC, a Delaware limited liability company.
     
  “Key Holders” refers to Avellan and his permitted transferees.
     
  “LEO” refers to low Earth orbit.

 

iv

 

 

  “MNO” refers to mobile network operator.
     
  “PIPE Investment” refers to the private investment in public equity by the PIPE Investors in the form of Class A Common Stock in an aggregate amount of $230 million.
     
  “PIPE Investors” refers to the qualified institutional buyers and accredited investors that made the PIPE Investment pursuant to the PIPE Subscription Agreements.
     
  “PIPE Subscription Agreements” refers to the various subscription agreements entered into with the PIPE Investors pursuant to which the PIPE Investors made the PIPE Investment.
     
  “Prior AST Operating Agreement” means that certain Fourth Amended and Restated Limited Liability Company Operating Agreement of AST.
     
  “public warrants” are to the warrants sold by the Company as part of the units in its initial public offering.
     
  “Rakuten” refers to Rakuten Mobile Singapore PTE. LTD, a Singapore private limited company.
     
  “Rakuten USA” refers to Rakuten Mobile USA Service Inc., a Delaware corporation.
     
  “Registration Rights Agreements” refers collectively to the 2019 Registration Rights Agreement and the 2021 Registration Rights Agreement.
     
  “Samsung” refers to Samsung Next Fund LLC, a Delaware limited liability company.
     
  “SpaceMobile Service” refers to the global direct mobile broadband network that is expected to provide connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT enabled device from the Company’s LEO satellite network.
     
  “Sponsor” refers to New Providence Acquisition Management LLC, a Delaware limited liability company.
     
  “Sponsor Voting Agreement” refers to that certain Sponsor Voting Agreement, dated as of April 6, 2021, by and among the Sponsor and the Company.
     
  “Stockholder Parties” refers collectively to Sponsor and the AST Equityholders.
     
  “Stockholders’ Agreement” refers to that certain Stockholders’ Agreement, dated as of April 6, 2021, by and among the Company and the Stockholder Parties.
     
  “Subsidiaries” refers to Subsidiaries as defined in the Tax Receivable Agreement.
     
  “Sunset Date” refers to the Sunset Date described in the Stockholders’ Agreement, which is the earliest to occur of (i) Avellan’s retirement or resignation from the Board of Directors, (ii) the date on which the Key Holders beneficially own less than 20% of the Class A Common Stock that Avellan beneficially owns as of immediately after the Closing and (iii) Avellan’s death or permanent incapacitation.
     
  “Tax Receivable Agreement” refers to that certain Tax Receivable Agreement dated as of April 6, 2021 by and among the Company, AST, the Existing AST Equityholders and Thomas Severson, as the TRA Holder Representative.
     
  “TRA Holders” refers to a TRA Holders as defined in the Tax Receivable Agreement.
     
  “units” are to the units sold in our initial public offering, each of which consisted of one share of our Class A Common Stock and three-quarters of one public warrant.

 

v

 

 

  “Vodafone” refers to Vodafone Ventures Limited, a private limited company incorporated under the Laws of England and Wales.
     
   “Warrant Agreement” are to that certain Warrant Agreement, dated as of September 13, 2019, between Continental Stock Transfer & Trust Company and the Company.

 

Additionally, unless the context otherwise requires, references in this prospectus to “SpaceMobile,” the “Company,” the “Registrant,” “we,” “us” and “our” in this prospectus refer to the parent entity formerly named New Providence Acquisition Corp., after giving effect to the Business Combination, and as renamed AST SpaceMobile, Inc., and where appropriate, our consolidated subsidiaries, including AST & Science, LLC, and references in this prospectus to “NPA” refer to New Providence Acquisition Corp. before giving effect to the Business Combination.

 

BASIS OF PRESENTATION

 

We were incorporated on May 28, 2019 under the laws of the state of Delaware under the name New Providence Acquisition Corp. for the purpose of completing the Business Combination. On April 6, 2021, we completed the Business Combination, following which we were renamed “AST SpaceMobile, Inc.” and we act as the managing member of AST. For the period from inception to December 31, 2020, we had no operations, assets or liabilities. Unless otherwise indicated, the financial information included herein is that of AST, which, following the Business Combination, became our business. Following the Business Combination, we are a holding company, and, accordingly, all of our assets are held directly by, and all of our operations are conducted through, AST, of which we are the managing member, and our only direct asset consists of the AST Common Units. As the managing member of AST, we have the full, exclusive and complete discretion to manage and control the business of AST and to take all action we deem necessary, appropriate, advisable, incidental, or convenient to accomplish the purposes of AST set forth in the A&R Operating Agreement, and, accordingly, the financial statements of AST for periods following the Business Combination will be prepared on a consolidated basis with ours. We may not be removed as managing member of AST.

 

vi

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this prospectus may constitute “forward-looking statements” for purposes of the federal securities laws. Forward-looking statements include, but are not limited to, statements regarding our expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:

 

  our strategies and future financial performance, including our business plans or objectives, products and services, pricing, marketing plans, operating expenses, market trends, revenues, liquidity, cash flows and uses of cash, capital expenditures;
     
  expected functionality of the SpaceMobile Service;
     
  anticipated timing and level of deployment of satellites, anticipated demand and acceptance of mobile satellite services;
     
  prospective performance and commercial opportunities and competitors;
     
  our ability to finance our research and development activities;
     
  commercial partnership acquisition and retention;
     
  our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
     
  our expansion plans and opportunities;
     
  our ability to pay dividends on our Class A Common Stock in the future;
     
  our ability to comply with domestic and foreign regulatory regimes and the timing of obtaining regulatory approvals;
     
  our ability to ability to invest in growth initiatives and enter into new geographic markets;
     
  the impact of the novel coronavirus (“COVID-19”) pandemic;
     
  our ability to deal appropriately with conflicts of interest in the ordinary course of our business; and
     
  other factors detailed under the section entitled “Risk Factors.”

 

These forward-looking statements are based on information available as of the date of this prospectus and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.

 

vii

 

 

 

SUMMARY OF THE PROSPECTUS

 

This summary highlights selected information from this prospectus and may not contain all of the information that is important to you in making an investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” See also the section entitled “Where You Can Find Additional Information.”

 

Unless the context otherwise requires, all references in this prospectus to “SpaceMobile,” the “Company,” the “Registrant,” “we,” “us” and “our” in this prospectus refer to the parent entity formerly named New Providence Acquisition Corp., after giving effect to the Business Combination, and as renamed AST SpaceMobile, Inc., and where appropriate, our consolidated subsidiaries, including AST & Science, LLC, and references in this prospectus to “NPA” refer to New Providence Acquisition Corp. before giving effect to the Business Combination.

 

Our Company

 

The SpaceMobile Service is expected to provide cost-effective, high-speed mobile broadband services with global coverage to all end-users, regardless of where they live or work, without the need to purchase special equipment. We believe the SpaceMobile Service would be the first global space-based cellular broadband network using LEO satellites to provide connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT-enabled device. Our innovative satellite designs and components are expected to reduce the communication delay effects which existing geostationary satellite systems experience. The SpaceMobile Service is being designed to provide global coverage for users traveling in and out of areas without terrestrial mobile services on land, at sea or in flight.

 

We are partnering with MNOs to offer the SpaceMobile Service to the MNOs’ end-user customers. We do not anticipate entering into agreements with mobile phone or other device manufacturers, and, accordingly, users will not need to subscribe to the SpaceMobile Service directly with us, nor will they need to purchase any new or additional equipment. We do not anticipate that mobile device manufacturers could unilaterally prohibit the SpaceMobile Service from being offered on their devices, as the service is designed to be complementary to the existing cellular broadband service offered by MNOs. Users will be able to access the SpaceMobile Service when prompted on their device that they are no longer covered by the terrestrial cellular infrastructure of the MNO with the ability to immediately connect or purchase a subscription plan directly with their existing MNO. Our agreements with MNOs are based on a revenue sharing model. As of December 31, 2020, we have entered into agreements and understandings with MNOs which collectively cover approximately 1.3 billion mobile subscribers of which approximately 890 million mobile subscribers are covered by agreements that provide for revenue-sharing with us. We estimate that the global market opportunity for our services is currently $1.1 trillion, according to GSMA market data, which represents over 5 billion mobile subscribers that are constantly moving in and out of coverage, of which approximately 3.3 billion subscribers are unconnected to cellular broadband. In addition to mobile subscribers, over 700 million people globally have no connectivity or mobile cellular coverage.

 

The SpaceMobile Service is being designed to enable MNOs, including existing partners and others, to provide full country coverage with no gaps and achieve their ambition to provide nationwide coverage, even in places without terrestrial infrastructure. We believe the SpaceMobile Service will enable MNOs to augment and extend their coverage by using the MNOs’ spectrum resources without building towers or other land-based infrastructure where it is not cost-justified or is difficult due to environmental challenges such as mountainous or rugged terrain or maritime applications.

 

The SpaceMobile Service is expected to be provided by a network of 168 high-powered, large phased-array satellites in LEO. The worldwide mobile traffic will be directed by the SpaceMobile Service to a terrestrial gateway and then to the in-country MNO’s core cellular network connected to the internet. We anticipate that users will connect to the SpaceMobile Service as if they were using a local cell tower. The SpaceMobile Service has not yet generated revenues and is not expected to generate revenues until 2023, after the first commercial satellite launch phase of the SpaceMobile Service, which is expected to provide satellite coverage in 49 countries along the Equator, representing a total population of approximately 1.6 billion people, with 20 satellites.

 

 

  1  
     

 

 

On April 1, 2019, we launched our first test satellite, the BlueWalker 1 (“BW1”), which was used to validate our satellite to cellular architecture and was capable of managing communications delays from LEO orbit and the effects of doppler in a satellite to ground cellular environment using the 4G-LTE protocol. We are currently manufacturing and procuring the satellite componentry required for our BW3 test satellite. During 2021, we will be assembling and testing the BW3 satellite at our facility in Midland, Texas. BW3 currently is targeted to launch late in the fourth quarter of 2021. However, the exact timing of such launch is contingent on a number of factors, including satisfactory and timely completion of construction and testing of BW3 and the availability of an appropriate launch window and vehicle from our launch provider. The launch of BW3 was scheduled to coincide with the launch of a primary payload from an unrelated entity. The primary payload from such unrelated entity is delayed, which may in turn delay the launch window for BW3. If we are required to identify another launch vehicle and/or launch provider, we may incur delays in such launch and may incur additional costs. We are planning our first commercial satellite launches for the second half of 2022 or early 2023, which are expected to provide satellite coverage in the 49 Equatorial countries, representing a total population of approximately 1.6 billion people, with 20 satellites. We plan to achieve full global mobile coverage with the launch of 110 satellites by the end of 2023 or early in 2024 and multiple input multiple output (“MIMO”) with the launch of a total of 168 satellites by the end of 2024.

 

Summary Risk Factors

 

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” immediately following this prospectus summary, that represent challenges that we face in connection with the successful implementation of our strategy and the growth of our business. In particular, the following considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of shares of our Class A Common Stock or warrants and result in a loss of all or a portion of your investment:

 

  Our SpaceMobile Service is in development and may not be completed on time or at all and the costs associated with it may be greater than expected.
     
  We will incur significant expenses and capital expenditures in the future to execute its business plan and develop the SpaceMobile Service and it may by unable to adequately control its expenses.
     
  We will need to raise additional funds to achieve phase II and subsequent phases of our SpaceMobile Service. These funds may not be available when we need them on favorable terms or at all. If we cannot raise additional funds when needed, our operations and prospects could be negatively affected.
     
  We are an early stage company with a history of losses and may never become profitable.
     
  Rapid and significant technological changes could render the SpaceMobile Service obsolete and impair our ability to compete.
     
  We face substantial risks associated with our international operations.
     
  Our products could fail to perform or could perform at reduced levels of service because of technological malfunctions or deficiencies, regulatory compliance issues, or events outside of our control, which would harm our business and reputation.
     
  We will rely on MNOs and require regulatory approvals to access the spectrum the SpaceMobile Service needs to operate.
     
  We have a limited operating history and operate in a rapidly evolving industry, which makes it difficult to evaluate our business and future prospects and increases the risk of your investment.
     
  We may not be able to launch our satellites successfully or in a timely manner. Loss of a satellite during launch could delay or impair our ability to offer services or reduce our expected potential revenues, and launch insurance, even if it is available, will not fully cover this risk.
     
  Our customized hardware and software may be difficult and expensive to service, upgrade or replace.

 

 

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  We and suppliers rely on complex systems and components, which involve a significant degree of risk and uncertainty in terms of operational performance and costs.
     
  Our management has limited experience in operating a public company.
     
  Our business may be adversely affected if we are unable to protect our intellectual property rights from unauthorized use by third parties.
     
  Our business is subject to extensive government regulation, which mandates how we operate our business and may increase the cost of providing services and expansion into new markets.
     
  We are a “controlled company” within the meaning of the Nasdaq listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
     
  The multi-class structure of our Common Stock has the effect of concentrating voting power with our Chief Executive Officer, which will limit an investor’s ability to influence the outcome of important transactions, including a change of control.
     
  Our only principal asset is our interest in AST, and accordingly we depend on distributions from AST to pay dividends, taxes, other expenses, and make any payments required to be made by us under the Tax Receivable Agreement.
     
  Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
     
  Our outstanding warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.
     
  We have identified a material weakness in our internal control over financial reporting as of December 31, 2020, and, as a result, we have determined that our disclosure controls and procedures were not effective as of December 31, 2020. If we are unable to develop and maintain an effective system of internal control over financial reporting and effective disclosure controls and procedures, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.

 

Corporate Information

 

On April 6, 2021, we completed the Business Combination with NPA, under which NPA was renamed “AST SpaceMobile, Inc.” and we were organized as an umbrella partnership-C corporation (“Up-C”) structure. As a result of our Up-C structure, we are a holding company and, accordingly, all the business of AST is held directly by AST, of which we are the managing member, and our only direct asset consists of the AST Common Units. As the managing member of AST, we have full, exclusive and complete discretion to manage and control the business of AST and to take all action we deem necessary, appropriate, advisable, incidental, or convenient to accomplish the purposes of AST set forth in the A&R Operating Agreement, and, accordingly, we will present our financial statements on a consolidated basis with AST for all periods following the Business Combination. As of the open of trading on April 7, 2021, the Class A Common Stock and warrants of AST SpaceMobile, formerly those of NPA, began trading on Nasdaq as “ASTS” and “ASTSW,” respectively.

 

Our principal executive offices are located at Midland International Air & Space Port, 2901 Enterprise Lane, Midland, Texas 79706, and our telephone number is (432) 276-3966. Our website address is www.ast-science.com.com. Information contained on our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

 

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Sources of Industry and Market Data

 

Where information has been sourced from a third-party, the source of such information has been identified. Unless otherwise indicated, the information contained in this prospectus on the market environment, market developments, growth rates, market trends and competition in the markets in which we operate is taken from publicly available sources, including third-party sources, or reflects our estimates that are principally based on information from publicly available sources.

 

Emerging Growth Company, Smaller Reporting Company and Controlled Company

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, 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. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

 

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 NPA’s initial public offering of units, the base offering of which closed on September 13, 2019, (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 equity that is held by non-affiliates exceeds $700 million as of the prior June 30th; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

 

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250 million as of the end of that fiscal year’s second fiscal quarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

 

As of the date of this prospectus, the Key Holders hold all of the Class C Common Stock, which prior to the Sunset Date will entitle such holders to cast the lesser of 10 votes per share and the Class C Share Voting Amount, the latter of which is a number of votes per share equal to (1) (x) an amount of votes equal to 88.31% of the total voting power of our outstanding voting stock, minus (y) the total voting power of our outstanding capital stock owned or controlled by the Key Holders, divided by (2) the number of shares of our Class C Common Stock then outstanding. As a result, as of the date of this prospectus, the Key Holders control approximately 88.3% of the combined voting power of our Common Stock, and may control a majority of our voting power so long as the Class C Common Stock represents at least 9.1% of our total Common Stock. The practical effect of the formula used to calculate the Class C Share Voting Amount is that it will cap the aggregate voting power of the Class C Common Stock so that, in most scenarios, the voting power of the Class C Common Stock will not increase, or will increase more slowly than it would otherwise in the event the Class C holders acquire additional voting stock in the Company. As a result, as of the date of this prospectus, the Key Holders control approximately 88.3% of the combined voting power of the Common Stock, and may control a majority of the voting power of the Company so long as the Class C Common Stock represents at least 9.1% of our total Common Stock. As a result of the Key Holders’ holdings, we qualify as a “controlled company” within the meaning of the Nasdaq corporate governance standards . 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, including the requirement that (i) a majority of our Board of Directors consist of independent directors, (ii) we have a compensation committee that is composed entirely of independent directors and (iii) director nominees be selected or recommended to the board by independent directors.

 

We rely on certain of these exemptions. As a result, we do not have a compensation committee consisting entirely of independent directors and our directors will not be nominated or selected solely by independent directors. We may also rely on the other exemptions so long as we qualify as a controlled company. To the extent we rely on any of these exemption, holders of Class A Common Stock will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.

 

 

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RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.

 

In the course of conducting our business operations, we are exposed to a variety of risks. These risks are generally inherent to the alternative asset management industry or otherwise generally impact alternative asset managers like us. Any of the risk factors we describe below have affected or could materially adversely affect our business, financial condition and results of operations. The market price of shares of our Class A Common Stock could decline, possibly significantly or permanently, if one or more of these risks and uncertainties occurs. Certain statements in “Risk Factors” are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Related to Our Business and Industry

 

Our SpaceMobile Service is in development and may not be completed on time or at all and the costs associated with it may be greater than expected.

 

While we estimate the gross costs associated with designing, building and launching the SpaceMobile Service and related infrastructure will be approximately $1.7 billion, there can be no assurance that we will complete the SpaceMobile Service and related infrastructure, products and services on a timely basis, on budget or at all. Design, manufacture and launch of satellite systems are highly complex and historically have been subject to delays and cost over-runs. Development of SpaceMobile Service may suffer from delays, interruptions or increased costs due to many factors, some of which may be beyond our control, including:

 

  the failure of the SpaceMobile Service to work as expected as a result of technological or manufacturing difficulties, design issues or other unforeseen matters;
     
  lower than anticipated demand and acceptance for the SpaceMobile Service and mobile satellite services in general;
     
  the inability to obtain capital to finance the SpaceMobile Service and related infrastructure, products and services on acceptable terms or at all;
     
  engineering and/or manufacturing performance failing or falling below expected levels of output or efficiency;
     
  denial or delays in receipt of regulatory approvals or non-compliance with conditions imposed by regulatory authorities;
     
  the breakdown or failure of equipment or systems;
     
  non-performance by third-party contractors or suppliers;
     
  the inability to develop or license necessary technology on commercially reasonable terms or at all;
     
  launch delays or failures or deployment failures or in-orbit satellite failures once launched;
     
  the inability to reach commercially viable cooperative agreements to license spectrum with one or more MNOs;
     
  labor disputes or disruptions in labor productivity or the unavailability of skilled labor;
     
  increases in the costs of materials or services;
     
  changes in project scope;
     
  increased competition;
     
  additional requirements imposed by changes in laws or regulations; or
     
  severe weather or catastrophic events such as fires, earthquakes, storms or explosions.

 

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If any of the above events occur, they could have a material adverse effect on our ability to continue to develop the SpaceMobile Service and related infrastructure, products and services, which would materially adversely affect our business, financial condition and results of operations.

 

We will incur significant expenses and capital expenditures in the future to execute our business plan and develop the SpaceMobile Service, and we may by unable to adequately control our expenses.

 

We will incur significant expenses and capital expenditures in the future to further our business plan and develop the SpaceMobile Service, including expenses to:

 

  design, develop, assemble and launch our satellites;
     
  design and develop the components of the SpaceMobile Service;
     
  conduct research and development;
     
  purchase raw materials and components;
     
  launch and test our systems;
     
  expand our design, development, maintenance and repair capabilities; and
     
  increase our general and administrative functions to support our growing operations and the management of a public company.

 

Because we will incur the costs and expenses from these efforts before we receive any revenues with respect thereto, our losses in future periods will be significant. Also, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further increase our losses. Our ability to become profitable in the future will not only depend on our ability to successfully launch satellites and build the SpaceMobile Service, but also to control costs. If we are unable to efficiently design, manufacture, launch and service our satellites or experiences significant delays during such development, our potential margins, potential profitability and prospects would be materially and adversely affected.

 

We will need to raise additional funds to achieve phase II and subsequent phases of our SpaceMobile Service. These funds may not be available to us when we need them on favorable terms or at all. If we cannot raise additional funds when needed, our operations and prospects could be negatively affected.

 

The design, development, manufacture, integration, testing, assembly and launch of satellites and related components is a capital-intensive venture and we estimate the gross costs associated with designing, building and launching the SpaceMobile Service and related infrastructure to be approximately $1.7 billion. We expect that we will have sufficient capital to fund planned operations and development for the next 12 to 24 months, which includes the launch of BlueWalker 3 (“BW3”) test satellite and the first 20 commercial satellites covering the Equatorial countries. In the event that the gross costs associated with designing, building and launching the SpaceMobile Service are greater than expected, we may exhaust our existing capital more rapidly than expected. We will need to raise additional capital to continue developing and launching the satellites to complete subsequent phases of the SpaceMobile Service. We expect to raise additional funds through the issuance of equity, equity related or debt securities, or through obtaining credit from government or financial institutions. We also intend to enter into equipment financing arrangements with respect to certain equipment located at our Midland, Texas satellite assembly, integrating and testing facility. This capital may be necessary to fund our ongoing operations, continue research, development and design efforts, improve infrastructure, and launch satellites. We cannot be certain that additional funds will be available to us on favorable terms if required, or at all. If we cannot raise additional funds when needed, our financial condition, results of operations, business and prospects could be materially adversely affected.

 

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We are an early stage company with a history of losses and may never become profitable.

 

We incurred a net loss of $24.4 million for the year ended December 31, 2020, and have incurred net losses of approximately $40.6 million from our inception through December 31, 2020. We will continue to incur operating and net losses each quarter until at least the time we begin generating revenue as a result of planned launches of our commercial satellites, which is not expected to begin until 2023, and may occur later. The likelihood of success of our business plan must be considered in light of the substantial challenges, expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the competitive environment in which we operate. The development of a satellite-based global direct wireless broadband network and related intellectual property is a speculative undertaking, involves a substantial degree of risk, is a capital-intensive business and may ultimately fail. If we cannot successfully execute our plan to develop a global direct wireless broadband network from LEO satellites, referred to as SpaceMobile Service, our business will not succeed.

 

Our potential profitability is dependent upon the successful development and successful commercial introduction and acceptance of SpaceMobile Service, which may not occur. Even if we are able to successfully develop our SpaceMobile Service, there can be no assurance that it will be commercially successful and become profitable on a sustained basis, if at all. We expect to have quarter-to-quarter fluctuations in revenues, expenses and capital expenditures, some of which could be significant, due to research, development, manufacturing expenses and the investments required to manufacture and launch the SpaceMobile Service constellation satellites.

 

We will rely on MNOs and require regulatory approvals to access the spectrum the SpaceMobile Service needs to operate.

 

Unlike traditional mobile satellite services, the SpaceMobile Service does not deliver service over spectrum allocated for mobile satellite use. Rather, the SpaceMobile Service is designed to deliver service over spectrum allocated for terrestrial mobile use. To do so, regulators in each country where we will offer the SpaceMobile Service will need to approve the SpaceMobile Service’s use of spectrum in this manner. We cannot be sure that these regulatory approvals will be forthcoming or, if received, that they will be issued at a time and on terms and conditions that will allow us to meet our business plan. We will also need to reach cooperative agreements with MNOs under which they will agree to provide us with access to their licensed spectrum on suitable terms and conditions. We cannot be sure that such agreements can be reached or that the terms of such agreements will allow us to provide the SpaceMobile Service for a sufficient period of time or on terms and conditions that will allow us to meet our business plan.

 

We have a limited operating history and operate in a rapidly evolving industry, which makes it difficult to evaluate our business and future prospects and increases the risk of your investment.

 

Formed in May 2017, we have a limited operating history in the satellite communications industry, which is rapidly evolving. As a result, there is limited information on which investors can base an evaluation of our business, strategy, operating plan, results and prospects. We intend to derive substantially all of our revenues from the SpaceMobile Service, which is still in the beginning stages of development. There are also no assurances that we will be able to secure future business with MNOs, who are in turn expected to market and sell the SpaceMobile Service to their existing customers as the end-user.

 

It is difficult to predict future revenues and appropriately budget for expenses, and we have limited insight into trends that may emerge and affect our business. We are a pre-revenue company facing substantial business and operational risks, including a relatively untested market strategy, all of which makes forecasting future business results particularly difficult and results in a significant level of execution risk.

 

Our ability to successfully implement our business plan will depend on a number of factors outside of our control.

 

The success of our business plan is dependent on a number of factors outside of our control, including:

 

  the ability to maintain the functionality, capacity and control of the SpaceMobile Service and satellite network once launched;
     
  the ability to access MNO spectrum on suitable terms to us;

 

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  the level of market acceptance and demand for our products and services from MNOs and their end-user customers;
     
  the ability to introduce innovative new products and services that satisfy market demand;
     
  the ability to comply with all applicable regulatory requirements in the countries in which we plan to operate;
     
  the effectiveness of competitors in developing and offering similar services and products;
     
  the ability to find third parties to successfully launch our satellites; and
     
  the ability to maintain competitive prices for our products and services and to control our expenses.

 

Also, if the experience of the SpaceMobile Service’s end-users is not reasonably equivalent to the experience they have using a terrestrial network, we may not achieve widespread customer acceptance.

 

We are highly dependent on the services of Abel Avellan, our founder, Chairman and Chief Executive Officer, and if we are unable to retain Mr. Avellan, attract and retain key employees and hire qualified management, technical and engineering personnel, our ability to compete could be harmed.

 

Our success depends, in part, on our ability to retain our key personnel. We our highly dependent on the services of Abel Avellan, our founder, Chairman and Chief Executive Officer. Mr. Avellan is the source of many of the unique technology and development of our business. If Mr. Avellan were to discontinue his employment with the Company due to death, disability or any other reason, we would be significantly disadvantaged. The unexpected loss of or failure to retain one or more of our key employees could adversely affect our business.

 

Our success also depends, in part, on our continuing ability to identify, hire, attract, train and develop other highly qualified personnel, in particular engineers. Experienced and highly skilled employees are in high demand, competition for these employees can be intense and there may be concerns regarding new employees’ unauthorized disclosure of competitors’ trade secrets, and our ability to hire, attract and retain them depends on our ability to provide competitive compensation. Because our satellites are based on a different technology platform than traditional LEO satellites, individuals with sufficient training in our technology may not be available to hire, and as a result, we will need to expend significant time and expense training the employees it does hire. We may not be able to attract, assimilate, develop or retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our global business strategy. Any failure by our management team and our employees to perform as expected may have a material adverse effect on our business, prospects, financial condition and operating results.

 

Rapid and significant technological changes could render the SpaceMobile Service obsolete and impair our ability to compete.

 

The satellite communications industry is subject to rapid advances and innovations in technology. We may face competition in the future from companies using new technologies and new satellite systems. New technology could render the planned SpaceMobile Service obsolete or less competitive by satisfying customer demand in more attractive ways or through the introduction of incompatible standards. Particular technological developments that could adversely affect the business plan may include the deployment by our competitors of new satellites with greater power, flexibility, efficiency or capabilities than ours, as well as continuing improvements in terrestrial wireless technologies. For us to keep pace with technological changes and remain competitive, we may need to make significant capital expenditures, including capital to design and launch new products and services. Customer acceptance of the products and services that we offer may be affected continually by technology-based differences in product and service offerings compared to those of competitors. New technologies may also be protected by patents or other intellectual property laws and therefore may not be available. Any failure to implement new technology within our SpaceMobile Service may compromise our ability to compete.

 

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If we fail to manage our future growth effectively, our business, prospects, operating results and financial condition may be materially adversely effected.

 

We intend to expand our operations significantly as we develop the SpaceMobile Service and commence commercial operations. To properly manage our growth, we will need to hire and retain additional personnel, upgrade our existing operational management and financial and reporting systems, and improve our business processes and controls. our future expansion will include:

 

  hiring and training new personnel;
     
  assembling and servicing the satellite network;
     
  developing new technologies;
     
  controlling expenses and investments in anticipation of expanded operations;
     
  upgrading the existing operational management and financial reporting systems and team to comply with requirements as a public company; and
     
  implementing and enhancing administrative infrastructure, systems and processes.

 

Failure to manage growth effectively could have a material adverse effect on the quality of the execution of our business plan, our ability to attract and retain professionals, as well as our business, financial condition and results of operations.

 

Also, as we introduce new services or enters into new markets, we may face new market, technological, operational, compliance and administrative risks and challenges, including risks and challenges unfamiliar to us. We may not be able to mitigate these risks and challenges to achieve our anticipated growth or successfully execute large and complex projects, which could materially adversely affect our business, prospects, financial condition and results of operations.

 

We could fail to achieve revenue, or experience a decline in revenue, as a result of increasing competition from companies in the wireless communications industry, including wireless and other satellite operators, and from the extension of land-based communications services or new technologies.

 

We may face increased competition from new competitors, new technologies or new equipment, including new LEO constellations and expansion of existing geostationary satellite systems or new technology that could eliminate the need for a satellite system. Satellite service providers or others that rely on satellites for their business purposes and end markets, including us, face a currently challenging industry as evidenced by the recent bankruptcies of OneWeb and Intelsat. The provision of satellite-based services and products is subject to downward price pressure when capacity exceeds demand. In addition to satellite-based competitors, terrestrial voice and data service providers, both wireline and wireless, could further expand into rural and remote areas and provide the same general types of services and products that we intend to provide. Although satellite communications services and terrestrial communications services are not perfect substitutes, the two compete in some markets and for some services and this competition may increase if the SpaceMobile Service proves successful. Consumers generally perceive terrestrial wireless voice communication products and services as less expensive and more convenient than those that are satellite-based. As a result of competition, we may not be able to successfully launch our SpaceMobile Service or products, retain our customers and attract new customers.

 

We face competition from existing and potential competitors in the telecommunications industry, including terrestrial and satellite-based network systems.

 

The mobile satellite services industry at-large is highly competitive, and we currently face substantial general competition from other service providers that offer a range of mobile and fixed communications options. There are also a number of competitors working to develop innovative solutions to compete in this industry. Also, while we view our services as largely complementary to terrestrial wireline and wireless communications networks through our MNO partnerships, we also compete with them indirectly.

 

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We face competition from other service providers that offer a range of mobile and fixed communications options, such as Inmarsat, Globalstar, ORBCOMM, Thuraya Telecommunications Co. and Iridium Communications. Also, we will face competition from companies seeking to develop new LEO networks such as SpaceX’s Starlink, OneWeb and Amazon’s Kuiper. In addition, a continuing trend toward consolidation and strategic alliances in the telecommunications industry, as well as the potential development of new satellite constellations, could give rise to significant new competitors.

 

We also compete with regional mobile satellite communications services in several geographic markets. In these cases, the majority of our competitors’ customers require regional, not global, mobile voice and data services so competitors may present a viable alternative to the SpaceMobile Service. These regional competitors operate or plan to operate geostationary satellites. In some markets, we compete directly or indirectly with very small aperture terminal operators that offer communications services through private networks using very small aperture terminals or hybrid systems to target business users. We also compete indirectly with terrestrial wireline and wireless communications networks and to the extent that terrestrial communications companies invest in underdeveloped areas, we may face increased competition in those areas. Furthermore, some foreign competitors may benefit from government subsidies, or other protective measures, afforded by their home countries.

 

Some of these competitors may provide more efficient products or services than we will be able to provide, which could reduce our market share and adversely affect our revenues and business.

 

We will be dependent on third parties to market and sell our products and services.

 

We intend to partner with MNOs, and accordingly will rely on them to market and sell our products and services to end users and to determine the prices end users pay. As a result of these arrangements, we will be dependent on the performance of our commercial partners to generate most of our revenue. Such commercial partners will operate independently of us, and we will have limited control over their operations, which exposes us to significant risks. Commercial partners may not commit the necessary resources to market and sell our products and services and may also market and sell competitive products and services. Also, such commercial partners may not comply with the laws and regulatory requirements in their local jurisdictions, which could limit their ability to market or sell our products and services. If current or future commercial partners do not perform adequately, we may be unable to increase our revenue in these markets or enter new markets, and we may not realize our expected growth, and our brand image and reputation could be damaged.

 

We rely on third parties for a supply of equipment, satellite components and services.

 

Our business depends in large part on our ability to execute our plans to assemble, integrate and test our satellites and components at our facility in Midland, Texas. We rely on certain key suppliers to supply and produce certain highly-technical components. Any failure of these suppliers or others to perform could require us to seek alternative suppliers or to expand our production capabilities, which could incur additional costs and have a negative impact on our cost or supply of components. Also, production or logistics in supply or production areas or transit to final destinations can be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, public health or political issues or international trade disputes. If any of our suppliers terminate their relationships with us, fail to provide equipment or services on a timely basis, or fail to meet performance expectations, we may be unable to provide products or services to customers in a competitive manner, which could in turn negatively affect our financial results and reputation.

 

Our continued development of our SpaceMobile Service is and will be subject to risks, including with respect to:

 

  securing necessary components on acceptable terms and in a timely manner;
     
  delays in delivery of final component designs to our suppliers;
     
  our ability to attract, recruit, hire and train skilled employees;
     
  quality controls;
     
  legal or regulatory limitations placed on our launch providers as a result of geopolitical actions or otherwise;

 

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  satellite launch or deployment failures;
     
  delays or disruptions in supply chain; and
     
  other delays and cost overruns.

 

We do not know whether we will be able to develop efficient, automated, low-cost production capabilities and processes and reliable sources of component supply that will enable us to successfully operate our SpaceMobile Service. Any failure to develop such production processes and capabilities within our projected costs and timelines could have a material adverse effect on our business, prospects, financial condition and operating results.

 

We and our suppliers rely on complex systems and components, which involves a significant degree of risk and uncertainty in terms of operational performance and costs.

 

We and our suppliers rely on complex systems and components for the operation and assembly of our satellites, which involves a significant degree of uncertainty and risk in terms of operational performance and costs. These components may suffer unexpected malfunctions from time to time and may require repairs and spare parts to resume operations, which may not be readily available when needed. Unexpected malfunctions of these components may significantly affect the intended operational efficiency. Operational performance and costs can be difficult to predict and are often influenced by factors outside of our control, such as, but not limited to, scarcity of natural resources, environmental hazards and remediation, difficulty or delays in obtaining governmental permit, damages or defects in various components, industrial accidents, fire, seismic activity and natural disasters. Should operational risks materialize, it may result in the monetary losses, delays, unanticipated fluctuations in production, environmental damage, administrative fines, increased insurance costs and potential legal liabilities, all which could have a material adverse effect on our business, prospects, financial condition or operating results.

 

We face substantial risks associated with our international operations.

 

We plan to offer our SpaceMobile Service globally and intend to partner with a number of foreign MNOs. Also, we have development offices or teams in Spain, the United Kingdom and Israel and own a controlling interest in a company located in Lithuania. We also source supplies from international suppliers. Operating in foreign countries poses substantial risks, including:

 

  difficulties in developing products and services that are tailored to the needs of local customers;
     
  unavailability of, or difficulties in establishing, relationships with local MNOs;
     
  instability of international economies and governments;
     
  changes in laws and policies affecting trade and investment in other jurisdictions, including the United Kingdom’s exit from the European Union;
     
  exposure to varying legal standards, including data privacy, security and intellectual property protection in other jurisdictions;
     
  difficulties in obtaining required regulatory authorizations;
     
  difficulties in enforcing legal rights in other jurisdictions;
     
  local domestic ownership requirements;
     
  requirements that certain operational activities be performed in-country;
     
  changing and conflicting national and local regulatory requirements;
     
  foreign currency exchange rates and exchange controls; and
     
  ongoing compliance with the U.S. Foreign Corrupt Practices Act, U.S. export controls, anti-money laundering and trade sanction laws, and similar anti-corruption and international trade laws in other countries.

 

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MNOs will expose us to currency exchange risk, and we cannot predict the effect of future exchange rate fluctuations on our business and operating results.

 

Upon the launch of the SpaceMobile Service, we anticipate generating a significant portion of revenues from our agreements with international MNOs. As a result, our international operations will be sensitive to currency exchange risks. We anticipate having currency exposure arising from both sales and purchases denominated in foreign currencies, as well as intercompany transactions. Significant changes in exchange rates between foreign currencies in which we anticipate transacting business and the U.S. dollar may adversely affect our results of operations and financial condition.

 

Pursuing strategic transactions may cause us to incur additional risks.

 

We may pursue acquisitions, joint ventures or other strategic transactions from time to time. We may face costs and risks arising from any such transactions, including integrating a new business into our business or managing a joint venture. These risks may include adverse legal, organizational and financial consequences, loss of key customers and distributors, and diversion of management’s time.

 

Also, any major business combination or similar strategic transaction may require significant additional financing. Further, depending on market conditions, investor perceptions of us and other factors, we might not be able to obtain financing on acceptable terms, in acceptable amounts, or at appropriate times to implement any such transaction.

 

We may be negatively affected by global economic conditions.

 

Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about global economic conditions poses a risk as individual consumers, businesses and governments may postpone spending in response to tighter credit, negative financial news, declines in income or asset values, or budgetary constraints. Reduced demand could cause a significant delay in the launch of our satellites or the development of the SpaceMobile Service which in turn could cause a decline in our anticipated future revenue and make it more difficult to operate profitably in the future, potentially compromising our ability to pursue our business plan. We expect our future growth rate will be affected by the condition of the global economy, increased competition, maturation of the satellite communications industry, and the difficulty in sustaining high growth rates as we increase in size.

 

The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to successfully complete the research and development of the SpaceMobile Service on a timely basis.

 

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets. We are unable to accurately predict the full impact that the ongoing COVID-19 pandemic will have on our planned development of the SpaceMobile Service, our financial condition, and operational activities due to numerous factors that are not within our control, including the duration and severity of the outbreak, stay-at-home orders, business closures, governmental efforts to distribute vaccines and overall vaccination rates, travel restrictions, supply chain disruptions and employee illness or quarantines, which could result in disruptions to our operations and adversely impact our operations and financial condition. Also, the COVID-19 pandemic has resulted in ongoing volatility in the financial and capital markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted. Any future delays as a result of COVID-19 would delay our phased development.

 

Our management has limited experience in operating a public company.

 

Certain of our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage our transition to a public company that is subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could result in an increasing amount of their time that may be devoted to these activities which will result in less time being devoted to the management and growth of our business. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of U.S. public companies. We are in the process of upgrading our finance and accounting systems to an enterprise system suitable for a public company, and a delay could impact our ability or prevent us from timely reporting our operating results, timely filing required reports with the SEC and complying with Section 404 of the Sarbanes-Oxley Act. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a U.S. public company may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.

 

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Risks Related to Our Satellites and Planned SpaceMobile Service

 

We may not be able to launch our satellites successfully. Loss of a satellite during launch could delay or impair our ability to offer our services or reduce our expected potential revenues, and launch insurance, even if it is available, will not fully cover this risk.

 

We will rely on third party parties to launch our satellites. If we fail to find third parties to launch our satellites or if the third parties fail to perform or delay their performance, the SpaceMobile Service may not be made operational in the anticipated timeframe or at all.

 

We expect to insure the launch, over-time, of all or a portion of 168 satellites to operate the SpaceMobile Service as intended, but do not intend to insure our satellites once they are launched for their remaining in-orbit operational lives. Launch insurance currently costs approximately 5% to 10% of the insured value of the satellite (including launch costs), but may vary depending on market conditions and the safety record of the launch vehicle. We may choose not to insure every launch or to only partially insure some or all launches. Even if a lost satellite is fully insured, acquiring a replacement satellite may be difficult and time consuming. Furthermore, the insurance does not cover lost revenue.

 

We expect any launch failure insurance policies that we obtain to include specified exclusions, deductibles and material change limitations. Typically, these insurance policies exclude coverage for damage arising from acts of war, lasers, and other similar potential risks for which exclusions are customary in the industry at the time the policy is written.

 

If launch insurance rates were to rise substantially, all of the launch costs would increase. Also, in light of increasing costs, the scope of insurance exclusions and limitations on the nature of the losses for which we can obtain insurance, or other business reasons, we may conclude that it does not make business sense to obtain third-party insurance and may decide to pursue other strategies for mitigating the risk of a satellite launch failure, such as obtaining relaunch guaranties from the launch provider. It is also possible that insurance could become unavailable, either generally or for a specific launch vehicle, or that new insurance could be subject to broader exclusions on coverage, in which event we would bear the risk of launch failures.

 

Our satellites may experience operational problems, which could affect our ability to provide an acceptable level of service to the end-user customers.

 

Once the SpaceMobile Service is developed and operational, we may experience temporary intermittent signal disruptions, dropped connections, call initiation failures or data transmission disruptions. If the magnitude or frequency of such problems occur repeatedly, we may no longer able to provide a commercially acceptable level of service, our business and financial results and reputation would be harmed and our ability to pursue our business plan would be compromised. Also, failure to provide an acceptable level of service could cause MNOs to seek other solutions for their customers.

 

From time to time, we may reposition our satellites within the constellation to optimize service, which could result in degraded service during the repositioning period. Although we will have some ability to remedy some types of problems affecting the performance of satellites remotely from the ground, the physical repair of our satellites in space is not feasible.

 

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Our products could fail to perform or could perform at reduced levels of service because of technological malfunctions or deficiencies, regulatory compliance issues, or events outside of our control, which would harm our business and reputation.

 

Our products and services are subject to the risks inherent in a global, complex telecommunications system employing advanced technology and heavily regulated by, among others, the FCC and similar authorities internationally. Any disruption to our satellites, services, information systems or telecommunications infrastructure, or regulatory compliance issues, could result in the inability or reduced ability of end-user customers to receive services for an indeterminate period of time. These customers may include government agencies conducting mission-critical work throughout the world, as well as consumers and businesses located in remote areas of the world and operating under harsh environmental conditions where traditional telecommunications services may not be readily available. Any disruption to the SpaceMobile Service or extended periods of reduced levels of service could cause us to lose customers or revenue, result in delays or cancellations of future implementations of our products and services, result in failure to attract customers, or result in litigation, customer service or repair work that would involve substantial costs and distract management from operating our business. The failure of any of the diverse elements of the planned SpaceMobile Service, including our satellites, to function as required could render the SpaceMobile Service unable to perform at the quality and capacity levels required for success. Any system failures, repeated product failures or shortened product life, or extended reduced levels of service could reduce our expected sales, increase costs, or result in warranty or liability claims or litigation, and harm our business.

 

Our satellites have a limited life and may fail prematurely, which would cause our network to be compromised and materially and adversely affect our business, prospects and potential profitability.

 

We may experience in-orbit malfunctions of our satellites once launched, which could adversely affect the reliability of their service or result in total failure of the satellite. In-orbit failure of a satellite may result from various causes, including component failure, loss of power or fuel, inability to control positioning of the satellite, solar or other astronomical events, including solar radiation, wind and flares, and space debris. Other factors that could affect the useful lives of our satellites include the quality of construction, gradual degradation of solar panels and the durability of components. Radiation-induced failure of satellite components may result in damage to, or loss of, a satellite before the end of its expected life. Although we would not incur any direct cash costs related to the failure of a satellite, if a satellite fails, we would expect to record an impairment charge in our statement of operations to reduce the remaining net book value of that satellite to zero, and any such impairment charges could depress our net income for the period in which the failure occurs.

 

Our business may be adversely affected if we are unable to protect our intellectual property rights from unauthorized use by third parties.

 

Failure to adequately protect our intellectual property rights could result in our competitors offering similar services and products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual property and to keep our use of exclusive licenses. To accomplish this, we will rely on a combination of patents, trade secrets (including know-how), employee and third-party nondisclosure agreements, copyrights, trademarks, intellectual property licenses and other contractual rights to establish and protect our rights in our technology.

 

The protection of our intellectual property rights will be important to our future business opportunities. However, the measures we take to protect our intellectual property from unauthorized use by others may not be effective for various reasons, including the following:

 

  any patent applications we submit may not result in the issuance of patents;
     
  the scope of our issued patents, including our patent claims, may not be broad enough to protect our proprietary rights;
     
  our issued patents may be challenged or invalidated by our competitors;
     
  our employees or business partners may breach their confidentiality, non-disclosure and non-use obligations to us;

 

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  third-parties may independently develop technologies that are the same or similar to ours;
     
  the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make enforcement impracticable; and
     
  current and future competitors may circumvent our intellectual property.

 

Patent, trademark, copyright and trade secret laws vary throughout the world. Some foreign countries do not protect intellectual property rights to the same extent as do the laws of the U.S. Further, policing the unauthorized use of our intellectual property in foreign jurisdictions may be difficult. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of the U.S. Also, we may have difficulty enforcing our rights against a competitor where an infringement occurs in outer space.

 

Our intellectual property applications for registration may not issue or be registered, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

 

We cannot be certain that we are the first inventor of the subject matter to which we have filed a particular patent application, or if we are the first party to file such a patent application. If another party has filed a patent application to the same subject matter as we have, we may not be entitled to the protection sought by the patent application. We also cannot be certain whether the claims included in a patent application will ultimately be allowed in the applicable issued patent. Further, the scope of protection of issued patent claims is often difficult to determine. As a result, we cannot be certain that the patent applications that we file will issue, or that our issued patents will afford protection against competitors with similar technology. Also, our competitors may design around our issued patents, which may adversely affect our business, prospects, financial condition and operating results.

 

We may in the future become subject to claims that our devices or services violate the patent or intellectual property rights of others, which could be costly and disruptive to us.

 

We operate in an industry that is susceptible to significant intellectual property litigation. Although we maintain insurance to cover the cost of intellectual property litigation ($2.0 million for defending infringement claims and $10.0 million to bring offensive infringement claims), the defense of intellectual property suit is both costly and time-consuming, even if ultimately successful, and may divert management’s attention from other business concerns. An adverse determination in litigation to which we may become a party could, among other things:

 

  subject us to significant liabilities to third parties, including lost profit and treble damages that are not covered by insurance;
     
  require disputed rights to be licensed from a third party for royalties that may be substantial;
     
  require us to cease using technology that is important to our business; or
     
  prohibit us from using some or all of our devices or offering some or all of our services.

 

Our customized hardware and software may be difficult and expensive to service, upgrade or replace.

 

Some of the hardware and software we use in operating our SpaceMobile Service 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.

 

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Our networks and those of our third-party service providers and MNOs may be vulnerable to security risks.

 

We expect the secure transmission of confidential information over public networks to continue to be a critical element of our ability to compete for business, manage our risks, and protect our customers and our reputation. Our network and those of our third-party service providers, MNOs and our customers may be vulnerable to unauthorized access, computer attacks, viruses and other security problems. Persons who circumvent security measures could wrongfully access and obtain or use information on our network or cause service interruptions, delays or malfunctions in our devices, services or operations, any of which could harm our reputation, cause demand for our products and services to fall, and compromise our ability to pursue our business plan. Recently, there have been reported a number of significant, widespread security attacks and breaches that have compromised network integrity for many companies and governmental agencies, in some cases reportedly originating from outside the United States. Also, there are reportedly private products available in the market today which may attempt to unlawfully intercept communications made using our network. We may be required to expend significant resources to respond to, contain, remediate, and protect against these attacks and threats, including compliance with applicable data breach and security laws and regulations, and to alleviate problems, including reputational harm and litigation, caused by these security incidents. In the event of such a security incident, our customer contracts may not adequately protect us against liability to third parties with whom our customers conduct business. Although we have implemented and intends to continue to implement security measures, these measures may prove to be inadequate. These security incidents could have a significant effect on our systems, devices and services, including system failures and delays that could limit network availability, which could harm our business and our reputation and result in substantial liability.

 

Our satellites may collide with space debris or another spacecraft, which could adversely affect the performance of our SpaceMobile Service.

 

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, including an onboard propulsion system and altitude and orbit control system, 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 SpaceMobile Service 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.

 

Risks Related to Our Legal and Regulatory Matters

 

Our business is subject to extensive government regulation, which mandates how we may operate our business and may increase the cost of providing services and expansion into new markets.

 

Our ownership and operation of a satellite communications system and the sale of services from such system are subject to significant regulation in the United States, including by the FCC, the U.S. Department of Commerce and others, and in foreign jurisdictions by similar local authorities. The rules and regulations of these U.S. and foreign authorities may change, and such authorities may adopt regulations that limit or restrict our operations as presently conducted or currently contemplated. Such authorities may also make changes in the licenses of our partners or competitors that affect their spectrum, and may significantly affect our business. Further, because regulations in each country are different, we may not be aware if some of our partners or persons with whom we do business do not hold the requisite licenses and approvals. Our failure to provide services in accordance with the terms of our licenses or our failure to operate our satellites or ground stations as required by our licenses and applicable laws and government regulations could result in the imposition of government sanctions and/or monetary fines, including the suspension or cancellation of our licenses.

 

Our ability to provide service to our customers and generate revenues could be harmed by adverse governmental regulatory actions.

 

Our business is subject to extensive government regulation. Our ability to secure all requisite governmental approvals is not assured, and the process of obtaining governmental authorizations and permit can be very time consuming, time sensitive and require compliance with a wide array of administrative and procedural rules. Our pending application seeking FCC approval to operate feeder links at fixed locations on V band frequencies in the U.S. has been opposed by multiple competitors in the satellite mobile and terrestrial wireless businesses and we have no assurance if, and when, the requested authority will be forthcoming or what terms and conditions the FCC might impose on a grant. Multiple terrestrial wireless carriers also have objected to both the process by which we propose to request authority to use spectrum generally allocated for terrestrial broadband mobile services and to the substance of that request. We have no assurance regarding the outcome of these objections. A failure by us to obtain required approvals could compromise our ability to generate revenue or conduct our business in one or more countries. Our requests for regulatory approvals may be subject to challenges by adverse parties and these challenges may delay or prevent favorable action. Furthermore, regulatory approvals can be issued subject to conditions that have an adverse effect on our ability to implement our business plan.

 

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The government approvals required for us to operate the SpaceMobile Service need to be periodically renewed and renewal is not guaranteed. The approvals also are subject to revocation, and we may be subject to fines, forfeitures, penalties or other sanctions if any issuing authority were to find that we are not in compliance with the applicable rules, regulations or policies. The regulatory obligations we must meet are complex, vary greatly from country to country, and are subject to interpretation. We cannot give any assurance that the governments will agree with or accept our compliance efforts.

 

The regulations we and our competitors must adhere to are subject to change by the issuing governmental authorities and there is no guarantee that changes will not be made that are adverse to our business. Regulatory changes, such as those resulting from judicial decisions or the adoption of treaties, legislation or regulations in countries where we operate or intends to operate may also significantly affect our business.

 

Our ability to offer one or more services in important countries or regions of the world may be limited due to regulatory requirements.

 

Though anticipated to provide global service, the SpaceMobile Service may be limited in some jurisdictions by local regulations. For example, some countries have local domestic ownership requirements, or requirements for physical facilities or gateways within their jurisdictions, that may be difficult for us to satisfy. In some countries, we may not be able to reach a commercially viable agreement with an MNO that will enable us to access the spectrum needed to deliver the SpaceMobile Service. The inability to offer or provide the SpaceMobile Service in some major international markets could impair us from achieving our revenue and international growth plans.

 

We expect to provide our SpaceMobile Service in the U.S. and elsewhere on frequencies not regularly allocated for mobile-satellite service, which requires regulatory approval, and there can be no assurance that we will receive or be able to maintain such approval.

 

The SpaceMobile Service will utilize end-user frequencies that are not allocated to the satellite services. Instead, the SpaceMobile Service will be delivered to end-user customers over frequencies generally allocated for terrestrial broadband mobile services. The SpaceMobile Service’s use of spectrum generally allocated for terrestrial broadband mobile services, and our ability to access the U.S. market, will need approval by the FCC. If the FCC does not provide approval, our business will be significantly, adversely affected, and the provision of the SpaceMobile Service could be delayed or diminished, which could have a material adverse effect on our business, financial condition and results of operations. Because terrestrial mobile frequencies are licensed to carriers throughout the U.S., our use of such spectrum will be pursuant to a cooperative arrangement with one or more MNOs, such as spectrum leasing agreements. our access to this spectrum will be subject to approval or notification by the regulatory licensing authority, and any such approval or notification may be delayed or rejected, which may substantially affect our business. Under such arrangements, we will not be the license holder for the spectrum, and our continued access to and use of the frequencies will be subject to the ongoing consent of the MNO, and to the terms and conditions of the cooperative agreement with such MNO. There can be no assurance that we can reach suitable cooperative agreements with MNOs or that such agreements will continue for the life of the SpaceMobile Service.

 

The shared use of the terrestrial broadband spectrum by us and the MNO will require the implementation of procedures and safeguards to avoid co-channel interference. While we believe our SpaceMobile Service will be able to avoid such interference through our patented technology, because the SpaceMobile Service is a new and innovative service that has not yet been implemented, the nature, extent and effectiveness of these interference avoidance techniques, and their effect on the service we will deliver, remains to be practically proven. If the SpaceMobile Service causes or receives harmful interference, it could have a material adverse effect on our business, financial condition and results of operations.

 

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The SpaceMobile Service may qualify as a commercial mobile radio service which will subject us to a variety of ongoing regulatory requirements.

 

Government regulators have adopted a broad array of regulations governing the terms and conditions of wireless service designed to protect consumers and the public interest. While our arrangements with the MNOs will address some of these requirements, these regulatory obligations may prove burdensome and could have an adverse effect on our business. If we fail to comply in any material respect with any of these regulatory requirements, we could be subject to sanctions and financial penalties, including the loss of authority to provide service.

 

The collection, storage, transmission, use and disclosure of user data and personal information by us could give rise to liabilities or additional costs.

 

In the course of providing the SpaceMobile Service, we will transmit, process, and, in some cases store in the normal course of business, end-user data, including personal information. Many jurisdictions around the world have adopted laws and regulations regarding the collection, storage, transmission, use and disclosure of personal information. The legal standards for processing, storing and using this personal information are complex and continue to evolve. For example, the California Consumer Privacy Act became effective in 2020, and other privacy related regulations are pending in several other states such as New York and Nevada. Regulatory enforcement of the EU General Data Protection Regulation has begun resulting in significant fines for non-compliance. Other countries have recently adopted similar laws and regulations, including Brazil, Australia, Canada, and China. As a result, they impose additional obligations and risk on our business, and have the potential to make some of our business processes more costly or less feasible.

 

Also, the interpretation of privacy and data protection laws and regulations regarding the collection, storage, transmission, use and disclosure of such information in some jurisdictions remains unclear. These laws may be interpreted, applied and enforced in conflicting ways from country to country and in a manner that is not consistent with our current or expected business practices. Complying with these varying privacy and data security legal requirements could cause us to incur additional costs and change our business practices. Because we intend for our SpaceMobile Service to be accessible in many foreign jurisdictions, some of these jurisdictions may claim that we are required to comply with their laws, even where we have no local entity, employees or infrastructure. We could be forced to incur significant expenses if we were required to modify the SpaceMobile Service or our security and privacy procedures to comply with new or expanded regulations. Also, if end users allege that their personal information is not collected, stored, transmitted, used or disclosed appropriately or in accordance with our privacy policies or applicable laws, we could have liability to them, including claims and litigation resulting from such allegations. Any failure on our part to protect end users’ privacy and data could result in a loss of user confidence, hurt our reputation and ultimately result in the loss of users. In the event that we suffer a loss or adverse event to our data storage or it is determined that our policies and procedures have failed to comply with evolving laws and regulations, we may be subject to significant regulatory investigations and fines or penalties.

 

Radio frequency (rf) emissions from transmitters and handsets operating on wireless mobile frequencies are the subject of regulation and litigation concerning their safety and environmental effects, and as a result we could face litigation, liability or new regulations.

 

There has been adverse publicity concerning alleged health risks associated with rf transmissions from wireless transmitters and hand-held devices. Lawsuit have been filed against participants in the wireless industry alleging a number of adverse health consequences, including cancer, as a result of wireless phone usage. We have not been party to any such lawsuit, but may be exposed to such litigation in the future. We intend to comply with applicable standards for rf emissions and power and does not believe there is valid scientific evidence that the satellite or handset transmissions associated with our SpaceMobile Service poses a health risk. However, courts or governmental agencies could determine otherwise. Any such finding could reduce our revenue and profitability and expose us and other communications service providers or device sellers to litigation, which, even if frivolous or unsuccessful, could be costly to defend. Also, any actual or perceived risk from rf emissions could reduce the demand for the SpaceMobile Service.

 

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Risks Related to Our Organizational Structure

 

We are a “controlled company” within the meaning of the Nasdaq listing standards and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

 

As of the date of this prospectus, the Key Holders hold all of the Class C Common Stock, which prior to the Sunset Date will entitle such holders to cast the lesser of 10 votes per share and the Class C Share Voting Amount, the latter of which is a number of votes per share equal to (1) (x) an amount of votes equal to 88.31% of the total voting power of our outstanding voting stock, minus (y) the total voting power of our outstanding capital stock owned or controlled by the Key Holders, divided by (2) the number of shares of our Class C Common Stock then outstanding. As a result, as of the date of this prospectus, the Key Holders control approximately 88.3% of the combined voting power of our Common Stock, and may control a majority of our voting power so long as the Class C Common Stock represents at least 9.1% of our total Common Stock. As a result of the Key Holders’ holdings, we qualify as a “controlled company” within the meaning of the Nasdaq corporate governance standards. 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, including the requirement that (i) a majority of our Board of Directors consist of independent directors, (ii) we have a compensation committee that is composed entirely of independent directors and (iii) director nominees be selected or recommended to the board by independent directors.

 

We rely on certain of these exemptions. As a result, we do not have a compensation committee consisting entirely of independent directors and our directors were not nominated or selected solely by independent directors. We may also rely on the other exemptions so long as we qualify as a controlled company. To the extent we rely on any of these exemption, holders of our Class A Common Stock will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.

 

The multi-class structure of our Common Stock has the effect of concentrating voting power with our Chief Executive Officer, which will limit an investor’s ability to influence the outcome of important transactions, including a change of control.

 

Holders of shares of our Class A Common Stock are entitled to cast one vote per share of Class A Common Stock, while holders of shares of our Class C Common Stock are (1) prior to the Sunset Date, entitled to cast the lesser of (x) 10 votes per share and (y) the Class C Share Voting Amount and (2) from and after the Sunset Date, entitled to cast one vote per share. As of the date of this prospectus, the Key Holders controlled approximately 88.3% of the combined voting power of our Common Stock as a result of their ownership of all of our Class C Common Stock. Accordingly, while we do not intend to issue additional Class C Common Stock in the future, Mr. Avellan will be able to exercise control over all matters requiring our stockholders’ approval, including the election of our directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transactions. Mr. Avellan may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated control may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock as part of a sale of our company, and might ultimately affect the market price of shares of our Class A Common Stock. For information about our multi-class class structure, see the section titled “Description of Capital Stock.”

 

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We cannot predict the impact our multi-class structure may have on the stock price of our Class A Common Stock.

 

We cannot predict whether our multi-class structure will result in a lower or more volatile market price of Class A Common Stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices. In July 2017, FTSE Russell and S&P Dow Jones announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their 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. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their 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 the announced policies, our multi-class capital structure 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 will not be investing in our stock. These policies are still fairly new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Because of our multi-class structure, we will likely be excluded from certain of these 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 stock indices would likely preclude investment by many of these funds and could make shares of our Class A Common Stock less attractive to other investors. As a result, the market price of shares of our Class A Common Stock could be adversely affected.

 

If we were deemed an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

 

An issuer will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:

 

  it is an “orthodox” investment company because it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
     
  it is an inadvertent investment company because, absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.

 

We believe that we are engaged primarily in the business of developing and providing access to a space-based cellular broadband network to be accessible by standard smartphones and not primarily in the business of investing, reinvesting or trading in securities. We hold ourselves out as communications company and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are an “orthodox” investment company as described in the first bullet point above. Furthermore, we treat AST as a majority-owned subsidiary for purposes of the Investment Company Act. Therefore, we believe that less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis comprise assets that could be considered investment securities. Accordingly, we do not believe that we or AST will be an inadvertent investment company by virtue of the 40% inadvertent investment company test as described in the second bullet point above. Also, we believe we will not be an investment company under section 3(b)(1) of the Investment Company Act because we will be primarily engaged in a non-investment company business.

 

The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to continue to conduct our operations so that we will not be deemed to be an investment company under the Investment Company Act. However, if anything were to happen that would cause us to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on our capital structure, ability to transact business with affiliates (including AST) and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among AST, us or our senior management team, or any combination thereof and materially and adversely affect our business, financial condition and results of operations.

 

Because members of our senior management team hold most or all of their economic interest in AST through other entities, conflicts of interest may arise between them and holders of shares of Class A Common Stock or us.

 

Because members of our senior management team hold most or all of their economic interest in AST directly through holding companies rather than through ownership of shares of Class A Common Stock, they may have interests that do not align with, or conflict with, those of the holders of Class A Common Stock or with us. For example, members of our senior management team may have different tax positions from those of the Company and/or holders of Class A Common Stock, which could influence their decisions regarding whether and when to enter into certain transactions or dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when we should terminate the Tax Receivable Agreement and accelerate the obligations thereunder. Also, the structuring of future transactions and investments may take into consideration the members’ tax considerations even where no similar benefit would accrue to us.

 

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Risks Related to Tax

 

Our only principal asset is our interest in AST, and accordingly we depend on distributions from AST to pay dividends, taxes, other expenses, and make any payments required to be made by us under the Tax Receivable Agreement.

 

We are a holding company and have no material assets other than our ownership of AST Common Units. We do not have independent means of generating revenue or cash flow, and our ability to pay our taxes, operating expenses, and pay any dividends in the future is dependent upon the financial results and cash flows of AST. There can be no assurance that AST will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants under debt instruments will permit such distributions. If AST does not distribute sufficient funds to us to pay our taxes or other liabilities, we may default on contractual obligations or have to borrow additional funds. In the event that we are required to borrow additional funds it could adversely affect our liquidity and subject us to additional restrictions imposed by lenders.

 

AST is treated as partnership for U.S. federal income tax purposes and, as such, generally is not subject to any entity-level U.S. federal income tax. Instead, taxable income is allocated, for U.S. federal income tax purposes, to the holders AST Common Units. Under the terms of the A&R Operating Agreement, AST is obligated to make pro rata tax distributions to holders of AST Common Units calculated at certain assumed rates. In addition to tax expenses, we will also incur expenses related to our operations, including payment obligations under the Tax Receivable Agreement, which could be significant and some of which will be reimbursed by AST (excluding payment obligations under the Tax Receivable Agreement). For so long as we are Managing Member (as defined in the A&R Operating Agreement) of AST, we intend to cause AST to make ordinary distributions and tax distributions to the holders of AST Common Units on a pro rata basis in amounts sufficient to enable us to cover all applicable taxes, relevant operating expenses, payments under the Tax Receivable Agreement and dividends, if any, declared by us. However, AST’s ability to make such distributions may be subject to various limitations and restrictions, including, but not limited to, retention of amounts necessary to satisfy the obligations of AST and its subsidiaries and restrictions on distributions that would violate any applicable restrictions contained in AST’s debt agreements, or any applicable law, or that would have the effect of rendering AST insolvent. To the extent we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid. Additionally, nonpayment for a specified period and/or under certain circumstances may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments under the Tax Receivable Agreement, which could be substantial.

 

We anticipate that the distributions received from AST may, in certain periods, exceed our actual tax liabilities and obligations to make payments under the Tax Receivable Agreement. Our Board of Directors, in its sole discretion, will make any determination from time to time with respect to the use of any such excess cash so accumulated, which may include, among other uses, to pay dividends on our Class A Common Stock. We will have no obligation to distribute such cash (or other available cash other than any declared dividend) to our stockholders.

 

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The Tax Receivable Agreement requires us to make cash payments to the TRA Holders in respect of certain tax benefits and such payments may be substantial. In certain cases, payments under the Tax Receivable Agreement may (i) exceed any actual tax benefits the Tax Group realizes or (ii) be accelerated.

 

In connection with the Closing, we entered into the Tax Receivable Agreement. Pursuant to the Tax Receivable Agreement, we are generally required to pay the TRA Holders 85% of the amount of savings, if any, in U.S. federal, state, local, and foreign taxes that are based on, or measured with respect to, net income or profits, and any interest related thereto that we and any applicable consolidated, unitary, or combined Subsidiaries (the “Tax Group”) realize, or are deemed to realize, as a result of certain “Tax Attributes,” which include:

 

existing tax basis in certain assets of AST and certain of its direct or indirect Subsidiaries, including assets that will eventually be subject to depreciation or amortization, once placed in service, attributable to AST Common Units acquired by us from a TRA Holder (including AST Common Units held by a Blocker Corporation acquired by us in a Reorganization Transaction (as defined in the Tax Receivable Agreement)), each as determined at the time of the relevant acquisition;

 

● tax basis adjustments resulting from taxable exchanges of AST Common Units (including any such adjustments resulting from certain payments made by us under the Tax Receivable Agreement) acquired by us from a TRA Holder pursuant to the terms of the A&R Operating Agreement;

 

● tax deductions in respect of portions of certain payments made under the Tax Receivable Agreement; and

 

● certain tax attributes of Blocker Corporations holding AST Common Units that are acquired directly or indirectly by us pursuant to a Reorganization Transaction.

 

Payments under the Tax Receivable Agreement generally will be based on the tax reporting positions that we determine (with the amount of subject payments determined in consultation with an advisory firm and subject to the TRA Holder Representative’s review and consent), and the IRS or another taxing authority may challenge all or any part of a position taken with respect to Tax Attributes or the utilization thereof, as well as other tax positions that we take, and a court may sustain such a challenge. In the event that any Tax Attributes initially claimed or utilized by the Tax Group are disallowed, the TRA Holders will not be required to reimburse us for any excess payments that may previously have been made pursuant to the Tax Receivable Agreement, for example, due to adjustments resulting from examinations by taxing authorities. Rather, any excess payments made to such TRA Holders will be applied against and reduce any future cash payments otherwise required to be made by us to the applicable TRA Holders under the Tax Receivable Agreement, after the determination of such excess. However, a challenge to any Tax Attributes initially claimed or utilized by the Tax Group may not arise for a number of years following the initial time of such payment and, even if challenged earlier, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement. As a result, there might not be future cash payments against which such excess can be applied and we could be required to make payments under the Tax Receivable Agreement in excess of the Tax Group’s actual savings in respect of the Tax Attributes.

 

Moreover, the Tax Receivable Agreement provides that, in the event (such events collectively, “Early Termination Events”) that (i) we exercise our early termination rights under the Tax Receivable Agreement, (ii) certain changes of control of the Company or AST occur (as described in the A&R Operating Agreement) , (iii) we, in certain circumstances, fail to make a payment required to be made pursuant to the Tax Receivable Agreement by its final payment date, which non-payment continues for 60 days following such final payment date or (iv) we materially breach (or are deemed to materially breach) any of our material obligations under the Tax Receivable Agreement other than as described in the foregoing clause (iii) and, in the case of clauses (iii) and (iv), unless certain liquidity related or restrictive covenant related exceptions apply, our obligations under the Tax Receivable Agreement will accelerate (if the TRA Holder Representative so elects in the case of clauses (ii)-(iv)) and, we will be required to make a lump-sum cash payment to all the TRA Holders equal to the present value of all forecasted future payments that would have otherwise been made under the Tax Receivable Agreement, which lump-sum payment would be based on certain assumptions, including those relating to there being sufficient future taxable income of the Tax Group to fully utilize the Tax Attributes over certain specified time periods and that all AST Common Units (including AST Common Units held by Blocker Corporations) that had not yet been exchanged for Class A Common Stock or cash are deemed exchanged for cash. The lump-sum payment could be material and could materially exceed any actual tax benefits that the Tax Group realizes subsequent to such payment.

 

Payments under the Tax Receivable Agreement will be our obligations and not obligations of AST. Any actual increase in our allocable share of AST and its relevant subsidiaries’ tax basis in relevant assets, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges, the market price of the Class A Common Stock at the time of an exchange of AST Common Units by a TRA Holder pursuant to the terms of the A&R Operating Agreement and the amount and timing of the recognition of the Tax Group’s income for applicable tax purposes. While many of the factors that will determine the amount of payments that we will be required to make under the Tax Receivable Agreement are outside of our control, we expect that the aggregate payments we will be required to make under the Tax Receivable Agreement could be substantial and, if those payments substantially exceed the tax benefit we realize in a given year or in the aggregate, could have an adverse effect on our financial condition, which may be material.

 

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Any payments made by us under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Additionally, nonpayment for a specified period and/or under certain circumstances may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the Tax Attributes that may be deemed realized under the Tax Receivable Agreement. Increases in income tax rates, changes in income tax laws or disagreements with tax authorities can adversely affect our, AST’s or its subsidiaries’ business, financial condition or results of operations.

 

We could be adversely affected by changes in applicable tax laws, regulations, or administrative interpretations thereof in the United States or other jurisdictions.

 

We could also be adversely affected by changes in applicable tax laws, regulations, or administrative interpretations thereof in the United States or other jurisdictions and changes in tax law, including increases in applicable tax rates and limitations on deductions and credits, could reduce our after-tax income and adversely affect our business and financial condition.

 

Our effective tax rate and tax liability are based on the application of current income tax laws, regulations and treaties. These laws, regulations and treaties are complex and often open to interpretation. In the future, the tax authorities could challenge our interpretation of laws, regulations and treaties, resulting in additional tax liability or adjustment to our income tax provision that could increase our effective tax rate. Changes to tax laws may also adversely affect our ability to attract and retain key personnel.

 

Risks Related to Being a Public Company

 

The requirements of being a public company may strain our resources and divert management’s attention.

 

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq listing requirements and other applicable securities rules and regulations. Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

 

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

 

We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Additionally, once we no longer qualify as an “emerging growth company,” we will be required to have our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. An adverse report may be issued in the event our independent registered public accounting firm is not satisfied with the level at which our controls are documented, designed or operating.

 

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A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal controls that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. When evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. On April 12, 2021, the Acting Chief Accountant and Acting Director of the Division of Corporation Finance of the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Staff Statement”). Following this issuance of the SEC Staff Statement, after consultation with our independent registered public accounting firm, our management and our audit committee concluded that, in light of the SEC Staff Statement, it was appropriate to restate our previously issued audited financial statements as of and for the years ended December 31, 2020 and 2019 (the “Restatement”). See “—Our outstanding warrants are accounted for as liabilities and the changes in value of our Warrants could have a material effect on our financial results.” As part of such process, we identified a material weakness in our internal controls over financial reporting. Also, management, along with our principal executive and financial officers, have concluded that our disclosure controls and procedures were not effective as of December 31, 2020, in light of the material weakness identified in our internal control over financial reporting.

 

If we fail to remediate existing material weaknesses, fail to identify any additional material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is ineffective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, we could fail to meet our reporting obligations or be required to restate our financial statements for prior periods. Investors may also lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A Common Stock and warrants could be negatively affected, and we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources.

 

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A Common Stock less attractive to investors.

 

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:

 

  not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
     
  reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
     
  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation or golden parachute payments not previously approved.

 

Our status as an emerging growth company will end as soon as any of the following takes place:

 

  the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;
     
  the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;
     
  the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or
     
  the last day of the fiscal year ending after the fifth anniversary of NPA’s initial public offering.

 

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We cannot predict if investors will find our securities less attractive if we choose to rely on any of the exemptions afforded emerging growth companies. If some investors find our securities stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our securities and the market price of those securities may be more volatile.

 

Further, the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is neither an emerging growth company nor a company that has opted out of using the extended transition period difficult because of the potential differences in accounting standards used.

 

A significant portion of our total outstanding shares of our Class A Common Stock (or shares of our Class A Common Stock that may be issued in the future pursuant to the exchange or redemption of AST Common Units) are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A Common Stock to drop significantly, even if our business is doing well.

 

Subject to certain exceptions, pursuant to the Stockholders’ Agreement, the Stockholder Parties are contractually restricted from transferring any SpaceMobile common stock held by such party (other than approximately 2,500,000 shares of Class A Common Stock purchased by certain Existing Equityholders in the PIPE Investment) for a period of one year following the Closing (the “Lock-Up Period”); provided that the Sponsor may transfer one-third of its shares of Class A Common Stock if the stock price equals or exceeds $12.00 for any 20 trading days within any 30 trading-day period commencing at least 150 days after the Closing.

 

Following the expiration of the Lock-up Period, no Stockholder Party will be restricted from selling shares of our Class A Common Stock held by them or that may be received by them in exchange for AST Common Units or warrants, as the case may be, other than by applicable securities laws. As such, sales of a substantial number of shares of our Class A Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A Common Stock. As of the date of this prospectus, the Stockholder Parties collectively owned approximately 81.2% of our outstanding common stock, representing approximately 96.1% of the voting power of our common stock, and the AST Equityholders, in turn, owned approximately 71.5% of the AST Common Units. As restrictions on resale end and registration statements for the sale of shares of our Class A Common Stock and warrants by the parties to the Registration Rights Agreements are available for use, the sale or possibility of sale of these shares of Class A Common Stock and warrants could have the effect of increasing the volatility in the market price of our Class A Common Stock or warrants, or decreasing the market price itself.

 

Warrants will become exercisable for our Class A Common Stock, which will increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

 

As of May 5, 2021, there are 17,600,000 outstanding warrants to purchase 17,600,000 shares of our Class A Common Stock at an exercise price of $11.50 per share, which warrants will become exercisable 30 days following the Closing. To the extent such warrants are exercised, additional shares of our Class A Common Stock will be issued, which will result in dilution to the holders of our Class A Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of our Class A Common Stock.

 

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We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 65% of the then outstanding public warrants. As a result, the exercise price of the warrants could be increased, the exercise period could be shortened and the number of shares of Class A common stock purchasable upon exercise of a warrant could be decreased, all without a warrant holder’s approval.

 

Our warrants are issued in registered form under the Warrant Agreement with Continental Stock Transfer & Trust Company, as warrant agent. The Warrant Agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or Class A common stock, shorten the exercise period or decrease the number of shares of Class A common stock purchasable upon exercise of a warrant.

 

Registration of the shares of our Class A Common Stock issuable upon exercise of the warrants under the Securities Act may not be in place when an investor desires to exercise warrants.

 

Under the terms of the Warrant Agreement, we are obligated to file and maintain an effective registration statement under the Securities Act, covering the issuance of shares of our Class A Common Stock issuable upon exercise of the warrants. We cannot assure you that we will be able to do so if, for example, any facts or events arise that represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or we are required to address any comments the SEC may issue in connection with such registration statement. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we are required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder or an exemption from registration is available. If, and when, the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of Common Stock for sale under all applicable state securities laws.

 

We may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.

 

We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our Class A Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption and provided certain other conditions are met. If and when the public warrants become redeemable by us, we may not exercise our redemption right if the issuance of shares of common stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or we are unable to effect such registration or qualification. We will use our best efforts to register or qualify such shares of common stock under the blue sky laws of the state of residence in those states in which the warrants were offered by us in our initial public offering. Redemption of the outstanding public warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants.

 

None of the warrants issued to the Sponsor in a private placement that occurred concurrently with our initial public offering will be redeemable by us so long as they are held by the Sponsor or its permitted transferees.

 

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Provisions in our organizational documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third-party.

 

Our Bylaws require, unless we consent in writing to the selection of an alternative forum, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim against us, our directors, officers or employees arising pursuant to any provision of the DGCL or our Charter or Bylaws, or (iv) any action asserting a claim against us, our directors, officers or employees governed by the internal affairs doctrine may be brought only in the Court of Chancery in the State of Delaware, except any claim (a) as to which the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within 10 days following such determination), (b) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, (c) for which the Court of Chancery does not have subject matter jurisdiction, or (d) any action arising under the Securities Act, as to which the Court of Chancery and the federal district court for the District of Delaware shall have concurrent jurisdiction. If an action is brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. 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, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

 

Notwithstanding the foregoing, our Bylaws provide that the exclusive forum provision will not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or 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. For more information, see “Description of Capital Stock.”

 

General Risk Factors

 

The market price and trading volume of our securities may be volatile.

 

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A Common Stock and warrants in spite of our operating performance. We cannot assure you that the market price of our Class A Common Stock and warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:

 

  the realization of any of the risk factors presented in this prospectus;
     
  developments involving our competitors;
     
  variations in our operating performance and the performance of our competitors in general;
     
  difficult global market and economic conditions;
     
  loss of investor confidence in the global financial markets and investing in general;
     
  inability to attract, retain or motivate our directors, officers or other key personnel;
     
  adverse market reaction to indebtedness we may incur, securities we may grant under our 2020 Plan or otherwise, or any other securities we may issue in the future, including shares of Class A Common Stock;
     
  failure to meet securities analysts’ earnings estimates;
     
  publication of negative or inaccurate research reports about us or our industry or the failure of securities analysts to provide adequate coverage of the Class A Common Stock in the future;
     
  speculation in the press or investment community about our business;

 

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  additions and departures of key employees and personnel;
     
  competition for talent and skill-sets required;
     
  commencement of, or involvement in, litigation involving us;
     
  the volume of shares of our Class A Common Stock available for public sale;
     
  additional or unexpected changes or proposed changes in laws or regulations or differing interpretations thereof affecting our business or enforcement of these laws and regulations, or announcements relating to these matters;
     
  increases in compliance or enforcement inquiries and investigations by regulatory authorities, including as a result of regulations mandated by the Dodd-Frank Act and other initiatives of various regulators that have jurisdiction over us; and
     
  adverse publicity about our industry.

 

The obligations associated with being a public company involve significant expenses and require significant resources and management attention, which may divert from our business operations.

 

As a public company, we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, we are incurring, and will continue to incur, significant legal, accounting and other expenses that we did not incur prior to the business combination. Our management team and many of our other employees devote substantial time to compliance, and may not effectively or efficiently manage our transition into a public company.

 

These rules and regulations have resulted, and will continue to result, in us incurring substantial legal and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain coverage. As a result, it may be difficult for us to attract and retain qualified people to serve on our Board of Directors, our board committees or as executive officers.

 

We may be subject to securities class action litigation, which may harm our business, financial condition and results of operations.

 

Companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and damages, and divert management’s attention from other business concerns, which could seriously harm our business, financial condition and results of operations.

 

We may also be called on to defend ourselves against lawsuits relating to our business operations. Some of these claims may seek significant damage amounts due to the nature of our business. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. A future on-payment outcome in a legal proceeding could have an adverse impact on our business, financial condition and results of operations. Also, current and future litigation, regardless of its merits, could result in substantial legal fees, settlement or judgment costs and a diversion of management’s attention and resources that are needed to successfully run our business.

 

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Our outstanding warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.

 

On April 12, 2021, the Acting Chief Accountant and Acting Director of the Division of Corporation Finance of the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Staff Statement”). The SEC Staff Statement sets forth the conclusion of the SEC’s Office of the Chief Accountant that certain provisions included in the warrant agreements entered into by many special purpose acquisition companies require such warrants to be accounted for as liabilities measured at fair value, rather than as equity securities, with changes in fair value during each financial reporting period reported in earnings. As a result of the SEC Staff Statement, we reevaluated the accounting treatment of our warrants, and determined to classify the warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings.

 

As a result, included on our consolidated balance sheets as of December 31, 2020 and 2019 contained elsewhere in this prospectus are derivative liabilities related to embedded features contained within our warrants. Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our consolidated financial statements and results of operations may fluctuate quarterly, based on factors, which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our warrants each reporting period and that the amount of such gains or losses could be material.

 

We have identified a material weakness in our internal control over financial reporting as of December 31, 2020, and, as a result, we have determined that our disclosure controls and procedures were not effective as of December 31, 2020. If we are unable to develop and maintain an effective system of internal control over financial reporting and effective disclosure controls and procedures, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.

 

Following this issuance of the SEC Staff Statement, after consultation with our independent registered public accounting firm, our management and our audit committee concluded that, in light of the SEC Staff Statement, it was appropriate to restate our previously issued audited financial statements as of and for the years ended December 31, 2020 and 2019. See “—Our outstanding warrants are accounted for as liabilities and the changes in value of our Warrants could have a material effect on our financial results.” As part of such process, we identified a material weakness in our internal controls over financial reporting. In addition, management, along with our principal executive and financial officers, have concluded that our disclosure controls and procedures were not effective as of December 31, 2020, in light of the material weakness identified in our internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.

 

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluate steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.

 

If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and the prices of our securities may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

 

We may face litigation and other risks as a result of the material weakness in our internal control over financial reporting.

 

Following the issuance of the SEC Staff Statement, after consultation with our independent registered public accounting firm, our management and our audit committee concluded that it was appropriate to restate our previously issued audited financial statements as of and for the years ended December 31, 2020 and 2019. See “—Our outstanding warrants are accounted for as liabilities and the changes in value of our Warrants could have a material effect on our financial results.” As part of the Restatement, we identified a material weakness in our internal controls over financial reporting.

 

  29  
     

 

As a result of such material weakness, the Restatement, the change in accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, we face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the Restatement and material weaknesses in our internal control over financial reporting and the preparation of our financial statements or related public filings. As of the date of this prospectus, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.

 

An active trading market for our securities may not be maintained.

 

We can provide no assurance that we will be able to maintain an active trading market for our Class A Common Stock and warrants on Nasdaq or any other exchange in the future. If an active market for our securities is not maintained, or if we fail to satisfy the Nasdaq continued listing standards for any reason and our securities are delisted, it may be difficult for our security holders to sell their securities without depressing the market price for the securities or at all. An inactive trading market may also impair our ability to both raise capital by selling shares of capital stock and acquire other complementary products, services, technologies or businesses by using our shares of capital stock as consideration.

 

Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.

 

The trading market for our securities is influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts, and the analysts who publish information about our company may have relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or on-payment research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

 

  30  
     

 

USE OF PROCEEDS

 

All of the shares of Class A Common Stock and warrants offered by the selling stockholders named herein (the “Selling Stockholders”) under this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales.

 

The Selling Stockholders will pay any underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal expenses incurred by such Selling Stockholders in disposing of their shares of Class A Common Stock and warrants, and we will bear all other costs, fees and expenses incurred in effecting the registration of such securities covered by this prospectus, including, without limitation, all registration and filing fees, Nasdaq listing fees and fees and expenses of our counsel and our independent registered public accountants.

 

We will receive any proceeds from the exercise of our warrants for cash, but not from the sale of the shares of Class A Common Stock issuable upon such exercise.

 

  31  
     

 

MARKET PRICE OF OUR CLASS A COMMON STOCK AND DIVIDENDS

 

Market Price of our Class A Common Stock

 

Our Class A Common Stock is listed on Nasdaq under the symbols “ASTS.”

 

On May 5, 2021, the closing price of our Class A Common Stock was $7.68. As of May 5, 2021, there were 51,729,704 shares of our Class A Common Stock outstanding, held of record by 28 holders. The number of record holders of our Class A Common Stock does not include The Depository Trust Company participants or beneficial owners holding shares through nominee names.

 

Dividend Policy

 

We have never paid any cash dividends on the Company’s Common Stock. The payment of cash dividends in the future will be dependent upon revenues and earnings, if any, capital requirements and general financial condition from time to time. The payment of any cash dividends will be within the discretion of our Board of Directors, and our Board of Directors will consider whether or not to institute a dividend policy. It is presently expected that we will retain all earnings for use in our business operations and, accordingly, it is not expected that our Board of Directors will declare any dividends in the foreseeable future.

 

  32  
     

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Introduction

 

Under the Equity Purchase Agreement, a series of transactions occurred, including the following: NPA (i) entered into the A&R Certificate of Incorporation to, among other things, (a) change the name of NPA to AST SpaceMobile, Inc., (b) convert all then-outstanding Sponsor Stock into Class A Common Stock and (c) authorize the issuance of Class B Common Stock and Class C Common Stock, (ii) replaced the Existing Bylaws with the SpaceMobile Bylaws, and (iii) entered into the Tax Receivable Agreement with AST and the Existing Equityholders as part of the transaction. Following the Closing Date, NPA is organized in an “Up-C” structure in which substantially all of the operating assets of AST’s business are held by AST, and NPA’s only assets are its equity interests in AST.

 

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The following unaudited pro forma condensed combined financial statements of the Company presents the combination of the financial information of NPA and AST, adjusted to give effect to the Business Combination including:

 

  the reverse recapitalization between AST and NPA, whereby no goodwill or other intangible assets are recorded;
     
  the completion of the PIPE Investment pursuant to the PIPE Subscription Agreements; and
     
  the effectiveness of the Tax Receivable Agreement.

 

NPA was a blank check company incorporated on May 28, 2019 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On September 13, 2019, the closing date of the IPO, NPA completed its IPO of 20,000,000 units at $10.00 per unit, generating gross proceeds of $200,000,000. Simultaneously with the closing of the IPO, NPA completed the sale of 5,500,000 private placement warrants to the Sponsor at a price of $1.00 per warrant, generating gross proceeds of $5,500,000. The 20,000,000 public warrants issued in the IPO units and the 5,500,000 private placement warrants are each exercisable for one share of Class A Common Stock at an exercise price of $11.50. On September 19, 2019, in connection with the underwriters’ full exercise of their over-allotment option, NPA completed the sale of an additional 3,000,000 units and the sale of an additional 600,000 private placement warrants, generating total gross proceeds of $30,600,000. Following the IPO, the exercise of the over-allotment option and the sale of the private placement warrants, a total of $230,000,000 was placed in the Trust Account. At the close of the transaction, immediately prior to the effect of redemptions, there was approximately $232 million held in the Trust Account.

 

AST was organized as a limited liability company under the laws of the State of Delaware on May 31, 2017. AST’s SpaceMobile Service is expected to provide cost-effective, high-speed mobile broadband services with global coverage to all end-users, regardless of where they live or work, without the need to purchase special equipment. The SpaceMobile Service would be the first global space-based cellular broadband network using LEO satellites to provide connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT-enabled device. We believe AST’s innovative satellite designs and components will reduce the communication delay effects which existing geostationary satellite systems experience. The SpaceMobile Service is intended to provide global coverage for users traveling in and out of areas without terrestrial mobile services on land, at sea or in flight.

 

The following unaudited pro forma condensed combined balance sheet as of December 31, 2020 assumes that the Business Combination occurred on December 31, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 present the pro forma effect to the Business Combination as if they had been completed on January 1, 2020.

 

  33  
     

 

The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the Company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. Further, the pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

The historical financial information of NPA was derived from the audited financial statements of NPA as of and for the year ended December 31, 2020, incorporated by reference into this prospectus. The historical financial information of AST was derived from the audited consolidated financial statements of AST as of and for the year ended December 31, 2020, incorporated by reference into this prospectus. This information should be read together with NPA’s and AST’s audited financial statements and related notes, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of AST” and other financial information incorporated by reference into this prospectus.

 

The Business Combination has been accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with United States generally accepted accounting principles (“GAAP”). The AST members continue to control AST before and after the Business Combination. As there is no change in control, AST was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

 

  AST members have a majority of the voting power of the Company;
     
  AST has the ability to nominate and represent a majority of the Company’s Board; and
     
  AST’s former management comprises the vast majority of the management and executive positions of the Company.

 

Under this method of accounting, NPA was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of AST issuing stock for the net assets of NPA, accompanied by a recapitalization. The net assets of NPA were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of AST.

 

Description of the Business Combination

 

On December 15, 2020, NPA entered into the Equity Purchase Agreement. The consideration paid in connection with the Business Combination consisted of the Contribution Amount. Following the completion of the Equity Purchase Agreement, a series of transactions occurred including the following: NPA (i) entered into the A&R Certificate of Incorporation to, among other things, (a) changed the name of NPA to AST SpaceMobile, Inc., (b) converted all then-outstanding Sponsor Stock into Class A Common Stock and (c) authorized the issuance of Class B Common Stock and Class C Common Stock, (ii) replaced the Existing Bylaws with the SpaceMobile Bylaws, and (iii) entered into the TRA with AST and the Existing Equityholders as part of the transaction.

 

Additionally, the Existing Equity holders, the Company and AST entered into the A&R Operating Agreement of AST, which, among other things, (i) restructured the capitalization of AST to (a) authorize the issuance of AST Common Units to NPA, (b) reclassified the Existing AST Units, other than any Existing AST Prior Incentive Equity Units, held by the Existing Equityholders into AST Common Units and (c) reclassified all of the Existing AST Prior Incentive Equity Units into AST Incentive Equity Units, concurrently with and subject to adjustments to the AST Options affecting the number of units and exercise price (as applicable) thereof, (ii) appointed NPA as the managing member of AST. Pursuant to the completion of the Equity Purchase Agreement, each Existing AST Unit held by each Existing Equityholder was automatically reclassified into the number of AST Common Units set forth in Schedule I of the Equity Purchase Agreement. Following this reclassification, any certificates outstanding evidencing ownership of Existing AST Units were of no further force or effect.

 

  34  
     

 

Following the completion of the Equity Purchase Agreement, the Company is organized in an “Up-C” structure whereby the existing members of AST received a class of noneconomic common shares (Class B Common Stock) and Abel Avellan, the prior controlling party of AST, received a class of super-voting, noneconomic common shares (Class C Common Stock) in the Company while retaining economic interests in AST that are exchangeable to Class A Common Stock or redeemable for cash. When a holder of Class B Common Stock exchanges AST Common Units for shares of Class A Common Stock, a number of shares of Class B Common Stock equal to the number of such AST Common Units will be immediately retired and will no longer be outstanding. However, when a holder of Class C Common Stock exchanges AST Common Units for Class A Common Stock, no shares of Class C Common Stock are retired until the shares of Class A Common Stock received in exchange are transferred to a person who is not a Key Holder. By contrast, if AST Common Units are redeemed for cash, whether by holders of Class B Common Stock or Class C Common Stock, a corresponding number of shares of Class B Common Stock or Class C Common Stock will be retired and will no longer be outstanding.

 

The following table shows the effect on the voting rights and economic interests on each class of stockholders based on the economic interest and voting rights at Closing Date if all of the holders of Class B Common Stock exchanged their AST Common Units for Class A Common Stock following the closing of the Business Combination.

 

    Economic and Voting Rights at Closing    

Class B Holders Exchange All Common Units

for Class A Common Stock Post-Closing

 
   

Class A

Shares

   

Class B

Shares

   

Class C

Shares

    Economic %    

Voting

Rights

   

Voting

%

   

Class A

Shares

   

Class B

Shares

   

Class C

Shares

   

Economic

%

   

Voting

Rights

   

Voting

%

 
Class A Holders     51,729,704                   29 %     51,729,704       6 %     51,729,704                   29 %     51,729,704       6 %
Class B Holders           51,636,922             28 %     51,636,922       6 %     51,636,922                   28 %     51,636,922       6 %
Class C Holders                 78,163,078       43 %     781,630,780       88 %                 78,163,078       43 %     781,630,780       88 %
Totals     51,729,704       51,636,922       78,163,078       100 %     884,997,406       100 %     103,366,626             78,163,078       100 %     884,997,406       100 %

 

Because all of the shares of Class B Common Stock are retired immediately upon exchange, and effectively replaced with Class A Common Stock, the economic interest and voting rights of the various classes of stockholders do not change following such exchange.

 

The effect of the holders of Class C Common Stock collectively exchanging all of their AST Common Units for shares of Class A Common Stock, is reflected in the table below.

 

    Economic Interests and Voting Rights at Closing    

Class C Holders Exchange All Common Units

for Class A Common Stock Post-Closing

 
   

Class A

Shares

   

Class B

Shares

   

Class C

Shares

   

Economic

%

   

Voting

Rights

   

Voting

%

   

Class A

Shares

   

Class B

Shares

   

Class C

Shares

   

Economic

%

   

Voting

Rights

   

Voting

%

 
Class A Holders     51,729,704                   29 %     51,729,704       6 %     51,729,704                   20 %     51,729,704       6 %
Class B Holders           51,636,922             28 %     51,636,922       6 %           51,636,922             20 %     51,636,922       6 %
Class C Holders                 78,163,078       43 %     781,630,780       88 %     78,163,078             78,163,078       60 %     781,630,780       88 %
Totals     51,729,704       51,636,922       78,163,078       100 %     884,997,406       100 %     129,892,782       51,636,922       78,163,078       100 %     884,997,406       100 %

 

Although the shares of Class C Common Stock remain outstanding, they are non-economic, and so the economic percentages for each class of stockholder do not change by virtue of the exchange. Furthermore, the voting percentages do not change either, because the calculation of the Class C Share Voting Amount, reduces the number of shares that each share of Class C Common Stock bears by an amount proportional to the number of shares of other voting stock (other than Class C Common Stock) held by the Class C Common Stockholder. The practical effect of the formula used to calculate the Class C Share Voting Amount is that it will cap the aggregate voting power of the Class C Common Stock so that, in most scenarios, the voting power of the Class C Common Stock will not increase, or will increase more slowly than it would otherwise in the event the Class C holders acquire additional voting stock in the Company. In this example, because the Class C Stockholders received additional voting stock in the form of Class A Common Stock, the Class C Share Voting Amount is reduced from 10 votes per share (at Closing) to approximately 9 votes per share, so the overall voting power of the Class C shares remains constant.

 

  35  
     

 

As such, in these examples, a holder of Class B Common Stock exchanging AST Common Units for Class A Common Stock and forfeiting its voting shares of Class B Common Stock, such holder has the same voting and economic rights in the Company before and after such transaction. Upon a holder of Class C Common Stock exchanging AST Common Units for Class A Common Stock but not also forfeiting its voting shares of Class C Common Stock, such holder retains their same ownership rights in the Company before and after such exchange; however, because the holder retains shares of Class C Common Stock until the corresponding shares of Class A Common Stock are transferred to non-Key Holders, the holder’s voting rights remain the same as before the exchange. Although the holder of Class C Common Stock now has additional voting stock in the Company—the Class A Common Stock received in exchange of AST Common Units—the number of votes each share of Class C Common Stock bears is reduced (through the calculation of the Class C Share Voting Amount) so that the holder’s overall voting power does not increase.

 

However, there can be situations in the future where, unlike the above example, a holder of Class C Common Stock could exchange AST Common Units for shares of Class A Common Stock and increase their voting power, because the cap in the calculation of “Class C Share Voting Amount” does not come into play. Holders of Class C Common Stock could, in certain situations, increase their voting power by conducting an exchange of AST Common Units, even when their economic position does not change. The following table shows the effect an exchange of AST Common Units by holders of Class C Common Stock could have if undertaken at a time when the total share base of the Company is significantly expanded. The columns on the right reflect that, as the result of subsequent issuances, the number of Class A shares outstanding has increased four-fold, to 207,000,000 shares, with no changes in the holdings of the other classes of stockholder. The columns on the right show the effect on voting and economic interests caused by a Class C Holder exchanging 20% of their total AST Common Units when the Class A share base is so expanded.

 

   

Economic Interests and Voting Rights with

Four-Fold Increase in Public Float

   

Class C Holders Exchange 20% of Aggregate

Common Units for Class A Common Stock

 
   

Class A

Shares

   

Class B

Shares

   

Class C

Shares

    Economic %    

Voting

Rights

   

Voting

%

   

Class A

Shares

   

Class B

Shares

   

Class C

 Shares

    Economic %    

Voting

Rights

   

Voting

%

 
Class A Holders     206,918,816                   62 %     206,918,816       19.9 %     206,918,816                   58 %     206,918,816       19.6 %
Class B Holders           51,636,922             15 %     51,636,922       5.0 %           51,636,922             15 %     51,636,922       4.9 %
Class C Holders                 78,163,078       23 %     781,630,780       75.1 %     15,632,616             78,163,078       27 %     797,263,396       75.5 %
Totals     206,918,816       51,636,922       78,163,078       100 %     1,040,186,518       100 %     222,551,432       51,636,922       78,163,078       100 %     1,055,819,134       100 %

 

In this case, although the Class C Holders have not increased their economic stake in the Company — only exchanged their AST Common Units for Class A Common Stock — because they can now vote that Class A Common Stock in addition to the Class C Common Stock that has not been retired, they have increased their number of total votes by approximately 15.6 million and their percentage of voting power by 0.4% relative to the holders of Class A and Class B Common Stock.

 

Following the completion of the transactions contemplated by the Equity Purchase Agreement, Avellan holds all the outstanding shares of Class C Common Stock and as a percentage of the sum of Class A Common Stock, Class B Common Stock and Class C Common Stock outstanding that is approximately 43% of the total. In addition to voting together with Class A Common Stock and Class B Common Stock (with one vote per share) on all matters, as a holder of Class C Common Stock, Avellan is, prior to the Sunset Date, entitled to a number of votes on all matters on which stockholders are entitled to vote equal to the lesser of 10 votes per share and the Class C Share Voting Amount, the latter of which is a number of votes per share equal to (i) the Closing Class C Percentage (which is approximately 88%) of the total voting power of the outstanding voting stock of the Company, minus (ii) the total voting power of the outstanding stock of the Company owned or controlled by the Key Holders (other than of Class C Common Stock), divided by (iii) the number of shares of Class C Common Stock outstanding.

 

  36  
     

 

All the Company’s assets are held directly by, and all of the Company’s operations are conducted through, AST, and the Company’s only direct asset consists of the AST Common Units. The existing AST equity holders control own approximately 71% of AST Common Units, respectively; the Company is the sole manager of AST in accordance with the terms of the A&R Operating Agreement entered into in connection with the closing of the Business Combination. After the Closing Date, current NPA stockholders, together with the PIPE Investors, own approximately 29% of the combined Class A Common Stock. The public and private placement warrants remained outstanding following the Business Combination.

 

In connection with the Business Combination, NPA entered into the Subscription Agreements with the PIPE Investors, under which NPA issued 23 million shares of NPA Class A Common Stock at $10.00 per share, for gross proceeds to NPA of approximately $230 million.

 

Also, at the closing of the Business Combination, the Company, AST, the Existing Equity holders and the TRA Holder Representative entered into the Tax Receivable Agreement. Under the Tax Receivable Agreement, the Company is generally required to pay the TRA Holders 85% of the amount of savings, if any, in U.S. federal, state, local, and foreign taxes that are based on, or measured with respect to, net income or profits, and any interest related thereto that the Tax Group realizes, or is deemed to realize, as a result of certain Tax Attributes, which include:

 

  existing tax basis in certain assets of AST and certain of its direct or indirect Subsidiaries, including assets that will eventually be subject to depreciation or amortization, once placed in service, attributable to AST Common Units acquired by the Company from a TRA Holder (including AST Common Units held by a Blocker Corporation acquired by the Company in a Reorganization Transaction (as defined in the Tax Receivable Agreement)), each as determined at the time of the relevant acquisition;
     
  tax basis adjustments resulting from taxable exchanges of AST Common Units (including any such adjustments resulting from certain payments made by the Company under the Tax Receivable Agreement) acquired by the Company from a TRA Holder pursuant to the terms of the A&R Operating Agreement;
     
  tax deductions in respect of portions of certain payments made under the Tax Receivable Agreement; and
     
  certain tax attributes of Blocker Corporations holding AST Common Units that are acquired directly or indirectly by the Company pursuant to a Reorganization Transaction.

 

The following summarizes the consideration for the Business Combination:

 

in thousands(a)      
Cash held in the Trust Account prior to redemptions   $ 232,033  
Less: Redemptions     (205 )
Proceeds of PIPE Investment     230,000  
Less: Deferred underwriting commissions     (4,830 )
Contribution Amount   $ 456,998  

 

  (a) The Contribution Amount that was contributed to AST is calculated based on the $232.0 million of NPA cash and $230.0 million raised from the PIPE Investment less $4.8 million for deferred underwriting commissions payable to BTIG and $0.2 million in redemptions. The Contribution Amount does not reflect a reduction of $0.6 million related to the repayment of a 2021 loan between the Sponsor and NPA upon closing of the Business Combination.

 

  37  
     

 

The following summarizes the pro forma shares of Common Stock economic ownership and voting rights associated with such shares:

 

Ownership and Voting

 

in actuals   Shares    

Ownership

%

   

Voting

Rights

   

Voting

%

 
Class A Common Stock(a)     51,729,704       29 %     51,729,704       6 %
Class B Common Stock(b)     51,636,922       28 %     51,636,922       6 %
Class C Common Stock(c)     78,163,078       43 %     781,630,780       88 %
Total Shares at Closing     181,529,704       100 %     884,997,406       100 %

 

(a) Excludes (i) 129,800,000 AST Common Units held by parties other than the Company outstanding immediately following the completion of the Business Combination, (ii) 6,100,000 private placement warrants outstanding and (iii) 11,500,000 public warrants outstanding. AST Common Units are redeemable for, at the Company’s election (subject to certain exceptions), either cash (based on the market price for a share of Class A Common Stock at the time of the redemption) or an equal number of shares of Class A Common Stock.
(b) Class B Common Stock are non-economic and carry one vote per share whereas Class A Common Stock are economic shares and will have one vote per share.
(c) Class C Common Stock are non-economic and, until the Sunset Date, will entitle the holder thereof to cast a number of votes on all matters on which stockholders are entitled to vote equal to the lesser of (x) 10 votes and (y) the Class C Share Voting Amount, whereas Class A Common Stock are economic shares and will have one vote per share. From and after the Sunset Date, Class C Common Stock will entitle the holder thereof to case one vote per share.

 

The following unaudited pro forma condensed combined balance sheet as of December 31, 2020, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 are based on the historical financial statements of NPA and AST. The unaudited pro forma adjustments are based on information currently available, assumptions and estimates underlying the unaudited pro forma adjustments and are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.

 

  38  
     

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2020

(in thousands)

 

   

NPA

(Historical)

(US GAAP)

   

AST

(Historical)

(US GAAP)

    Combined     Pro Forma Adjustments         Pro Forma Combined  
ASSETS                                            
Current Assets                                            
Cash and cash equivalents   $ 131     $ 42,777     $ 42,908       (110 )   (A)   $ 461,137  
                              232,033     (B)        
                              230,000     (C)        
                              (5,295 )   (C) (E)        
                              (8,050 )   (E)        
                              (29,482 )   (E)        
                              (350 )   (G)        
                              (312 )   (F)        
                              (205 )   (N)        
Accounts receivable, net     -       2,081       2,081       -           2,081  
Inventory     -       2,591       2,591       -           2,591  
Prepaid expenses     23       1,249       1,272       -           1,272  
Other current assets     55       2,234       2,289       (1,107 )   (E)     1,182  
Property and Equipment                                            
BlueWalker 3 satellite - construction in progress     -       27,013       27,013       -           27,013  
Property and equipment, net     -       10,057       10,057       -           10,057  
Other Long-Term Assets                                            
Operating lease right-of-use assets     -     $ 7,045       7,045       -           7,045  
Intangible assets, net     -       526       526       -           526  
Goodwill, net     -       3,912       3,912       -           3,912  
Investment and cash held in trust account     232,196       -       232,196       (163 )   (A)     -  
                              (232,033 )   (B)        
Other assets and deposits     -       160       160       -           160  
Total Assets   $ 232,405     $ 99,645     $ 332,050       184,926         $ 516,976  
                                             
LIABILITIES AND STOCKHOLDERS’ EQUITY                                            
Current Liabilities                                            
Accounts payable   $ 634     $ 4,990     $ 5,624     $ (559 )   (D)   $ 4,631  
                              (359 )   (E)        
                              (75 )   (F)        
Accrued expenses     -       4,222       4,222       559     (D)     4,104  
                              (450 )   (E)        
                              (227 )   (F)        
Deferred revenue     -       3,401       3,401       -           3,401  
Current operating lease liability     -       504       504       -           504  
Long-Term Liabilities                                            
Deferred tax liabilities     10       -       10       (10 )   (F)     -  
                              -     (H)        
Deferred underwriting fees payable     8,050       -       8,050       (8,050 )   (E)     -  
Warrants liability     68,114       -       68,114       -           68,114  
Non-current operating lease liability     -       6,541       6,541       -           6,541  
Total Liabilities     76,808       19,658       96,466       (9,171 )         87,295  
Redeemable Equity                                         -  
Common stock subject to possible redemption     150,597       -       150,597       (150,597 )   (I)     -  
Equity                                            
Class A Common Stock     1       -       1       2     (C)     6  
                              2     (I)        
                              1     (K)        
                              -     (N)        
Class B Common Stock     1       -       1       (1 )   (K)     5  
                              5     (L)        
Class C Common Stock     -       -       -       8     (L)     8  
Series A convertible preferred units, net             9,394       9,394       (9,394 )   (L)     -  
Series B convertible preferred units, net             102,717       102,717       (102,717 )   (L)     -  
Founder’s common equity     -       5,462       5,462       (5,462 )   (L)     -  
Accumulated other comprehensive income (loss)     -       (168 )     (168 )     168     (J)     -  
Additional paid in capital     59,840       -       59,840       229,998     (C)     162,191  
                              (5,295 )   (C) (E)        
                              (29,780 )   (E)        
                              150,595     (I)        
                              (305,512 )   (M)        
                              (168 )   (J)        
                              (54,842 )   (J)        
                              117,560     (L)        
                              (205 )   (N)        
Accumulated deficit     (54,842 )     (39,908 )     (94,750 )     (273 )   (A)     (40,531 )
                              (350 )   (G)        
                              54,842     (J)        
Total equity attributable to stockholders     5,000       77,497       82,497       39,182           121,679  
Noncontrolling interests     -       2,490       2,490       305,512     (M)     308,002  
Total equity     5,000       79,987       84,987       344,694           429,681  
Total liabilities and equity   $ 232,405     $ 99,645     $ 332,050     $ 184,926         $ 516,976  

 

  39  
     

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2020

(in thousands, except share and per share data)

 

   

NPA

(Historical)

(US GAAP)

   

AST

(Historical)

(US GAAP)

    Combined    

Pro Forma Adjustments

(1)

       

Pro Forma Combined

(1)

 
                                   
Revenues   $ -     $ 5,967     $ 5,967     $ -         $ 5,967  
Cost of Sales     -       (3,025 )     (3,025 )     -           (3,025 )
Gross Profit     -       2,942       2,942       -           2,942  
                                             
                                             
Operating Expenses                                            
Engineering services     -       (13,081 )     (13,081 )     -           (13,081 )
General and administrative cost     -       (12,320 )     (12,320 )     (350 )   AA     (12,670 )
Research and development cost     -       (1,011 )     (1,011 )     -           (1,011 )
Formation and operating cost     (1,125 )     -       (1,125 )     120   BB     (1,005 )
Depreciation and amortization     -       (887 )     (887 )     -           (887 )
Total Operating Expense     (1,125 )     (27,299 )     (28,424 )     (230 )         (28,654 )
                                             
Other Income and Expense                                            
Interest and dividend Income     1,480       71       1,551       (1,480 )   CC     71  
Changes in fair value of warrant liabilities     (52,152 )             (52,152 )     -           (52,152 )
Interest expense     -       (10 )     (10 )     -           (10 )
Other income and (expense), net     2       22       24       -           24  
Total other income /(expense)     (50,670 )     83       (50,587 )     (1,480 )         (52,067 )
                                             
Loss before income taxes     (51,795 )     (24,274 )     (76,069 )     (1,710 )         (77,779 )
                                             
Provision for income taxes     (166 )     (131 )     (297 )     -           (297 )
Net Loss     (51,961 )     (24,405 )     (76,366 )     (1,710 )         (78,076 )
                                             
Less: Net loss attribute to non-controlling interest     -       344       344       54,812     DD     55,156  
Loss attributable to stockholders     (51,961 )     (24,061 )     (76,022 )     53,102           (22,920 )
                                             
Net loss per common share   $ (6.13 )                               $ (0.44 )
Weighted average shares outstanding                                            
Basic and diluted     8,598,542                                   51,729,704  

 

(1) Net loss per common share is based on the weighted average shares of Class A Common Stock and does not include Class B Common Stock and Class C Common Stock as these shares are non-economic.

 

  40  
     

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Basis of Presentation

 

The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP as AST has been determined to be the accounting acquirer, primarily due to the fact that AST shareholders continue to control the Company. Under this method of accounting, while NPA is the legal acquirer, it is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of AST issuing stock for the net assets of NPA, accompanied by a recapitalization. The net assets of NPA are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of AST.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2020 assumes that the Business Combination occurred on December 31, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 present pro forma effect to the Business Combination as if they have been completed on January 1, 2020.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2020 has been prepared using, and should be read in conjunction with, the following:

 

  NPA’s audited balance sheet as of December 31, 2020 and the related notes, included elsewhere in this prospectus; and
     
  AST’s audited consolidated balance sheet as of December 31, 2020 and the related notes, included elsewhere in this prospectus.

 

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 has been prepared using, and should be read in conjunction with, the following:

 

  NPA’s audited statement of operations for the year ended December 31, 2020 and the related notes, included elsewhere in this prospectus and
     
  AST’s audited consolidated statement of operation for the year ended December 31, 2020 and the related notes, included elsewhere in this prospectus.

 

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

 

The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, cost savings or anticipated costs of operating a public company that may be associated with the Business Combination.

 

The pro forma adjustments reflecting the completion of the Business Combination are based on certain currently available information and certain assumptions and methodologies that we believe are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. We believe that these assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at the time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

 

  41  
     

 

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the Company. They should be read in conjunction with the historical financial statements and notes thereto of the Company and AST.

 

2. Accounting Policies

 

Upon completion of the Business Combination, the Company’s management performed a comprehensive review of the two entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of the Company. Based on initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.

 

3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only.

 

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”. Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or reasonably expected to occur (“Management’s Adjustments”). We have elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the following unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined provision for income taxes does not necessarily reflect the amounts that would have resulted had the Company filed consolidated income tax returns during the periods presented.

 

The unaudited pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the amount of Class A Common Stock outstanding, assuming the Business Combination occurred on January 1, 2020.

 

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

 

The adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2020 are as follows:

 

  (A) Reflects the change in the cash and cash equivalents, and cash held in Trust balances held by NPA, prior to redemption payments, at the close of the Business Combination.
     
   (B) Reflects the reclassification of $232.0 million of investments and cash held in the Trust Account, prior to redemptions, that became available to fund the Business Combination.
     
   (C) Represents the gross proceeds of $230.0 million from the issuance of 23 million shares of Class A Common Stock at $0.0001 par value, in the PIPE Investment offset by the PIPE Investment fee of $5.3 million.
     
   (D) Reflects the reclassification of NPA’s historical accrued expenses to align with the balance sheet presentation of AST.

 

  42  
     

 

   (E) Reflects the settlement of $43.7 million of transaction costs in connection with the Business Combination, of which $0.8 million has been paid as of December 31, 2020. $5.3 million relates to the PIPE Investment fee as noted above and is reflected as a reduction of additional paid-in capital as those are directly related to the equity raise. $8.1 million is the settlement of NPA’s deferred underwriting compensation fees incurred during the IPO due upon completion of the Business Combination of which $4.8 million is payable to BTIG. $0.8 million relates to the settlement of the accrued transaction expenses within accrued expenses and accounts payable. $1.1 million of deferred transaction costs which is directly related to the equity raise is reflected within additional paid in capital. The remaining settlement amount of $29.5 million relates to advisory, legal, and other fees incurred and is reflected within additional paid-in capital.
     
   (F) Reflects the settlement of NPA’s historical liabilities after payment of liabilities related to transaction costs in connection with the Business Combination that was settled upon the close of the Business Combination.
     
  (G) Reflects the reduction in cash for the one-time discretionary transaction bonus approved by the AST board of directors to Mr. Severson for efforts towards the completion of the Business Combination.
     
  (H) Pursuant to the Tax Receivable Agreement, the Company is generally required to pay the TRA Holders 85% of the amount of savings, if any, in U.S. federal, state, local, and foreign taxes that are based on, or measured with respect to, net income or profits, and any interest related thereto that the Tax Group realizes, or is deemed to realize, as a result of certain Tax Attributes, which include existing tax basis in certain assets of AST and certain of its direct or indirect Subsidiaries, including assets that will eventually be subject to depreciation or amortization, once placed in service, attributable to AST Common Units acquired by the Company from a TRA Holder (including AST Common Units held by a Blocker Corporation acquired in a Reorganization Transaction (as defined in the Tax Receivable Agreement)), each as determined at the time of the relevant acquisitions; tax basis adjustments resulting from taxable exchanges of AST Common Units (including any such adjustments resulting from certain payments made by the Company under the Tax Receivable Agreement) acquired by the Company from a TRA Holder pursuant to the terms of the A&R Operating Agreement; tax deductions in respect of portions of certain payments made under the Tax Receivable Agreement; and certain tax attributes of Blocker Corporations holding AST Common Units that are acquired directly or indirectly by the Company pursuant to a Reorganization Transaction.

 

Upon the completion of the Business Combination, the Tax Group did not acquire any AST Common Units in an Exchange or Reorganization Transaction, as defined in the Tax Receivable Agreement. As a result, no Tax Receivable Agreement liability has been recorded. As part of the Business Combination, the Company obtains an increased tax basis in its AST Common Units. The gross (pre-tax) deferred tax asset relating to SpaceMobile’s investment in AST is approximately $299 million. The Company has assessed the realizability of their deferred tax assets and in that analysis has considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. As a result, the Company has recorded a full valuation allowance against its deferred tax assets. A full valuation allowance on deferred tax assets will be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances.

 

  (I) Reflects the reclassification of the NPA Class A Common Stock subject to possible redemption to permanent equity at $0.0001 par value.
     
  (J) Reflects the reclassification of NPA’s historical accumulated deficit and AST’s accumulated other comprehensive loss to additional paid in capital as part of the recapitalization.
     
  (K) Reflects the conversion of Founder Shares to Class A Common Stock at the closing of the Business Combination. In connection with the closing of the Business Combination, all Founder Shares converted into shares of Class A Common Stock.

 

  43  
     

 

  (L) Reflects conversion of redeemable preferred units and AST Series A Preferred Units and AST Series B Preferred Units into AST Common Units, and the recapitalization of AST as the issuance of Class B Common Stock and Class C Common Stock as consideration for the reverse recapitalization.
     
  (M) Reflects the recognition of 71% noncontrolling interests as a result of the Up-C structure. The noncontrolling interest is determined based on the noncontrolling interest percentage of NPA’s pro forma equity less certain adjustments.

 

Our A&R Operating Agreement provides that the AST Common Units not held by us provide each member with the right to cause us to redeem its AST Common Units in whole or in part at any time and from time to time following the waiver or expiration of the lock-up period pursuant to the Stockholders’ Agreement. NPA, as the Managing Member of AST, shall have the option to elect to have the AST Common Units redeemed for either shares of Class A Common Stock or cash as set forth in the A&R Operating Agreement (the “Cash Settlement”). We established a committee to exercise full control over all decisions on settlement for noncontrolling interest redemptions. The committee, named the Redemption Election Committee, has the fiduciary duties to act in the best interests of all of our stockholders, was delegated the full power of our board in respect of redemption settlement decisions, and consists solely of directors that are neither nominated by, or affiliated with, any noncontrolling interest holders.

 

Further, the settlement decisions made by the Redemption Election Committee will be solely in the Company’s control and cannot be overridden or vetoed by other board members, including Mr. Avellan. Under the Stockholders’ Agreement, the Stockholder Parties agreed that, until such date as the Stockholder Parties collectively control less than 50% of the total voting power of the Company, (i) the Stockholder Parties will take all necessary action to cause the Company and the Company’s Board to maintain the Redemption Election Committee of the Company’s Board and its delegated powers and (ii) the provisions of the Stockholders’ Agreement relating to the Redemption Election Committee cannot be amended without the express approval of the Redemption Election Committee.

 

The noncontrolling interest was classified as permanent equity within the pro forma balance sheet as the Company, acting through the Special Redemption Committee, may only elect to settle a redemption request in cash if the cash delivered in the exchange is limited to the cash proceeds to be received from a new permanent equity offering through issuance of Class A Common Stock in accordance with Section 11.1.2 of the Operating Agreement.

 

  (N) Reflects the actual redemption of 20,296 shares of NPA Common Stock for aggregate redemption payments of $0.2 million at a redemption price of approximately $10.09 per share and allocated to Class A Common Stock and additional paid-in capital using par value $0.0001 per share as of the close of the transaction.

 

Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

 

The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020 are as follows:

 

  (AA) Reflects the one-time payment of a discretionary transaction bonus approved by the AST board of directors to Mr. Severson for efforts towards the completion of the Business Combination.
     
  (BB) Reflects the elimination of NPA’s administrative service fee paid to the Sponsor that ceased upon the close of the Business Combination.
     
  (CC) Reflects elimination of interest income and dividends earned on the Trust Account.
     
  (DD) Reflects the recognition of net income attributable to the 71% noncontrolling interests as a result of the Up-C structure.

 

  44  
     

 

4. Earnings per Share

 

Represents net earnings per share calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2020. As the Business Combination are being reflected as if they had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire periods presented.

 

(in thousands, except share and per share data)      
Pro forma net loss attributable to stockholders   $ (22,920 )
Pro forma weighted average Class A Common Stock – basic and diluted     51,729,704  
Pro forma Class A net loss per ordinary share   $ (0.44 )
Pro forma weighted average Class A shares outstanding – basic and diluted        
Class A – Public Stockholders     22,979,704  
Class A – Sponsors     5,750,000  
Total New Providence Acquisition Corp.     28,729,704  
Class A – Private Placement Investors (PIPE)     23,000,000  
Pro forma weighted average Class A shares outstanding – basic and diluted(1)     51,729,704  

 

  (1) The Class B Common Stock and Class C Common Stock issued for consideration are non-economic and as such are excluded from the earnings per share calculation. For the purposes of applying the treasury stock method for calculating diluted earnings per share, it was assumed that all outstanding warrants sold in the IPO and warrants sold in the private placement are exchanged for 17.6 million underlying Class A Common Stock. However, this results in anti-dilution, and the effect of such exchange was not included in calculation of diluted earnings per share.
  45  
     

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

 

Overview

 

We are an innovative satellite designer and manufacturer. We operate from six locations that include our corporate headquarters and 85,000 square foot satellite assembly, integrating and testing facility in Midland, Texas, as well as operations in Maryland, Spain, the United Kingdom, and Israel. Also, our 51% owned and controlled subsidiary, Nano, is located in Lithuania.

 

We, with our global partners, are building the first and only space-based cellular broadband network to be accessible by standard smartphones. Our SpaceMobile Service is expected to provide cost-effective, high-speed mobile broadband services with global coverage to all end-users, regardless of where they live or work, without the need to purchase special equipment. We believe the SpaceMobile Service would be the first global direct mobile broadband network using low Earth orbit (“LEO”) satellites to provide connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT-enabled device. We intend to partner with mobile network operators (“MNOs”) to offer the SpaceMobile Service to the MNOs’ end-user customers. Users will not need to subscribe to the SpaceMobile Service directly with us, nor will they need to purchase any new or additional equipment. Users will be able to access the SpaceMobile Service when prompted on their device that they are no longer within range of the land-based facilities of the MNO operator or will be able to purchase a plan directly with their existing mobile provider.

 

The SpaceMobile Service is planned to be provided through a network of 168 high-powered, large phased-array satellites in LEO. The worldwide mobile traffic will be directed by the SpaceMobile Service to a terrestrial gateway and then to the in-country MNO’s core cellular network connected to the internet. Users will connect to the SpaceMobile Service as if they were using a local cell tower, with less communication delay effects than existing geostationary satellite communication systems experience.

 

On April 1, 2019, we launched our first test satellite, the BlueWalker 1 (“BW1”), which was used to validate our satellite to cellular architecture and was capable of managing communications delays from LEO orbit and the effects of doppler in a satellite to ground cellular environment using the 4G-LTE protocol. We are currently manufacturing and procuring the satellite componentry required for our BlueWalker 3 (“BW3”) test satellite. As of December 31, 2020, we have incurred approximately $27.0 million on our BW3 efforts, and we intend to incur an additional $27 to $30 million to bring this project to completion. We are currently manufacturing, assembling and procuring the satellite componentry required for our BW3 test satellite. During 2021, we will be assembling and testing the BW3 satellite at our facility in Midland, Texas. BW3 currently is targeted to launch late in the fourth quarter of 2021. We are planning our first commercial satellite launches for the second half of 2022 or early 2023, which are expected to provide satellite coverage in certain Equatorial countries with 20 satellites. We plan to achieve full global mobile coverage with the launch of 110 satellites by the end of 2023 or early in 2024 and MIMO with the launch of a total of 168 satellites by the end of 2024.

 

Revenue is currently generated from Nano, which consists of satellite development and manufacturing, procuring and arranging launch services, as well as in-orbit operations. Additionally, on a smaller scale, Nano offers hosted payload services, sale of individual satellite parts and subsystems, and software licenses. We are exploring the possibility of reducing our ownership interest in Nano, such that we would no longer own a majority of the share capital of Nano.

 

For additional information regarding our relationships with industrial and wireless infrastructure providers, see the section entitled “Business — Key Industrial and Wireless Infrastructure Provider Relationships.”

 

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Impact of COVID-19 Pandemic

 

With the on-going global spread of the COVID-19 pandemic, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. The extent to which the COVID-19 pandemic impacts our business, research and development efforts and the value of our equity, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties specific to the industry. To date, the pandemic has not had a material impact to our technology development efforts or results of our operations. However, given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the future effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity.

 

Components of Results of Operations

 

Revenues

 

To date, we have not generated significant revenues and do not expect to begin generating revenues from the SpaceMobile Service until 2023. Our 51% owned subsidiary, Nano, generates revenue from ancillary sales and services in Europe and the United States, but is primarily engaged in the development and manufacture of satellite technology. Nano also sells individual satellite parts, subsystems, and software to be configured to customers’ satellites, and enters into “rideshare” type agreements whereby Nano provides hosted payload services using customers’ payloads integrated with Nano-owned Satellite Buses for scheduled launches. Given the above information, any revenue recognition presented herein is limited to Nano’s commercially available goods and services.

 

Cost of Sales

 

Cost of sales includes the purchase price of various products and services that are used in performing under Nano’s revenue arrangements. Cost of sales also includes operational costs to fulfill Nano customer orders, including costs for Nano employees and overhead.

 

Engineering Services

 

Engineering costs are charged to expense as incurred. Engineering costs consist primarily of the expenses associated with our ongoing engineering efforts to establish technical feasibility of our products, as well as the cost of internal staff (such as engineers and consultants) to support these efforts. Currently, major engineering activities include procuring and manufacturing the satellite components required for the BW3 satellite. We are currently manufacturing and procuring the satellite componentry required for our BW3 test satellite. During 2021, we will be assembling and testing the BW3 satellite at our facility in Midland, Texas. BW3 currently is targeted to launch late in the fourth quarter of 2021. However, the exact timing of such launch is contingent on a number of factors, including satisfactory and timely completion of construction and testing of BW3 and the availability of an appropriate launch window and vehicle from our launch provider. The launch of BW3 was scheduled to coincide with the launch of a primary payload from an unrelated entity. The primary payload from such unrelated entity is delayed, which may in turn delay the launch window for BW3. If we are required to identify another launch vehicle and/or launch provider, we may incur delays in such launch and may incur additional costs. Additionally, we have established alternative uses (separate economic value) for BW3 and therefore, the hard costs (i.e., test equipment, antennas, sensors, cables, launch vehicles) and other nonrecurring costs solely associated with our BW3 developments are capitalized to its construction in progress (“CIP”) account, and presented on our Consolidated Balance Sheets.

 

Research and Development Costs

 

Our research and development (“R&D”) costs consist principally of non-recurring engineering developments in which we typically engage third party vendors. Currently, major R&D activities include engaging with vendors to help develop the electronic componentry and software to be used in the first commercial satellite launch phase of the SpaceMobile Service, which is expected to provide satellite coverage in certain countries along the Equator with 20 satellites.

 

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General and Administrative Costs

 

Our general and administrative expenses include the costs of insurance, personnel, and outside professional services, including accounting and legal fees. We expect to incur additional expenses as a result of becoming a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations under SEC rules and regulations, as well as higher expenses for general and director and officer insurance, investor relations, and professional services.

 

Depreciation and Amortization

 

Depreciation and amortization expense includes amounts related to property and equipment as well as finite-lived intangible assets. Once BW3 is completed and successfully launched, we expect a significant portion of our depreciation expense to relate to the depreciation of this asset, given its assigned useful life is two years.

 

Interest Income

 

Our interest income consists primarily of interest earned on cash and cash equivalents held by us in interest bearing demand deposit accounts.

 

Interest Expense

 

Our interest expense consisted of interest on the borrowings from our Chief Executive Officer, Abel Avellan. We repaid all amounts due under this borrowing as of March 3, 2020.

 

Other Income and (Expense), Net

 

Our other income or expense consists of miscellaneous non-operating items, such as foreign exchange gains or losses.

 

Income Taxes

 

Our income tax expense is driven by our foreign subsidiaries, primarily Israel and Nano.

 

Results of Operations

 

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

 

The following table sets forth a summary of our consolidated results of operations for the year-end periods indicated below and the changes between the periods.

 

    Year Ended December 31,  
    2020     2019     $ Change  
    (dollars in thousands)  
Revenues   $ 5,967     $ 1,414     $ 4,553  
                         
Cost of sales     (3,025 )     (954 )     (2,071 )
                         
Gross profit     2,942       460       2,482  
                         
Operating expenses:                        
Engineering services     13,081       4,668       8,413  
General and administrative costs     12,320       5,404       6,916  
Research and development costs     1,011       1,062       (51 )
Depreciation and amortization     887       388       499  
Total operating expenses     27,299       11,522       15,777  
                         
Other income and expense:                        
Interest income     71       2       69  
Interest expense     (10 )     (22 )     12  
Other income and (expense), net     22       (15 )     37  
Total other income (expense)     83       (35 )     118  
                         
Net loss before income taxes     (24,274 )     (11,097 )     (13,177 )
Income taxes     (131 )     (44 )     (87 )
Net loss   $ (24,405 )   $ (11,141 )   $ (13,264 )

 

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Revenues

 

Total revenues increased by $4.6 million to $6.0 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily due to a $3.9 million increase in sales to new third-party customers, and a $0.7 million increase in revenue recognized on existing Nano customers.

 

Cost of Sales

 

Total cost of sales increased by $2.1 million to $3.0 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily due to increased costs to deliver new and existing revenue contracts to Nano customers, specifically at the newly established Nano US entity during the fiscal year.

 

Engineering Services

 

Total engineering services increased by $8.4 million to $13.1 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily due to a $5.2 million increase in internal engineer headcount and a $1.8 million increase in internal consultant headcount. The costs related to recurrent engineers and consultants that are not solely associated with the development of BW3 are expensed as engineering services. The remaining $1.4 million increase relates to other operating expenses, such as consumables, components and facility expenses, specifically relating to new operations in United Kingdom during the current fiscal year. We expect engineering expenses to continue to increase over the upcoming years as the SpaceMobile Service is developed.

 

General and Administrative Costs

 

Total general and administrative costs increased by $6.9 million to $12.3 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily due to a $4.0 million increase in employee and consultant-related expenses such as salaries and recruiting fees due to the increase in headcount compared to the prior year period, a $1.8 million increase in professional costs due to the increase in legal and accounting services compared to the prior year period, and a $1.5 million increase in other miscellaneous expenses such as corporate office supplies, licenses, and insurance costs, offset by a $0.4 million decrease in travel expenses due to reduced travel as a result of the COVID-19 pandemic.

 

Research and Development Costs

 

Total research and development costs decreased by $0.1 million to $1.0 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease was primarily due a $1.1 million decrease in costs relating to the development of BW1 given this project was completed in 2019, offset by a $1.0 million increase in 2020 development efforts relating to the SpaceMobile constellation.

 

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Depreciation and Amortization

 

Total depreciation and amortization increased by $0.5 million to $0.9 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily due to the purchase of additional fixed assets and leasehold improvements during the fiscal year.

 

Total Other Income (Expense)

 

Total other income increased by $0.1 million to $0.1 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily driven by a $0.1 million increase in interest earned during the current fiscal year.

 

Liquidity and Capital Resources

 

We require capital to fund our operating expenses and to make capital expenditures. We expect our capital requirements to increase as our operations expand. Historically, we have funded operations primarily from the proceeds from issuances of AST Series A Preferred Units and AST Series B Preferred Units (“AST Preferred Stock”). Through December 31, 2020, we had raised an aggregate of $120.8 million in gross proceeds from the issuance of AST Preferred Stock. As of December 31, 2020, cash and cash equivalents totaled $42.8 million and working capital totaled $37.8 million. In connection with the closing of the Business Combination, we received $418 million in net proceeds. We also intend to enter into equipment financing arrangements with respect to certain equipment located at our Midland, Texas satellite assembly, integrating and testing facility. We closely monitor our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on operations. Also, we are exploring various sources of funding aimed at further supporting our liquidity profile, as well as maintaining business and organizational continuity through the pandemic.

 

The design, development, manufacture, integration, testing, assembly and launch of satellites and related components is a capital-intensive venture. We estimate the gross costs associated with designing, building and launching the 20 Equatorial SpaceMobile satellites to be approximately $510 million, which includes $128 million of capital raised to date by us from preferred stock, common stock, and founder loan proceeds. To raise the necessary capital to fund this expenditure in the short term, we entered into an Equity Purchase Agreement with NPA on December 15, 2020 with respect to the Business Combination, which closed on April 6, 2021. As part of the Business Combination, NPA contributed approximately $457 million in gross proceeds to us in exchange for 28.5% of the outstanding AST Common Units and became the managing member of AST. We estimate the gross costs associated with designing, building and launching all global and MIMO SpaceMobile satellites and related infrastructure to be approximately $1.7 billion. We believe that, following the Closing, we have sufficient capital to fund planned operations and development for the next 12 to 24 months, which includes the manufacturing, assembly and launch of our first 20 Equatorial satellites. We will need to raise additional capital to continue developing and launching satellites to complete subsequent phases of the SpaceMobile Service. We expect to raise additional funds through the issuance of equity, equity related or debt securities, or through obtaining credit from government or financial institutions. This capital may be necessary to fund our ongoing operations, continue research, development and design efforts, improve infrastructure, and launch satellites. We cannot be certain that additional funds will be available to us on favorable terms if required, or at all. If we cannot raise additional funds when needed, our financial condition, results of operations, business and prospects could be materially adversely affected.

 

Cash Flows

 

Historical Cash Flows

 

The following table summarizes our sources and uses of cash for the years ended December 31, 2020 and 2019:

 

    Year Ended December 31,  
    2020     2019  
    (dollars in thousands)  
Cash and cash equivalents at end of period   $ 42,777     $ 26,498  
                 
Cash used in operating activities   $ (22,800 )   $ (9,300 )
Cash used in investing activities     (30,411 )     (3,654 )
Cash provided by financing activities     69,663       32,379  

 

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Operating activities

 

Cash used in operating activities was $22.8 million for the year ended December 31, 2020, as compared to cash used in operating activities of $9.3 million for the same period in 2019. The $13.5 million increase in cash used in operating activities for the year ended December 31, 2020 was primarily attributable to the $24.4 million net loss as a result of the expansion of our operations and satellite technology development efforts, an increase in net loss of $13.3 million, as well as a $0.2 million increase driven by a $1.1 million change in operating assets and liabilities, offset by a $0.9 million change in adjustments to reconcile net loss to cash used in operating activities.

 

Investing activities

 

Cash used in investing activities was $30.4 million for the year ended December 31, 2020, as compared to cash used in investing activities of $3.7 million for the same period in 2019. The $26.8 million increase in cash used in investing activities for the year ended December 31, 2020 was primarily attributable to a $20.2 million increase in BW3 satellite construction costs that started at the end of year 2019 and are still in progress, as well as a $6.6 million increase in purchases of property and equipment including satellite antennas, test equipment, and leasehold improvements.

 

Financing activities

 

Cash provided by financing activities was $69.7 million for the year ended December 31, 2020, as compared to cash provided by financing activities of $32.4 million for the same period in 2019. The $37.3 million increase in cash provided by financing activities for the year ended December 31, 2020 was primarily attributable to $72.9 million of net proceeds from the issuance of AST Series B Preferred Units during the fiscal year, offset by a $31.5 million decrease in net proceeds from AST Series B Preferred Units issued in the prior period.

 

Funding Requirements

 

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

 

Future capital requirements will depend on many factors, including:

 

  Seeking and obtaining market access approvals;
     
  Establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support our satellite development;
     
  Addressing any competing technological and market developments; and
     
  Attracting, hiring, and retaining qualified personnel.

 

Further details on the various risks to our operations are provided and discussed in the “Risk Factors” section of this document.

 

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

 

Contractual Obligations

 

The following table reflects our contractual obligations as of December 31, 2020:

 

    Payments Due by Period  
    Total     Less than 1 year     More than
1 year and less than 3
    More than
3 years and less than 5
    More than 5 years  
    (dollars in thousands)  
Operating lease obligations(1)   $ 14,151     $ 1,432     $ 2,604     $ 2,413     $ 7,701  
Purchase obligations(2)     8,337       8,337                    
Total   $ 22,488     $ 9,769     $ 2,604     $ 2,413     $ 7,701  

 

 

(1) We primarily lease office space under operating lease agreements, with the most material lease relating to our International Air & Space Port in Midland, Texas. Refer to Note 6 — Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional information on our leases.
(2) The purchase obligations are associated with contracts with GK Launch Services and Dialog that are enforceable and legally binding, and specify all significant terms, including quantities to be purchased, price provisions, and the approximate timing of the transactions. Refer to Note 13 — Significant Agreements in the Notes to Consolidated Financial Statements for additional information.

 

Off-Balance Sheet Arrangements

 

We do not maintain any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our policies and estimates, including but not limited to, those related to our revenue from contracts with customers, goodwill, intangibles and long-lived assets. Our management bases our estimates on historical experience, data available at the time the estimates are made and various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

We consider the following accounting policies to be those that require the most subjective judgment or that involve uncertainty that could have a material impact on our financial statements. If actual results differ significantly from management’s estimates and projections, there could be a material effect on the financial statements. This is not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in its application. For a discussion of our other accounting policies, see Note 2 — Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements.

 

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Revenue from Contracts with Customers

 

We recognize revenue when or as control is transferred to a customer, which is in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The determination of revenue is dependent upon the following five step process: 1) we account for a contract with a customer when there is written approval, the contract is committed, the rights of the parties are identified, the contract has commercial substance and consideration is probable of collection; 2) we determine performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract; 3) we consider the amount stated on the face of the purchase order to be the transaction price and does not have variable consideration which could impact the stated purchase price agreed to; 4) transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation and if standalone market transactions are not available, we will estimate the standalone selling price through market assessments; and 5) if the transaction meets the criteria for over time recognition, we recognize revenue as the good or service is delivered. For transactions that do not meet the criteria for over time recognition, we will recognize revenue at a point in time based on an assessment of the five criteria for transfer of control. We have concluded that revenue should be recognized when shipped or delivered based on contractual terms.

 

As it relates to government and space agency grants, Nano receives grant funding in exchange for satellite technology development efforts made by Nano to the European Space Agency and other governmental bodies. If Nano fails to maintain required commitments, the funds received may have to be repaid or other adverse consequences may arise, which could affect cash flows and profitability. When Nano has been awarded grant funding, cost reimbursements are recognized when it is probable that Nano will comply with the conditions attached to the grant arrangement and the grant proceeds will be received. Grants are recognized in Nano’s results of operations on a systematic basis over the periods in which it recognizes the related costs for which the grant is intended to compensate. Specifically, when grants are related to reimbursements, the grants are recognized as a reduction of the related expense in our results of operations. For grants related to reimbursements of capital expenditures, the grants are recognized as a reduction of the basis of the asset and recognized in Nano’s results of operations over the estimated useful life of the depreciable asset as reduced depreciation expense.

 

As it relates to collaborative arrangements, we consider the nature and contractual terms of an arrangement and assess whether the arrangement involves a joint operating activity pursuant to which we are an active participant and exposed to significant risks and rewards with respect to the arrangement. If we are an active participant and exposed to the significant risks and rewards with respect to the arrangement, we account for these arrangement pursuant to ASC Topic 808, Collaborative Arrangements, as amended by ASU 2018-18 (“ASC 808”), and applies a systematic and rational approach to recognize revenue (unless parts of the arrangement are within the scope of other authoritative accounting literature or can be appropriately analogized to other authoritative accounting literature). In connection with the Initial Series B Preferred Stock Issuance, we entered into a commercial agreement on October 26, 2019 with Vodafone, whereby Vodafone is provided exclusivity to operate the SpaceMobile Service in agreed upon markets as defined in the agreement. As part of this agreement, Vodafone will promote the service as an element of its normal business, and we are provided a 50/50 revenue share for all services enabled by our SpaceMobile satellite segment. The term of the agreement is five years starting with the initial launch of commercial service based on the Phase 3 constellation anticipated in 2023. The Vodafone commercial agreement is considered a collaborative arrangement under ASC 808 as both parties are active participants and share in the significant risks and rewards of the activities. We will not assign any value to the Vodafone commercial agreement at inception and will recognize their share of expenses as they are performed up to the time the activities are revenue generating.

 

Goodwill, Intangibles and Long-Lived Assets

 

We assess goodwill for impairment at least annually in the fourth quarter, on a reporting unit basis, or more frequently, when events and circumstances occur indicating that the recorded goodwill may be impaired. For the year ended December 31, 2020, our goodwill impairment process included applying a quantitative impairment analysis where the fair value of the reporting unit was compared to its carrying value (including goodwill). We engaged an independent third-party valuation specialist to assist in the determination of the fair value of the reporting unit based upon inputs and assumptions provided by management. The fair value of the reporting unit was based upon an equal weighting of the income and market approaches, utilizing estimated cash flows and a terminal value, discounted at a rate of return that reflects the relative risk of the cash flows, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. Significant judgments inherent in these analyses include estimating the amount and timing of future cash flows and the selection of appropriate discount rates and long-term growth rate assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting unit and could result in an impairment charge, which could be material to our financial position and results of operations. Based on the results of the quantitative impairment analysis, it was determined that there has been no impairment of goodwill related to the reporting unit as of December 31, 2020.

 

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

 

Recent Accounting Pronouncements

 

See Note 2 — Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.

 

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BUSINESS

 

Our Company

 

We are an innovative satellite designer and manufacturer. We operate from six locations that include our corporate headquarters and 85,000 square foot satellite assembly, integrating and testing facility in Midland, Texas, as well as operations in Maryland, Spain, the United Kingdom, and Israel. Also, our 51% owned and controlled subsidiary, Nano, is located in Lithuania.

 

The SpaceMobile Service is expected to provide cost-effective, high-speed mobile broadband services with global coverage to all end-users, regardless of where they live or work, without the need to purchase special equipment. We believe the SpaceMobile Service would be the first global space-based cellular broadband network using LEO satellites to provide connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT-enabled device. Our innovative satellite designs and components are expected to reduce the communication delay effects which existing geostationary satellite systems experience. The SpaceMobile Service is being designed to provide global coverage for users traveling in and out of areas without terrestrial mobile services on land, at sea or in flight.

 

We are partnering with MNOs to offer the SpaceMobile Service to the MNOs’ end-user customers. We do not anticipate entering into agreements with mobile phone or other device manufacturers, and, accordingly, users will not need to subscribe to the SpaceMobile Service directly with us, nor will they need to purchase any new or additional equipment. We do not anticipate that mobile device manufacturers could unilaterally prohibit the SpaceMobile Service from being offered on their devices, as the service is designed to be complementary to the existing cellular broadband service offered by MNOs. Users will be able to access the SpaceMobile Service when prompted on their device that they are no longer covered by the terrestrial cellular infrastructure of the MNO with the ability to immediately connect or purchase a subscription plan directly with their existing MNO. Our agreements with MNOs are based on a revenue sharing model. As of December 31, 2020, we have entered into agreements and understandings with MNOs which collectively cover approximately 1.3 billion mobile subscribers of which approximately 890 million mobile subscribers are covered by agreements that provide for revenue-sharing with us. We estimate that the global market opportunity for our services is currently $1.1 trillion, according to GSMA market data, which represents over 5 billion mobile subscribers that are constantly moving in and out of coverage, of which approximately 3.3 billion subscribers are unconnected to cellular broadband. In addition to mobile subscribers, over 700 million people globally have no connectivity or mobile cellular coverage.

 

The SpaceMobile Service is being designed to enable MNOs, including existing partners and others, to provide full country coverage with no gaps and achieve their ambition to provide nationwide coverage, even in places without terrestrial infrastructure. The SpaceMobile Service will enable MNOs to augment and extend their coverage by using the MNOs’ spectrum resources without building towers or other land-based infrastructure where it is not cost-justified or is difficult due to environmental challenges such as mountainous or rugged terrain or maritime applications.

 

The SpaceMobile Service is expected to be provided by a network of 168 high-powered, large phased-array satellites in LEO. The worldwide mobile traffic will be directed by the SpaceMobile Service to a terrestrial gateway and then to the in-country MNO’s core cellular network connected to the internet. We anticipate that users will connect to the SpaceMobile Service as if they were using a local cell tower. The SpaceMobile Service has not yet generated revenues and is not expected to generate revenues until 2023, after the first commercial satellite launch phase of the SpaceMobile Service, which is expected to provide satellite coverage in 49 countries along the Equator, representing a total population of approximately 1.6 billion people, with 20 satellites.

 

On April 1, 2019, we launched our first test satellite, the BlueWalker 1 (“BW1”), which was used to validate our satellite to cellular architecture and was capable of managing communications delays from LEO orbit and the effects of doppler in a satellite to ground cellular environment using the 4G-LTE protocol. We are currently manufacturing and procuring the satellite componentry required for our BlueWalker 3 (“BW3”) test satellite. As of December 31, 2020, we have incurred approximately $27.0 million on our BW3 efforts, and we intend to incur an additional $27 to $30 million to bring this project to completion. We are currently manufacturing, assembling and procuring the satellite componentry required for our BW3 test satellite. During 2021, we will be assembling and testing the BW3 satellite at our facility in Midland, Texas. BW3 currently is targeted to launch late in the fourth quarter of 2021. We are planning our first commercial satellite launches for the second half of 2022 or early 2023, which are expected to provide satellite coverage in certain Equatorial countries with 20 satellites. We plan to achieve full global mobile coverage with the launch of 110 satellites by the end of 2023 or early in 2024 and MIMO with the launch of a total of 168 satellites by the end of 2024.

 

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Strategy

 

Key elements of our strategy include:

 

  Maintaining our Focus on Technology and Innovations. We continue to focus on research and development to bring our SpaceMobile Service to the global market. Our continued innovation in the development of our satellite system, components and related technologies and services are supported by a global engineering team of space scientists and consultants, which includes approximately 220 space scientists and engineers (of which 22 have PhDs), and a culture that deeply values and supports innovation. We protect our focus on development and innovations by owning the majority of the intellectual property we use and protects such intellectual property with U.S. and worldwide registrations and applications.
     
  Continue to Partner with MNOs to Sell the SpaceMobile Service to their End-User Customers. We continue to partner with MNOs to use the SpaceMobile Service to supplement and augment their terrestrial networks. As of December 31, 2020, we have entered into agreements and understandings with MNOs which collectively cover approximately 1.3 billion mobile subscribers and of which approximately 890 million mobile subscribers are covered by agreements with MNOs that provide for revenue-sharing with us. We continue to work with existing partners as well as continues to expand with new partners to increase market access in the markets in which we operate.
     
  Continuing to Build and Leverage Relationships with Industrial and Wireless Infrastructure Providers. We intend to continue developing our industrial partnerships that produce products used in our satellites and that we source electronic components from to accelerate the development of our SpaceMobile Service as well as to continue developing commercial partnerships that allow us to gain access to mobile subscribers across the globe. Our engineering, production and technology relationships augment our internal resources, which include the ability to integrate and test satellites at our Midland, Texas facility, and we intend to leverage their capabilities and infras