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Form F-1/A Mynaric AG

October 29, 2021 5:18 PM EDT
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As filed with the U.S. Securities and Exchange Commission on October 29, 2021

Registration No. 333-260357

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

MYNARIC AG

(Exact Name of Registrant as Specified in Its Charter)

 

Federal Republic of
Germany
(State or other jurisdiction of
incorporation or organization)
  4899
(Primary Standard Industrial
Classification Code Number)
  N/A
(IRS Employer
Identification Number)

Dornierstraße 19

82205 Gilching, Germany

+49 (0) 8105 79990

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Puglisi & Associates

850 Library Avenue, Suite 204

Newark, Delaware 19711

+1 (302) 738-6680

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications

sent to agent for service, should be sent to:

 

Krystian M. Czerniecki

Sullivan & Cromwell LLP

Neue Mainzer Straße 52

60311 Frankfurt, Germany

+49 (69) 4272 5200

 

Craig F. Arcella

Sasha Rosenthal-Larrea

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, New York 10019

+1 (212) 474-1000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable 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, please check the following box.            ☐

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.            ☐


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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 an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company.            ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.            ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

CALCULATION OF REGISTRATION FEE

 

 

 

Title of Each Class of
Securities to be Registered(1)
      Proposed Maximum
Aggregate
Offering Price(2)(3)
  Amount of
Registration Fee(4)

Ordinary shares, no par value

      $60,000,000   $5,562

 

 

(1)

All ordinary shares will be represented by American Depositary Shares (“ADSs”), with every ADSs representing one ordinary share. ADSs issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6.

 

(2)

Includes the aggregate offering price of additional ordinary shares, represented by ADSs, that the underwriters have the option to purchase.

 

(3)

Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

 

(4)

Previously paid.

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, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Dated October 29, 2021

 

LOGO

American Depositary Shares

Representing                  Ordinary Shares

 

 

This is the initial public offering of American depositary shares (“ADS”), representing ordinary shares of Mynaric AG, a German stock corporation. We are offering                  ADSs. Every                  ADSs will represent one ordinary share with a notional value of €1.00 per share. We have applied to list the ADSs on Nasdaq under the symbol “MYNA.”

Our ordinary shares are listed on the Frankfurt Stock Exchange under the symbol “M0Y.” On                 , 2021, the last closing price of our ordinary shares on the Frankfurt Stock Exchange was €             per ordinary share, equivalent to a price of $             per ADS, after giving effect to the Euro/U.S. dollar exchange rate of €1.00 to $             as of                 , 2021, and an ADS to share ratio of                  to                 . The initial public offering price for the ADSs will be determined through discussions between us and the representatives of the underwriters and will be based in large part on the closing price of our ordinary shares on the Frankfurt Stock Exchange.

We are both an “emerging growth company” and a “foreign private issuer” as defined under applicable U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company” and “Prospectus Summary—Implications of Being a Foreign Private Issuer.”

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 20.

 

 

PRICE $             PER ADS

 

 

 

     Per ADS      Total  

Public offering price

   $                    $            

Underwriting discounts and commissions(1)

   $        $    

Proceeds to Mynaric AG before expenses

   $        $    

 

(1)

See “Underwriting” for a description of the compensation payable to the underwriters.

The underwriters have the option to purchase up to an additional              ADSs from us at the initial public offering price, less the underwriting discount, until the date that is 30 days after the date of this prospectus.

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

The underwriters expect to deliver the ADSs to purchasers on or about                  , 2021.

 

 

 

Credit Suisse   Jefferies         
Canaccord Genuity
Beech Hill Securities

 

 

                , 2021


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For investors outside the United States of America (“United States” or “U.S.”): Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus outside the United States.

Neither we nor the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared, and neither we nor the underwriters take responsibility for, nor provide any assurance as to, the reliability of, any other information others may give you. We and the underwriters are not making an offer to sell, or seeking offers to buy, these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

 

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ABOUT THIS PROSPECTUS

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Mynaric,” the “Company,” “we,” “our,” “ours,” “ourselves,” “us” or similar terms refer to Mynaric AG together with its subsidiaries.

Under the rules of the U.S. Securities and Exchange Commission (“SEC”), Mynaric AG is currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended.

The terms “dollar,” “USD” or “$” refer to U.S. dollars, and the terms “€” or “euro” refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless otherwise indicated, the individual financial statements and related notes included in this prospectus have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), which differ in certain significant respects from U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, our results of operations and financial condition as reflected by our IFRS financial statements that are included in this prospectus may differ substantially from the results of operations and financial condition that would be reflected by financial statements prepared in accordance with U.S. GAAP. We have not prepared a reconciliation of our financial information to U.S. GAAP or a summary of significant accounting differences between IFRS and U.S. GAAP, nor have we otherwise reviewed the impact the application of U.S. GAAP would have on our financial reporting. Financial information is presented in this document in Euros. For the convenience of the reader, we have translated some financial information into U.S. dollars. Unless otherwise indicated, these translations were made based on the Euro/U.S. dollar exchange rate published by the European Central Bank on                 , 2021, which was €1.00 to $                .

Financial information in thousands or millions, and percentage figures in this prospectus, have been rounded. Rounded total and sub-total figures in tables in this prospectus may differ marginally from unrounded figures indicated elsewhere in this prospectus or in the financial statements. Moreover, rounded individual figures and percentages may not produce the exact arithmetic totals and sub-totals indicated elsewhere in this prospectus.

MARKET AND INDUSTRY DATA

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates, surveys, and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties, including, but not limited to, Air Force Magazine, ArkInvest, Breaking Defense, C4ISRNet, Congressional Research Service, Grand View Research, MarketsandMarkets, National Defense Magazine, ResearchandMarkets, Space News, the U.S. Air Force, the German Aerospace Center, and the Stockholm International Peace Research Institute.

Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this prospectus. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could cause results to differ materially from those expressed in our forecasts or estimates or those of independent third parties. While we believe our internal estimates, surveys, and research are reliable, they have not been verified by any independent source.

 

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TRADEMARKS, SERVICE MARKS AND TRADE NAMES

We have proprietary rights to trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this prospectus are without the ® and symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

This prospectus contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

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FREQUENTLY USED TERMS

In this prospectus:

CJADC2” refers to Combined Joint All Domain Command and Control architecture.

Coarse pointing assembly” refers to a two axis gimballed mirror for independent steering of optical communication terminals. It is a device that is mounted on a terminal telescope and allows the terminal to operate without constraining the satellite attitude. It is used in inter-satellite links in high- and low-earth orbits.

DARPA” refers to the U.S. Defense Advanced Research Projects Agency.

DLR” refers to the German Aerospace Center (Deutsches Zentrum für Luft- und Raumfahrt e.V.).

Free space optic communication” is the wireless transmission of data via a modulated optical beam directed through free space, without fiber optics or other optical systems guiding the light.

Inter-plane” refers to the communication between satellites in different orbital planes occurring through inter-plane inter-satellite lines.

Intra-plane” refers to the communication between satellites in the same orbital plane occurring through intra-plane inter-satellite lines.

LEO” refers to low Earth orbit, which is an orbit around Earth with an altitude above Earth’s surface from 160 kilometers to 2,000 kilometers.

MEO” refers to medium Earth orbit, which is an orbit around Earth with a distance of 2,000 kilometers to 35,786 kilometers.

Mesh Network means a type of wireless network topology, where each network node participates in the distribution of data across the network by relaying data to other nodes that are in range. A mesh network has no centralized access points but uses wireless nodes to create a virtual wireless backbone. Mesh network nodes typically establish network links with neighboring nodes, enabling user traffic to be sent through the network by hopping between nodes on many different paths. At least some nodes must be connected to a core network for backhaul.

NDSA” refers to the SDA’s National Defense Space Architecture.

OISLs” refers to optical-intersatellite links, which are wireless communication links using optical signals to interconnect satellites.

Quantum key distribution” refers to a technique that enables secure communications between devices using a cryptographic protocol that is partly based on quantum mechanics.

RF” refers to radio frequency, which is a measurement representing the oscillation rate of electromagnetic radiation spectrum, or electromagnetic radio waves, from frequencies ranging from 300 gigahertz (GHz) to as low as 9 kilohertz (kHz).

SDA” refers to the U.S. Space Development Agency.

UAVs” refers to unmanned aerial vehicles.

 

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PROSPECTUS SUMMARY

This summary highlights information contained in more detail elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our historical audited consolidated financial statements, including the notes thereto, included elsewhere in this prospectus, before deciding to invest in the ADSs.

Mynaric

Overview

We believe we are a leading developer and manufacturer (in terms of production capacity) of advanced laser communication technology for aerospace communications networks in government and commercial markets. Laser communication networks provide connectivity from the sky, allowing for high data rates and secure, long-distance data transmission between moving objects for wireless terrestrial, airborne- and space-based applications. Our technology and products are designed to provide the backbone for connectivity to link satellites, high-altitude platforms, unmanned aerial vehicles, aircraft and the ground with secure wireless data transmission. We aim to industrialize laser communication by focusing on standardization and cost-efficiency. We believe that we are one of the first companies to develop laser communication technology at commercially attractive price points for use in both government and commercial markets. By leveraging our strong technical expertise and early mover advantage, we aim to become the go-to supplier for the “internet above the clouds.”

Laser communication offers significant technical and operational advantages for wireless data transmission compared to other wireless communication systems, which mostly use radio frequency (“RF”) technologies to transmit information. RF-based communication is generally characterized by lower bandwidth, significant license requirements and a wide beam divergence, which makes it much more susceptible to interception. Laser communication, on the other hand, benefits from its higher bandwidth capacity, lower latency, improved security, lower power requirements and a license-free spectrum. Laser communication has achieved world record transmission rates of 13.16 terabits per second (according to the German Aerospace Center, “DLR”), as compared to RF’s maximum transmission rate of 36 gigabits per second (according to the Facebook Connectivity Lab). Current demand for laser communication is predominantly driven by government applications in defense, surveillance, intelligence and border control, which seek to leverage the superior capabilities of laser communication. With its significant advantages and wide range of applications, laser communication is highly attractive for the development of next-generation communication networks, in particular for space and airborne applications.

We were founded in 2009 by former scientists of the DLR and have invested in developing and optimizing our laser communication technology, which we are now commercializing. We have developed pre-serial product versions of our flagship CONDOR inter-satellite link terminal and our HAWK airborne terminal, and are currently ramping up serial production to enable customers to deploy our technology at scale. We believe that we are one of a few companies offering a commercially viable laser communication terminal solution combining light weight, robustness, high data rate and high power efficiency at attractive prices. In 2020, we were awarded two contracts by Telesat and another customer for our CONDOR terminals in connection with two U.S. governmental programs launched by the Defense Advanced Research Projects Agency (“DARPA”) and the Space Development Agency (“SDA”), respectively. We also received an order from a major U.S. aerospace and defense company for our HAWK terminals, which allows us to introduce these terminals to the U.S. government market. We believe that these contracts offer significant potential to scale the number of terminals we may provide for these government programs and allow us to gain early access to additional prospective customers. We also believe that the introduction of laser communication technology at commercially attractive price points has the potential to create a significant market for laser communication for years to come.

 

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We aim to industrialize laser communication by focusing on developing standardized and modularized products suitable for a wide array of customers and applications. We have benefited from advancing on the learning curve with the development of the pre-serial product versions of our CONDOR and HAWK terminals, as we continuously seek to decrease the costs of deploying laser communication. By moving from singular prototype production to pre-serial production levels, we have already reduced our material costs per unit by around 80%. We are currently ramping up serial production and we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 and target a per year production rate of up to 2,000 units going forward. While the majority of our terminals produced in 2020 were used for internal and external test and demonstration campaigns, most of the units produced in 2021 are intended for customer delivery. We expect to continue to incur significant expenses related to the ramp-up of serial production, the further development of our technology and products as well as the expansion of our sales and marketing activities. We intend to use the net proceeds from this offering and, to the extent required, proceeds from future financings, to cover these expenses.

We are in the early phases of serial production and have only recently begun to monetize our technology. Our revenue amounted to €1,349 thousand for the six month period ended June 30, 2021 and €679 thousand for 2020. Our operating loss (EBIT) amounted to €16,240 thousand in the six month period ended June 30, 2021 and we reported a net loss of €16,077 thousand for the same period. In 2020, operating loss (EBIT) amounted to €19,257 thousand and we reported a net loss of €19,770 thousand. We manage our business based on our two operating segments, which are also our reportable segments in accordance with IFRS 8. Our two reportable segments include our Space segment, which currently comprises our flagship CONDOR terminal, and our Air segment, which currently comprises our flagship HAWK terminal. Our measure of segment profitability for each reportable segment is operating profit / (loss) (EBIT). We are headquartered in Gilching, near Munich, Germany, with additional offices in Los Angeles and the Washington D.C. area, and had 200 full-time equivalent employees (“FTE”) as of March 31, 2021.

Our Market Opportunity

Globally, the need for fast, secure and ubiquitous network connectivity is growing, as existing network technologies are reaching their limits. Existing data networks, like the internet, are largely based on terrestrial infrastructure such as fiber optic networks, which provide for excellent connectivity in urban, densely populated areas but cannot be expanded infinitely, resulting in rural and remote areas often lacking reliable or secure terrestrial infrastructure access. Current alternative connectivity solutions, such as RF-based network connectivity provided by satellites in geostationary orbit, are expensive and characterized by low bandwidth and high latency connectivity, as well as limited security from hacking and spoofing. Even where broadband connectivity is available, existing network technologies are reaching their capacity limits. Over the past decade, internet traffic has grown significantly and this growth is expected to continue, driven largely by the increase in mobile internet usage and the internet of things (“IoT”), which are to be supported by high speed, high bandwidth networks.

The increased market demand for internet connectivity requires network operators to look beyond existing communication infrastructure, with a particular focus on aerospace communication networks. Aerospace communication networks will consist of a large number of interconnected network nodes established by various platforms in air and space (such as satellites, high-altitude platforms, unmanned aerial vehicles and aircraft). We believe that laser communication will play a key role in connecting these platforms, as it offers significant advantages over traditional wireless communication systems, such as higher bandwidth capacity, low latency, improved security, lower power requirements and license-free spectrum.

Over the past decade, the laser communication market has started to take shape, driven by rapid technological developments in the space industry, particularly the advent of smaller, lower-cost satellites enabling large-scale deployment. These developments have led to greater accessibility for companies and governments to new space-based applications. While government remains a critical driver for further expansion


 

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of global space activities, a number of well-funded technology companies, such as Elon Musk’s SpaceX, have developed formidable commercial space capabilities. At the same time, as private sector space capabilities increase, governments have begun to realize the value of the private commercial space industry and have become increasingly supportive and reliant on private companies to catalyze innovation and advance national space objectives. The combination of increased access to capital, economies of scale, and open innovation models has driven rapid growth in the commercial space market in recent years. We believe that the global space industry is at an inflection point today, transitioning from a phase of discovery to phases of deployment and commercialization. We consider these developments in the broader space economy as crucial for the market for our industrialized laser communication equipment to take shape and fully materialize.

Current demand for laser communication is predominantly driven by both government organizations and commercial players seeking to establish aerospace communication networks in low Earth orbit (“LEO”). The U.S. government has been the strongest proponent to date of aerospace network capabilities and has made the development of government space architectures using large-scale LEO constellations a priority. As privacy and security of military communication is a critical requirement for defense communications, governments seek to leverage the superior capabilities of laser communication to enable secure and stealth data exchange, battlefield connectivity, intelligence, surveillance and reconnaissance (“ISR”) data distribution and teamed systems of systems. In the future, such government space architectures are expected to move to multi-orbit “proliferated” constellations (i.e., large constellations of small satellites), particularly those based in LEO.

Just as the internet was initially developed as a defense communication network before evolving to diversified, commercial applications, we believe aerospace communication networks will serve not just government but also industry and consumer needs over the medium-term, presenting a significant market opportunity. We believe that we are currently in the early phase of a multi-decade rollout of laser communication capabilities in aerospace communication networks, which will lead to more widespread use across commercial applications such as broadband satellite, data relay, Earth observation and in-orbit data processing services. As a result, we believe that the initial deployment of our products in the government market provides a foundation for our presence in the commercial market, and believe that validation from our government customers will help position our products for future large-scale deployment.

Our Value Proposition

Our laser communication technology and products are designed to overcome the current limitations of existing communication systems in air and space. By leveraging our strong technical expertise and first mover advantage, we believe that we are well-positioned to take advantage of the current market opportunity in government driven end-markets, by building key relationships which will position us for wider deployment as technologies are adopted at scale.

Our value proposition to customers comprises the following:

 

   

Industry-leading technology: Our laser-based communication technology utilizes an accurately steered infrared laser beam at a wavelength of approximately 1550 nanometers to transmit data wirelessly through air and allows for superior performance parameters compared to RF-based communication systems (i.e., systems utilizing radio frequencies in the electromagnetic spectrum bands). Our technology and products are designed to meet the demanding conditions of aerial and space applications and offer high performance in terms of data rate, power consumption, size and weight.

 

   

Standardization enabling multiple use cases: Unlike traditional aerospace companies, which historically focused on developing bespoke solutions for individual customers, we seek to offer standardized and modularized products suitable for a wide array of customers and applications. Our technology is designed to serve multiple use cases and potential markets, extending beyond

 

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government to commercial and industrial use. As the market for laser communication develops over the medium- to long-term, we believe our technology will be extensible across applications, domains, and target platforms. We consider the establishment of an open industry standard as critical for diversified use of laser communications systems. We actively support cross-vendor interoperability of laser communication systems (e.g., through the establishment of our own interoperability laboratory) and were the first company to successfully demonstrate implementation of SDA’s optical-intersatellite links (“OISL”) industry standard.

 

   

Cost-efficiency: We aim to industrialize laser communication by focusing on cost-efficient solutions to decrease the costs of deploying laser communication for our customers and target markets. To this end, we seek to leverage proven industrialized processes and supply chain strategies from other industries, including the use of a “commercial off-the-shelf” strategy developed in the automotive, medical device and telecommunication industries. By advancing on the learning curve from singular prototype production to pre-serial production levels, we have already reduced our material costs per unit by around 80%. We expect to be able to further reduce both material costs and assembly costs in connection with the commencement of serial production.

 

   

High volume terminal production capabilities: We believe that the ability to manufacture laser terminals at scale will be a key differentiator as laser communication proliferates. We recently completed installation of assembly and manufacturing equipment at a customized production facility in Oberpfaffenhofen, near Munich, enabling high volume production and are currently ramping up serial production. Based on our current set-up, we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 and target a per year production rate of up to 2,000 units going forward.

Key Investment Highlights

Significant growth potential for laser communication in government and commercial markets

We believe that the increasing need for fast, secure and ubiquitous network connectivity opens up significant growth potential for laser communication in the near- to medium-term. Current demand for laser communication is predominantly driven by government needs, with the U.S. government spearheading the adoption of laser communication technology. U.S. allies and other governments are also evaluating new technologies as part of their national objectives to modernize their space capabilities. As privacy and security of military communication is a critical requirement for defense communications, governments seek to leverage the superior capabilities of laser communication to enable secure and stealth data exchange, battlefield connectivity as well as ISR data distribution. The U.S. government has invested significantly in research and development as well as deployment of laser communication and other technologies. MarketsandMarkets estimates that the military communications market, one of the fastest growing defense segments, is expected to account for approximately $40.6 billion in spending by 2025, with total global defense spending reaching more than $2.1 trillion by 2025 (based on our assumption of a compound annual growth rate of 2%, based on historical growth rates published by the Stockholm International Peace Research Institute).

While government funding is currently driving laser communication demand, we see increasing activity in the commercial market. In particular, we expect the space segment to grow, as space-enabled broadband connectivity has become central to businesses and individuals and the need to stay connected has spread to locations that cannot readily access existing terrestrial networks. To keep pace with growing demand from underserved regions and an increasing number of applications, network operators will need to look beyond terrestrial infrastructure. The inherent capabilities of laser communication technology can help network operators address these key challenges. According to Grand View Research, the aggregate telecommunication services market is expected to increase to approximately $2.2 trillion by 2025 (based on a compound annual growth rate


 

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of 5.4%) and, according to investment manager ARK Invest, the satellite broadband market is expected to reach $50 to $100 billion in the medium term. We believe that laser communication will enable aerospace constellations in the commercial market to serve cellular backhaul (e.g., 4G/5G), automotive, infrastructure, maritime and consumer applications. For example, by establishing laser-enabled optical mesh networks through satellites in LEO or medium Earth orbit (“MEO”), laser communication may enable such satellites to perform as virtual cell towers connecting various devices, such as ships, aircraft, cars, satellites, trains and even terrestrial cell towers, providing hundreds of kilometers of coverage radius per network node compared to only a few kilometers provided by terrestrial cell towers.

We believe that laser communication will eventually be attractive to a wide range of diversified markets across a number of industries. For example, we believe that laser communication will offer significant advantages for high quantity IoT connectivity involving significant volumes of devices and for private optical mesh networks and backbone connectivity for industries such as aviation. In addition, laser-enabled quantum key distribution (QKD) from space to on premise optical ground stations may offer widely accessible data security. Laser communication may also play a key role for broadband connectivity through high-altitude platforms (including balloons and drones) functioning as semi-permanent telecommunication platforms in the stratosphere providing regionally limited and/or temporary broadband services comparable to Facebook’s Project Aquila or Google’s Project Loon.

Multi-year government programs driving near-term adoption and technology validation

The government sector has historically been a first mover in deploying next generation technologies, and has been an early adopter of laser communication in both the space and airborne markets. In the United States, recent government efforts to develop and deploy laser communication are driven by the U.S. government’s vision of a Combined Joint All Domain Command and Control architecture (“CJADC2”), the ultimate goal of which is to digitally connect all elements of the U.S. military across all five warfighting domains, consisting of air, land, sea, space and cyberspace.

The most prominent government projects currently deploying laser communication are the SDA’s “National Defense Space Architecture” (“NDSA”), a proposed multi-layered network of small satellite constellations primarily in LEO, and DARPA’s Blackjack program, which aims to develop and validate the critical elements for a global high-speed network in LEO providing for highly connected and resilient coverage, both of which are part of the CJADC2:

 

   

SDA’s NDSA: The NDSA will be comprised of seven layers of satellite constellations each providing a unique capability. These layers will all be tied together by a so-called “transport layer,” a low-latency data and communications proliferated “mesh network” of satellites (i.e., a decentralized network comprising various wireless nodes with each node acting as a forwarding node to transfer the data) connected through OISLs. In addition to the transport layer, the NDSA will include a “tracking layer” comprised of sensor satellites to detect and track missiles, which also will use OISLs to connect to SDA’s transport layer satellites. Laser communication is one of the most critical technologies the SDA is evaluating in connection with the NDSA, as OISLs are key to making LEO communication satellites useful. The SDA is currently working on a “Tranche 0” constellation comprising 28 satellites equipped with OISLs. The Tranche 0 constellation is designed to serve as the prototype for a number of subsequent tranches, with current plans to launch a new tranche every two years. In August 2021, the SDA issued a request for proposal soliciting bids for its “Tranche 1” constellation. Tranche 1, expected to launch in late 2024, will include a transport layer with roughly 144 data relay satellites equipped with 430 to 720 laser communication terminals (assuming three to five terminals per satellite).

 

   

DARPA’s Blackjack program: Much of the technology that the SDA needs for its constellations is being co-developed under DARPA’s Blackjack program. Blackjack seeks to incorporate and capitalize


 

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on commercial sector advances in LEO, including the design of LEO constellations intended for broadband internet service that are designed and manufactured with previously unavailable economies of scale. DARPA has awarded more than a dozen contracts to large defense contractors and start-up companies, each working on a different technology set. As part of Phase 2 of the Blackjack program, which is currently ongoing, DARPA plans to launch several “risk reduction” flights to test laser communication with government payloads in orbit and to demonstrate OISL interoperability with different hardware.

There are numerous additional government programs in the airborne market focusing on the development of connected systems and shared networks based on different communication technologies, including laser communication. These programs include, most notably, the U.S. military’s Advanced Battle Management System (“ABMS”), a military IoT being developed as one of the core elements of the CJADC2, which will enable the joint force to quickly collect, analyze and transmit data at machine speeds. The ABMS is designed to securely connect sensors, data, decision-makers and weapons across multiple domains and to enable ubiquitous connectivity and availability offering powerful capabilities for command and control. As another example, under Project Skyborg, the U.S. Air Force aims to develop a digital artificial intelligence architecture to support a family of low-cost, modular unmanned aerial vehicles (“UAVs”) that can communicate via a network shared with manned aircraft, enabling “manned-unmanned teaming” (MUM-T). In Europe, Airbus Defense and Space and its French partner Dassault Aviation are currently working on the Future Combat Air System (FCAS), a program aiming to develop a family of air systems connected by an advanced air combat cloud network. This cloud network will be designed to deliver common situational awareness by instantaneously capturing, sharing, merging and processing large amounts of data from all connected core air vehicles and unmanned platforms.

We believe that these government programs, most of which are driven by the U.S. government, are crucial for the ongoing development and implementation of aerospace communication networks in general, and laser communication systems specifically.

Well-positioned in the government market with significant program wins

While laser communication is in the early stages of development, we expect to benefit from our strong technical expertise and first mover advantage in industrializing laser communication technology, paving the way for large-scale deployment. We are deeply engaged with pioneering customers and well-positioned in the government market with respect to both of our flagship products, our CONDOR inter-satellite link terminal and HAWK airborne terminal.

Most notably, in connection with the SDA’s NDSA, in September 2020, we were awarded the first part of an expected multi-million Euro contract in the mid-seven digit range for the delivery of our CONDOR terminals to a customer for its work on Tranche 0. Initial delivery of equipment to this customer took place in first half of 2021. Tranche 0 is scheduled to be ready for demonstration in 2023. As part of our engagement in the NDSA, in 2021, we successfully demonstrated the industry’s first over-the-air transmission using an OISL terminal communicating with an independently built testbed, both of which are compliant with the SDA’s OISL industry standard. We believe that this demonstration marks a crucial milestone in the industrialization of laser communication and, as such, a first step in the technology’s widespread adoption within the satellite industry and beyond.

In October 2020, we were selected by Telesat to supply multiple units of our CONDOR terminals for Telesat’s work on DARPA’s Blackjack program. Our CONDOR terminals are scheduled to be delivered late 2021 to Lockheed Martin, which is acting as DARPA’s system integrator, with the satellites scheduled to launch in late 2022. As part of our engagement in the Blackjack program, we agreed to establish the industry’s first laser communication interoperability laboratory in Los Angeles that will simulate conditions in space to test


 

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interoperability between different vendors’ terminals. The interoperability laboratory is intended to help establish a common laser communication standard within the Blackjack program and potentially beyond, and assist our customers in de-risking their supply chains, which we believe can facilitate future large-volume deployment of laser communication.

In 2020, we received an order for two of our HAWK terminals from a U.S. aerospace and defense customer, introducing our HAWK product to the U.S. government market. We delivered the pre-serial product versions of our HAWK terminals to this customer in the fourth quarter of 2020, and our customer has started initial system testing and demonstrations in deployment scenarios. Through this partnership, we believe that we are well-positioned to successfully introduce our HAWK terminal to other U.S. government programs.

We believe that by positioning ourselves well within initial government programs in both the space and airborne markets, we will be poised to take advantage of future government initiatives in the U.S. and the other geographies in which we operate.

Strong positioning in the commercial market, leveraging government track record

While the initial development and implementation of aerospace communication networks in general, and laser communication systems specifically, are driven by government programs, in recent years large commercial players have emerged seeking to build large constellations for establishing alternative communication networks. For example, well-funded aerospace companies such as SpaceX (Elon Musk), OneWeb, Telesat and Kuiper (Amazon) have committed substantial resources to deploying satellite mega-constellations, which are expected to be connected with each other through OISLs. SpaceX already has 12 Starlink satellites equipped with OISLs in orbit and aims to expand deployment to all Starlink satellites beginning in 2022. OneWeb announced in March 2021 that its second generation of satellites will use OISLs for interconnection. Canadian-based Telesat, an established satellite operator, and Kuiper (Amazon), have announced that they are working on a high-speed, low-latency broadband network. While a few of these companies may develop laser communication capabilities in-house, we believe that most will rely on third-party suppliers, such as us, capable of providing laser communication products that are affordable, scalable and interoperable. We regularly engage in discussions with these and other key players in the market, whether or not they seek to rely on third-party suppliers, aiming to strengthen our network of potential industry partners. We believe that by establishing strong relationships with these market participants, we can develop significant potential for future partnerships or collaborations that will utilize our products or components.

As a result of our government track record and our first mover advantage, we have also been able to secure initial wins in the commercial market. In May 2021, we signed a memorandum of understanding (“MoU”) with Cloud Constellation, a constellation builder seeking to deploy OISLs in its planned LEO-based constellation. Based on this MoU, we will agree to sell to Cloud Constellation a certain number of our CONDOR terminals and we will also agree to grant Cloud Constellation and its partners access to our laboratory and various test facilities. On July 30, 2021, we entered into a definitive agreement with SpaceLink Corp. (“SpaceLink”), a commercial constellation builder seeking to develop a MEO-based constellation that deploys OISLs to relay data for space systems in LEO. Under the SpaceLink agreement, we have agreed to develop a new laser communication terminal for SpaceLink’s satellites in MEO. We have also agreed to sell more than 40 laser communication terminals to SpaceLink, comprising such newly developed MEO terminals as well as our CONDOR terminals. Additionally, in July 2021, we signed an MoU with JR Aerospace, an Indian investment and technology company, to accelerate our entry into the Indian aerospace market. Finally, in August 2021, we received a purchase order from an undisclosed commercial customer, under which we will deliver up to 20 CONDOR terminals over four years.

 

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Beyond communication, commercial constellation operators are targeting several additional applications, including Earth observation and IoT, which may result in a number of smaller companies seeking to provide data relay, secure storage or intelligence services in this market segment. We believe that laser communication is in the early phases of widespread use across commercial applications, and we believe we are well-positioned to serve this market.

Industry leading production capabilities with flexibility to scale

We believe that the ability to manufacture laser communication terminals at scale will be a key differentiator as laser communication proliferates. We have made significant investments in our manufacturing infrastructure and have demonstrated a proven ability to manufacture both our CONDOR and HAWK terminals. Our recently completed production facility in Germany has state-of-the-art capabilities, which we believe provide an advantage versus our competitors. We have created a baseline capacity and are currently ramping up serial production. Based on our current set-up, we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 (some of which we expect to use for internal purposes to improve our production processes and product development) and target a per year production rate of up to 2,000 units going forward.

Learning curve benefits driving continued cost reductions over time

By realizing learning curve benefits as we have scaled from singular prototype production to pre-serial production, we have already reduced our material costs per unit by around 80%. We expect to be able to further reduce both material costs and assembly costs in connection with the commencement of serial production. We believe that by focusing on cost-efficient solutions and by improving our superior production capabilities, we will be able to significantly decrease the costs of deploying laser communication for our customers and target markets.

Highly skilled management team with strong industry expertise and deep relationships

We are led by a dedicated and highly skilled senior management team with significant industry experience, including at SpaceX, Boeing, SES, Iridium, Siemens, Panasonic and, in case of our co-founder and Chief Technology Officer, at the DLR. In addition, we have assembled a world-class team of engineers and manufacturing experts who comprise our industry leading research and development team. As of March 31, 2021, we had 200 FTEs from over 40 nationalities, of which 120 FTEs were qualified engineers dedicated to research and development. We believe that the technological expertise and talent of our team allows us to industrialize and commercialize our technology and products, and that this team will provide us with a sustainable competitive advantage over time.

Summary of Risks Associated with Our Industry, Business, Operations and Financial Position

Investing in the ADSs entails numerous risks, as is more fully described in the section entitled “Risk Factors.” You should read these risks before you invest in the ADSs. In particular, risks associated with investing in the ADSs include, but are not limited to, the following:

 

   

we are a development-stage company with limited operating history and a history of significant losses and we may never be able to execute our business strategy, generate revenue or reach profitability;

 

   

our success and future growth are dependent upon our potential customers’ investments in the development of a market for wireless laser communication;

 

   

our potential customer base for the use of our products is limited;

 

   

we deploy innovative technologies and solutions in our products, which may not be fully functional, and the initial deployment of our products by customers could prove unsuccessful;


 

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positive market developments in the area of wireless laser communication could lead to increasingly intense competition and endanger our market positioning;

 

   

our business is subject to the implementation of a singular industry standard guaranteeing interoperability between different laser communication products, which could be unsuccessful;

 

   

if a singular industry standard guaranteeing interoperability between laser communication products of different vendors were to be implemented, we could incur additional costs and lose our intellectual property protection;

 

   

our sales cycle can be long and complicated and requires considerable time and expense;

 

   

we have limited experience with order processing and are subject to internal order processing risks that could materially impact our ability to process orders;

 

   

we depend on third-party suppliers to provide us with components for our products, and any interruptions in supplies provided by these third-party suppliers, including due to the COVID-19 pandemic, may subject us to external procurement risks that negatively affect our business;

 

   

defects or performance problems in our products could result in loss of customers, reputational damage, lawsuits and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products;

 

   

we may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy;

 

   

we may not be able to obtain sufficient financing for the operations and ongoing growth of our business;

 

   

we are highly dependent on our senior management team and other highly qualified personnel, and if we are not successful in attracting or retaining highly qualified personnel, we may not be able to successfully implement our business strategy;

 

   

our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security;

 

   

we may not be able to obtain, or agree on acceptable terms and conditions, for all or a significant portion of the government grants, loans and other incentives for which we may apply;

 

   

we are a supplier for government programs, which subjects us to risks including early termination, audits, investigations, sanctions and penalties;

 

   

we are subject to regulatory risks, in particular related to evolving sanctions laws as well as governmental export controls, in a number of jurisdictions that could limit our customer base and result in higher compliance costs;

 

   

if we do not maintain required security clearances from, and comply with our agreements with, the U.S. government, we may not be able to continue to perform our obligations under contracts involving the U.S. government;

 

   

our business is and could become subject to a wide variety of extensive and evolving government laws and regulations, and failure to comply with such laws and regulations could have a material adverse effect on our business;

 

   

positive market developments in the area of wireless laser communication could lead to increasingly intense political interest and influence impacting our business;

 

   

we may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology;


 

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we may be involved in legal proceedings based on the alleged violation of intellectual property rights, such as patent or trademark infringement claims, which may be time-consuming and cause us to incur substantial costs;

 

   

we have been and may become involved in litigation and administrative and regulatory proceedings, which require significant attention from our management and could result in significant expense to us and disruptions to our business;

 

   

we may be subject to claims that our employees, consultants or advisers have wrongfully used or disclosed alleged trade secrets of their former employers; and

 

   

our risk management and internal control procedures may not prevent or detect violations of law.

Corporate Information

Our business was initially conducted through ViaLight Communications GmbH, a limited liability company (Gesellschaft mit beschränkter Haftung) under German law, which was incorporated on June 15, 2009. In preparation for our initial public offering on the Frankfurt Stock Exchange, the shareholders of ViaLight Communications GmbH decided to incorporate a new entity in the form of a German stock corporation (Aktiengesellschaft) to serve as a holding company for the Mynaric group (formerly ViaLight Communications group). Accordingly, in August 2017, the initial shareholders of ViaLight Communications GmbH, through a series of transactions, contributed their equity interests in ViaLight Communications GmbH and its subsidiaries to Blitz 17-625 AG, a German stock corporation (Aktiengesellschaft), against the issuance of new ordinary shares in Blitz 17-625 AG. Subsequently, in August 2017, our general shareholders’ meeting resolved to change our legal name from Blitz 17-625 AG to Mynaric AG. See “Description of Share Capital and Articles of Association—Company History.”

Our principal executive offices are located at Dornierstraße 19, 82205 Gilching, Federal Republic of Germany. Our telephone number is +49 (0) 8105 79990. Our website address is www.mynaric.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase the ADSs.

Our ordinary shares are currently listed on the Frankfurt Stock Exchange under the symbol “M0Y.”

Organizational Structure

Our subsidiaries, each of which is wholly owned by Mynaric AG, are Mynaric Lasercom GmbH (a company organized under the laws of Germany), Mynaric Systems GmbH (a company organized under the laws of Germany) and Mynaric USA, Inc. (a company organized under the laws of Delaware).


 

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The following chart shows our organizational structure and our direct and indirect subsidiaries as of the date hereof.

 

LOGO

Enforcement of Civil Liabilities

We are a stock corporation (Aktiengesellschaft) organized and existing under the laws of the Federal Republic of Germany. Our registered office and substantially all of our assets are located outside the United States. In addition, two out of three members of our management board, three out of five members of our supervisory board and the experts named herein are residents of jurisdictions other than the United States. As a result, it may not be possible for you to effect service of process within the United States upon these individuals or upon us or to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. securities laws against us in the United States.

The United States and Germany currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Consequently, a final judgment for payment or declaratory judgments given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in Germany. German courts may deny the recognition and enforcement of a judgment rendered by a U.S. court if they consider the U.S. court not to be competent or the decision to be in violation of German public policy principles. For example, judgments awarding punitive damages are generally not enforceable in Germany. A German court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. See “Enforcement of Civil Liabilities” for more detail.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and is exempt from other burdens that are otherwise generally applicable to public companies. These provisions include:

 

   

the ability to include only two years of audited consolidated financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

   

an exemption from the auditor attestation requirement with respect to our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), which would otherwise be applicable beginning with our second annual report following completion of this offering;

 

   

if we no longer qualify as a foreign private issuer, (1) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (2) exemptions from the

 

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requirements of holding a non-binding advisory vote on executive compensation, including golden parachute compensation; and

 

   

an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted that would otherwise require our independent registered public accounting firm to communicate “critical audit matters” in its report. A critical audit matter is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex auditor judgment.

We may take advantage of these provisions for up to five years following the completion of this offering or, if earlier, the time that we cease to be an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of (1) the last day of the first fiscal year in which we have more than $1.07 billion in annual gross revenue, (2) the first day of the fiscal year following the first fiscal year in which, as of the last business day of our most recently completed second fiscal quarter, we have a non-affiliate market capitalization of more than $700 million, and (3) the date on which we have issued more than $1.0 billion of non-convertible debt over the previous three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Implications of Being a Foreign Private Issuer

Upon completion of this offering, we will report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the rules under the Exchange Act requiring domestic filers to issue financial statements prepared in accordance with U.S. GAAP;

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing liability for insiders who profit from trades made in a short period of time; and

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, and current reports on Form 8-K upon the occurrence of specified significant events.

We will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.


 

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Foreign private issuers are also exempt from certain more extensive executive compensation disclosure rules. Thus, if we no longer qualify as an emerging growth company but remain a foreign private issuer, we will continue to be exempt from the more extensive compensation disclosure requirements for companies that are neither an emerging growth company nor a foreign private issuer and will continue to be permitted to follow our home country practice on such matters.


 

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THE OFFERING

 

ADSs offered by us

                ADSs; every                 ADSs represent one ordinary share.

 

ADSs to be outstanding immediately after this offering

                ADSs, assuming no exercise of the underwriters’ option to purchase additional ADSs; or                 ADSs, assuming full exercise of the underwriters’ option to purchase additional ADSs within 30 days from the date of this prospectus.

 

Ordinary shares to be outstanding immediately after this offering

                ordinary shares, assuming no exercise of the underwriters’ option to purchase additional ADSs; or                 ordinary shares, assuming full exercise of the underwriters’ option to purchase additional ADSs.

 

  Our founders, members of our management and supervisory boards and known five percent shareholders, together with their affiliates, collectively own approximately 17.6% of our outstanding share capital, and following the completion of this offering will collectively own approximately         % of our outstanding share capital (or approximately         % of our outstanding share capital if the underwriters exercise their option to purchase additional ADSs from us in full). See “Principal Shareholders.” The interests of our existing shareholders may deviate from our interests or those of our other shareholders.

 

Option to purchase additional ADSs

We intend to grant the underwriters an option to purchase up to                 additional ADSs from us, representing                 ordinary shares, for a period of 30 days from the date of this prospectus.

 

The ADSs

The underwriters will deliver ADSs representing our ordinary shares. Every                 ADSs, which may be evidenced by an American Depositary Receipt (“ADR”), represent one of our ordinary shares.

 

  As an ADS holder, you will not be treated as one of our shareholders and you will not have shareholder rights. The depositary, The Bank of New York Mellon, or the custodian, The Bank of New York Mellon SA/NV, will be the holder of the ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement. You may surrender your ADSs and withdraw the underlying ordinary shares as provided, and subject to the limitations set forth in, the deposit agreement. The depositary will charge you fees for, among other acts, any such surrender for the purpose of withdrawal. In certain limited instances described in the deposit agreement, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the terms of the deposit agreement then in effect.

 

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  To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is an exhibit to the registration statement of which this prospectus forms a part.

Depositary

The Bank of New York Mellon.

 

Custodian

The Bank of New York Mellon SA/NV.

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $             million (or approximately $             million if the underwriters exercise their option to purchase additional ADSs from us in full), based on an assumed initial public offering price of $             per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on             , 2021, based on the Euro/U.S. dollar exchange rate of €1.00 to $ as of             , 2021, and an ADS to ordinary share ratio of                 to                 , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  The principal reasons for this offering are to further fund our business, to increase our public profile and awareness, create a public market for the ADSs and facilitate our future access to public equity markets. We intend to use the net proceeds from this offering as follows:

 

   

approximately     % to ramp-up serial production to allow for short-term product deployment within large-scale customer programs;

 

   

approximately     % to further advance our existing products and to expand our product portfolio to support new applications and increase our addressable market;

 

   

approximately     % for investments in additional research and development equipment to further accelerate product development in both our German and U.S. facilities;

 

   

approximately     % to grow our sales and marketing efforts to expand access to government and commercial customers, including the establishment of a U.S. entity cleared for access to classified information; and

 

   

approximately     % to repay the outstanding amount of €7.5 million and any accrued and unpaid commitment fee, interest and premium, if any, under the credit agreement entered into with three lenders for a credit line of approximately €25 million on September 15, 2021 (see also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement”).

 

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  See “Use of Proceeds.”

 

Dividend policy

We have never paid or declared any dividends in the past, and we do not anticipate paying any dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development of our technology and products and the start of serial production as well as the further development and expansion of our business. Any future determination to pay dividends will be made in accordance with applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. See “Dividend Policy.”

 

Lock-up agreements

We have agreed with Credit Suisse and Jefferies as representatives of the underwriters, subject to certain exceptions, not to, directly or indirectly, offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of our ordinary shares, ADSs or securities convertible into or exchangeable or exercisable for our ordinary shares or ADSs during the 180-day period following the date of this prospectus. The members of our management board and supervisory board have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Underwriting.”

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs.

 

Listing

We have applied to list the ADSs on Nasdaq under the symbol “MYNA.”

 

Frankfurt Stock Exchange listing

Our ordinary shares are listed on the Frankfurt Stock Exchange under the symbol “M0Y.”

 

  We may explore a delisting of our ordinary shares from the Frankfurt Stock Exchange in the medium term following listing of the ADSs on the Nasdaq taking into consideration future trading volumes, administrative costs and other factors.

Unless otherwise indicated, all information contained in this prospectus assumes or gives effect to:

 

   

an initial public offering price of $             per ADS; and

 

   

no exercise by the underwriters of their option to purchase additional ADSs in this offering.


 

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SUMMARY FINANCIAL DATA

We present below a summary of historical financial data of Mynaric AG. The financial data as of and for the six months ended June 30, 2020 and June 30, 2021, has been derived from our unaudited condensed interim financial statements and the related notes thereto, which are included elsewhere in this prospectus. The financial data as of and for the years ended December 31, 2020 and 2019, has been derived from our audited consolidated financial statements and the related notes thereto, which are included elsewhere in this prospectus. Our consolidated financial data has been prepared in accordance with IFRS as issued by the IASB.

Our income statement presents costs using the “nature of expense” method. In our income statement, this results in an (unnetted) gross presentation (i.e., before the deduction of any amounts capitalized) of the costs incurred broken down by type or nature of expenditure including cost of materials, personnel costs, depreciation and amortization, and other operating costs. All capitalized amounts relate to the construction of property, plant and equipment or the development of intangible assets, and are presented within the line-item Own work capitalized. This approach is common in Germany. Outside of Germany, IFRS financial statements are more commonly prepared using the cost of sales method, under which expenses are broken down not by type of expense (materials, personnel, depreciation and amortization), but by function (production, administration, sales), and capitalized costs are not included in the income statement.

The summary of historical financial data presented below is not necessarily indicative of the financial results expected for any future periods. The summary of historical financial data below does not contain all the information included in our financial statements. You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto, each included elsewhere in this prospectus.

Statement of Income (Loss) and Statement of Comprehensive Income (Loss)

 

    For the six months ended June 30,  
    2020           2021  
    (unaudited)
(in € thousands)
          (unaudited)
(in € thousands)
 
    Air     Space     Group           Air     Space     Group  

Revenue

    0       90       90           0       1,349       1,349  

Other operating income

    89       141       230           24       247       271  

Cost of materials

    (696     (1,826     (2,522         (1,079     (3,352     (4,431

of which capitalized costs

    (583     (1,127     (1,710             (632     (632

Personnel costs

    (2,763     (4,840     (7,603         (2,859     (7,901     (10,812 )(1) 

of which capitalized costs

    (620     (1,627     (2,247             (1,392     (1,392

Depreciation, amortization and impairment of other intangible assets and property, plant, and equipment

    (384     (430     (814         (482     (1,434     (1,916

of which capitalized costs

    (127     (335     (462             (187     (187

Other operating costs

    (627     (1,409     (2,147 )(2)          (533     (3,236     (4,160 )(3) 

of which capitalized costs

    (92     (241     (333             (260     (260

Change in inventories of finished goods and work in progress

    740       0       740           420       568       988  

Own work capitalized(4)

    1,422       3,330       4,752           0       2,471       2,471  

Operating profit / loss (EBIT)

    (2,219     (4,944     (7,274         (4,509     (11,288     (16,240

Interest and similar income

    n/a       n/a       17           n/a       n/a       (7

Net foreign exchange gain / (loss)

    n/a       n/a       (36         n/a       n/a       170  

Net finance costs

    n/a       n/a       (19         n/a       n/a       163  

Profit / loss before taxes (EBT)

    n/a       n/a       (7,293         n/a       n/a       (16,077

Consolidated net profit / loss

    n/a       n/a       (7,293         n/a       n/a       (16,077

Other comprehensive income /loss

               

Items which may be subsequently reclassified to profit and loss

    n/a       n/a       22           n/a       n/a       (138

 

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    For the six months ended June 30,  
    2020           2021  
    (unaudited)
(in € thousands)
          (unaudited)
(in € thousands)
 
    Air     Space     Group           Air     Space     Group  

Other comprehensive income / loss after tax

    n/a       n/a       22           n/a       n/a       (138 ) 

Total comprehensive income

    n/a       n/a       (7,271 )          n/a       n/a       (16,215 ) 
 

Earnings/(loss) per share – basic and diluted

               

Basic loss per share in EUR

    n/a       n/a       (2.33         n/a       n/a       (3.93

Diluted loss per share in EUR

    n/a       n/a       (2.33         n/a       n/a       (3.93

Basic loss per ADS in EUR(5)

    n/a       n/a       (2.33         n/a       n/a       (3.93

Diluted loss per ADS in EUR(5)

    n/a       n/a       (2.33         n/a       n/a       (3.93

 

(1)

Includes non-segment specific expenses in the amount of €52 thousand for the IPO bonus to the members of the management board and selected employees. See also “Management—Compensation of Management Board and Supervisory Board Members—Compensation of Management Board Member.”

(2)

Includes non-segment specific expenses in the amount of €111 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(3)

Includes non-segment specific expenses in the amount of €391 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(4)

Own work capitalized is comprised of capitalized costs relating to the construction of property, plant and equipment or the development of intangible assets, which are offset by capitalized costs included in the respective other line items.

(5)

Assumes one ADS represents one ordinary share.

 

     For the year ended December 31,  
     2019           2020  
     (in € thousands)           (in € thousands)  
     Air     Space     Group           Air     Space     Group  

Revenue

     –         114       114           589       90       679  

Other operating income

     105       147       252           74       220       294  

Cost of materials

     (926     (1,864     (2,790         (2,290     (3,931     (6,221

of which capitalized costs

     (570     (1,519     (2,089         (1,263     (2,810     (4,073

Personnel costs

     (3,781     (4,585     (9,407 )(1)          (4,923     (11,911     (16,834

of which capitalized costs

     (1,239     (1,312     (2,551         (621     (3,300     (3,921

Depreciation, amortization and impairment of other intangible assets and property, plant, and equipment

     (501     (616     (1,117         (666     (1,177     (1,843

of which capitalized costs

     (240     (254     (494         (126     (676     (802

Other operating costs

     (1,078     (1,556     (2,813 )(2)          (1,320     (3,581     (5,344)(3)  

of which capitalized costs

     (135     (142     (277         (92     (487     (579)  

Change in inventories of finished goods and work in progress

     230       42       272           11       626       637  

Own work capitalized(4)

     2,184       3,227       5,411           2,102       7,273       9,375  

Operating profit / loss (EBIT)

     (3,767     (5,091     (10,078         (6,423     (12,391     (19,257

Interest and similar income

     n/a       n/a       73           n/a       n/a       18  

Net foreign exchange gain / (loss)

     n/a       n/a       109           n/a       n/a       (531

Net finance costs

     n/a       n/a       182           n/a       n/a       (513

Profit / loss before taxes (EBT)

     n/a       n/a       (9,896         n/a       n/a       (19,770

Consolidated net profit / loss

     n/a       n/a       (9,896         n/a       n/a       (19,770

Other comprehensive income / loss

                

Items which may be subsequently reclassified to profit and loss

     n/a       n/a       (43         n/a       n/a       367  

Other comprehensive income / loss after tax

     n/a       n/a       (43         n/a       n/a       367  

Total comprehensive income / loss

     n/a       n/a       (9,939         n/a       n/a       (19,403
 

Earnings/(loss) per share – basic and diluted

                

Basic loss per share in EUR

     n/a       n/a       (3.50         n/a       n/a       (5.90

Diluted loss per share in EUR

     n/a       n/a       (3.50         n/a       n/a       (5.90

Basic loss per ADS in EUR(5)

     n/a       n/a       (3.50         n/a       n/a       (5.90

Diluted loss per ADS in EUR(5)

     n/a       n/a       (3.50         n/a       n/a       (5.90

 

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(1)

Includes non-segment specific expenses in the amount of €1,041 thousand relating to a stock option agreement between a shareholder of Mynaric AG and Bulent Altan, our Chief Executive Officer and a member of our management board, which are recognized in accordance with IFRS 2.

(2)

Includes non-segment specific expenses in the amount of €179 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(3)

Includes non-segment specific expenses in the amount of €443 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(4)

Own work capitalized is comprised of capitalized costs relating to the construction of property, plant and equipment or the development of intangible assets, which are offset by capitalized costs included in the respective other line items.

(5)

Assumes one ADS represents one ordinary share.

Selected Cash Flow Statement Data

 

     For the year
ended December 31,
    For the six months
ended June 30,
 
     2019     2020     2020     2021  
     (in € thousands)    

(unaudited)

(in € thousands)

 

Net cash used in operating activities

     (8,319     (16,935     (7,854     (18,220

Net cash used in investing activities

     (7,167     (15,010     (6,378     (5,972

Net cash from financing activities

     11,466       66,340       12,022       (588

Net increase/(decrease) in cash and cash equivalents

     (4,020     34,395       (2,210     (24,780

Cash and cash equivalents at the beginning of the period

     12,923       8,914       8,914       43,198  

Cash and cash equivalents at end of period

     8,914       43,198       6,700       18,444  

Selected Balance Sheet Data

 

     As of December 31,      As of June 30,  
     2019      2020      2021  
     (in € thousands)     

(unaudited)

(in € thousands)

 

Total non-current assets

     19,626        36,260        40,823  

Total current assets

     11,949        50,316        31,264  

Total assets

     31,575        86,576        72,087  

Total equity

     21,740        70,708        54,771  

Total liabilities

     9,835        15,868        17,316  

 

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RISK FACTORS

An investment in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before deciding to invest in the ADSs. Additional risks not known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of the ADSs could decline due to any of these risks, and you may lose all or part of your investment.

Risks Related to Our Business

We are a development-stage company with limited operating history and a history of significant losses. We may never be able to execute our business strategy, generate revenue or reach profitability.

We are a development-stage company and are subject to all of the risks inherent in the establishment of a new business enterprise. We have a limited operating history and only a preliminary and unproven business plan upon which investors may evaluate our prospects. Although we have developed, produced and tested prototypes of our products and are currently finalizing our products for serial production, we cannot assure you that our products will perform as expected under daily operating conditions or that we will be able to detect and fix any potential weaknesses in our technology or products prior to commencing serial production. Even if our products become commercially viable, we may not generate sufficient revenue necessary to support our business.

We have a history of net losses and negative net cash used in operating activities since inception and we expect losses and negative net cash used in operating activities to continue for the foreseeable future. For the six months ended June 30, 2021 and 2020 we incurred net losses of approximately €16.1 million and €7.3 million, respectively, and for the years ended December 31, 2020 and 2019 we incurred net losses of approximately €19.8 million and €9.9 million, respectively. As of June 30, 2021 and December 31, 2020, we had an accumulated deficit of approximately €63.7 million and €47.3 million, respectively. For the six months ended June 30, 2021 and 2020 we had negative net cash used in operating activities of €18.2 million and €7.9 million, respectively, and for the years ended December 31, 2020 and 2019 we had negative net cash used in operating activities of €16.9 million and €8.3 million, respectively. We expect that we will incur additional significant expenses as we continue to conduct research, expand and refine our technology, and further develop our products. We will also incur significant expenses related to preparations for the commercialization of our products, increasing our sales and marketing activities with the goal of building our brand, and adding infrastructure and personnel to support our growth. We will not be able to cover our expenses with revenues at least until such time at which we begin material deliveries of our products and significantly increase the scale of our operations and, therefore, intend to use the net proceeds from this offering and, to the extent required, proceeds from future financings, to cover our ongoing and future expenses. While we believe that we will be successful in obtaining additional financing, including the proceeds from this offering, in a timely manner to fund our operational and financial obligations, there are material uncertainties that may cast significant doubt on our ability to continue as a going concern and, therefore, we may be unable to realize our assets and discharge its liabilities in the normal course of business.

Our business strategy is focused on growth and our decisions regarding capital expenditures and investments are made on this basis. Our projects and strategic decisions may fail to meet expectations and the anticipated return on investment from these projects may not be achieved. Our ability to generate revenue from our operations and, ultimately, achieve profitability will depend on, among other things, whether we can complete the development and commercialization of our technology, whether we can manufacture our products on a commercial scale in amounts and at costs consistent with our expectations, and whether we can achieve market acceptance of our products, services and business model. We may never generate any revenue or operate on a profitable basis. If we are unable to reach profitability, we may need to reduce the scale of our operations, which may impact our business growth or adversely affect our financial condition and results of operations. Even if we reach profitability, we may not be able to sustain it.

 

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Our success and future growth are dependent upon our potential customers’ investments in the development of a market for wireless laser communication, in particular for aerospace communications networks.

We are a developer and manufacturer of laser communication products for aerospace communications networks. Laser communication is designed to serve as a so-called backbone technology, a key connectivity component of telecommunications networks featuring very high data transmission rates, creating data highways by connecting individual platforms such as airplanes and satellites. Our success and future growth, therefore, depend significantly on the development of a market for laser communication, in particular for aerospace communications networks.

Communication networks may comprise various platforms, including drones, airplanes, balloons and satellites, and may be located in the troposphere (i.e., at the height of commercial aviation), the stratosphere (i.e., at a height of 20 to 30 kilometers above ground), or in outer space. Communications networks consisting of a large volume of platforms are referred to as constellations. Each individual platform typically contains multiple laser communication units. Our ability to successfully develop and commercialize our laser communication products (e.g., flight terminals) depends on potential customers’ willingness to invest, on a global scale, in the development of such constellations. If such constellations are not developed on a global scale, there would be limited applications available for our ground stations and flight terminals, such as the connection of individual airplanes, drones or satellites with the ground.

Constellations in general, and the market for laser communication systems specifically, are still in early stages of development. The future implementation of constellations by potential customers remains subject to significant technological and financing risks. For example, many of the constellations currently being planned by potential customers envisage worldwide internet and network coverage. Establishing such extensive coverage through multiple laser communication units has not been tested in practice and could entail substantial technical difficulties. At the same time, the development of constellations with such coverage requires investment of billions of dollars, and accordingly depends on the ability to obtain related financing.

To our knowledge, there are no constellations currently in operation that utilize laser communication for linking platforms on a large scale. If laser communication remains a niche market, demand for our products would be significantly lower than we currently anticipate. If this market does not develop as we anticipate, then we will not generate revenues as planned and may need to curtail our operations or seek financing earlier than anticipated.

Our potential customer base for the use of our products is limited.

Given the technological challenges and the high capital expenditures required for the development and deployment of our products, we believe that our potential customer base is limited. There is a small number of potential customers who represent potentially significant initial customers for the deployment of our laser communication equipment. Successful customer acquisition and retention of significant initial customers is therefore critical to generate follow-on business such as the implementation and maintenance of complementary products. As a result, our ability to sell laser communication products at scale is dependent on our ability to successfully acquire and retain significant initial customers by winning their business at an early stage.

Due to our limited potential customer base, we anticipate that sales to initial customers will be, individually, material to our future revenues, results of operations and cash flows. Accordingly, any change in the relationship with any customer, the strength of any customer’s business or their demand for our products could materially affect our results.

Any failure to acquire and retain customers and maintain relationships with key customers, as well as the loss of any potential customer, would have a highly adverse impact on our business, results of operations, financial position and prospects, and in particular on our revenue.

 

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We deploy innovative technologies and solutions in our products, which may not be fully functional. The initial deployment of our products by customers could prove unsuccessful.

The functionality, usability and availability of our technology and products in daily use and at scale is unproven. We cannot assure you that our technology will perform as expected under daily operating conditions or that we will be able to detect and fix weaknesses or flaws in our technology or products prior to commencing serial production. Any of the technologies we intend to use or solutions we expect to offer may not be available or fully functional at the time of the first delivery of our products or at all, and this could have an adverse effect on our ability to grow our business.

If our customers are unsuccessful in the initial deployment of our products, this could be considered as indicative of future performance of our products and could significantly harm our reputation in the market. Potential difficulties in connection with meeting obligations under contracts with initial customers, such as delivery delays, technical performance or quality, could lead to loss of the affected customer and other existing or potential customers. In such cases, it is unlikely that we would succeed in compensating for the related losses in revenues through new customers in the short to medium term. As a result, any failure in the initial deployment of our products by initial customers would have a highly adverse impact on our business, results of operations, financial position and prospects.

Positive market developments in the area of wireless laser communication could lead to increasingly intense competition and endanger our market positioning.

In September 2020, Elon Musk’s SpaceX announced its first successful test of its Starlink satellite “space lasers” in orbit. In January 2021, Elon Musk announced that Starlink satellites in polar orbit will be equipped with lasers in 2021 before expanding deployment to all satellites beginning in 2022. Public announcements of successful test missions such as these have drawn significant public attention to the laser communication market. While we believe that there are currently only a few enterprises offering a viable solution for laser communication, we are subject to significant and intensifying competition within the satellite industry and from other providers of communication capacity, including large multinational enterprises. To compete successfully and to be able to establish and maintain a competitive position in current and future technologies, we will need to demonstrate the advantages of our technology over both new and well-established alternative solutions for communication networks. If our technology is not, or our future products or services are not, competitive, our business would be harmed.

Many of our current and potential competitors are larger and have substantially greater resources than we have and expect to have in the future. They may also be able to devote greater resources to the development of their current and future technologies and the promotion of their offerings, and they may be able to offer lower prices in order to establish or gain market share. In addition, certain companies that are potential customers may develop laser communication capabilities in-house and as a result compete with us or not require laser communication equipment from third parties, such as us. Competitors may also establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources and offerings or may lobby potential governmental customers against us. Furthermore, it is possible that German or foreign companies or governments, some with greater experience in the aerospace industry or greater financial resources, may seek to provide products or services that compete directly or indirectly with ours. Any such foreign competitor, for example, could benefit from subsidies from, or other protective measures implemented by, its home country.

In the aerospace sector, our competitors include TESAT Spacecom (an Airbus subsidiary), Thales Alenia Space, SA Photonics and Ball Aerospace, as well as a handful of other entities that possess the necessary technical know-how and resources to compete with us. Furthermore, large information technology enterprises such as Cisco, Huawei, Comscope, Coriant and Corning already have experience in wired laser communication for ground-based fiber networks and may potentially enter the market. In addition, aviation enterprises such as

 

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Boeing and large military equipment suppliers may enter the market. For example, Raytheon and Hensoldt are both actively promoting laser communication capabilities even though no public information is available regarding the maturity of their systems. These companies may employ aggressive strategies like subsidy-enabled dumping and lobbying of customers, partners, investors and the media in an attempt to force us out of the market (e.g., by delaying the deployment of our products in certain geographical areas). As the market expands, we expect the entry of additional competitors who may have longer operating histories, more extensive international operations, greater name recognition and/or substantially greater technical, marketing and financial resources.

Due to the significant increase in both government and commercial space activities in recent years, in particular the number of constellations that are expected to be deployed, industry experts are increasingly concerned that there is a potential for low Earth orbit (LEO) to become overcrowded and polluted with both active satellites and space debris such that future space endeavors could be more difficult, if not impossible. Outer space remains largely unregulated and there is little to no consensus on standards for space situational awareness, space traffic management, space debris mitigation or space sustainability. A new treaty-like mechanism will be difficult to achieve given the lack of political will and the inability to develop consensus among major governmental space powers. Equally challenging are definitional issues and the dual-use nature of outer space, which makes it difficult to frame appropriate rules. Without coherent international actions to address the risk of debris, it falls on private space companies to adopt responsible satellite design and operational practices to ensure a sustainable space environment. If the risk of increasing satellite collisions materializes, there could be a limit on the number of constellations than can actually be deployed, which would in turn significantly increase competition.

Our business is also subject to competition from ground-based forms of communications technology. A number of companies are increasing their ability to transmit signals on existing terrestrial infrastructures, such as fiber optic cable, DSL (digital subscriber line) and terrestrial wireless transmitters, often with funding and other incentives provided by governments. The ability of terrestrial companies to significantly increase the capacity, capability and/or the reach of their networks could result in a decrease in the demand for laser communication technology. Furthermore, significantly lower prices for such conventional networks or other competing network architectures could also lead to reduced demand for laser communication. Increased capacity and lower prices in conventional networks could lead to reduced demand for aerospace communications networks and consequently for laser communication products, thereby having a material adverse impact on our earnings and business prospects.

In addition, new technologies could render laser communication-based services less competitive by satisfying consumer demand in other ways. If competition intensifies, the resulting increase in supply could cause prices to fall, narrowing our margins. Heightened competition in the laser communication market could have a material adverse impact on our business, results of operations, financial position and prospects, particularly regarding costs.

Our business is subject to the implementation of a singular industry standard guaranteeing interoperability between laser communication products of different vendors, which could be unsuccessful.

We believe that the establishment of a large-scale market for laser communication depends on the successful development and implementation of a singular industry standard guaranteeing interoperability between laser communication products of different vendors. As of today, our laser communication products are not compatible with those of our competitors. Even though efforts in the industry to enable interoperability of products of different laser communication vendors have increased, we cannot assure you that these efforts will be successful. This risk is particularly relevant as the implementation of interoperability between laser communication products of different vendors requires considerable technological exchange with other vendors, who may not favor such exchange to protect their intellectual property. Furthermore, multiple competing industry standards may emerge in parallel, which would cause a fragmentation of the market, potentially hindering sustained growth of the laser communication market.

 

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If a potential customer decides to purchase laser communication products from one of our competitors, our products currently can only be sold to that customer with significant operational and technical outlays or only once interoperability standards have been established. Any failure to implement interoperability with products of other laser communication vendors could have an adverse effect on our business, results of operations, financial position and prospects.

There is currently no high-volume market for laser communication systems. Our approach of developing standardized products for a large number of customers could prove unsuccessful if certain customers demand widely varying product specifications and identical units in significantly lower quantities. This would require project-specific production instead of serial production, meaning that our anticipated economies of scale could fail to materialize.

If a singular industry standard guaranteeing interoperability between laser communication products of different vendors were to be implemented, we could incur additional costs and lose our intellectual property protection.

If standardization were to occur and our laser communication products remained incompatible with any standardized product, we may be required to incur considerable expense for our products to become interoperable with other products. In addition, our competitors within the laser communication field may have patents covering technology that they contribute to the development of industry standards. As a result, these competitors may expect to receive fair, reasonable and non-discriminatory (“FRAND”) royalty rates for licenses to those patents. If standardization were to occur, we would be required to pay such FRAND rates for access to the standardized technology in order to participate in a standardized laser communication industry.

Furthermore, our current intellectual property protection strategy, which relies exclusively on trade secret, copyright and trademark laws and contractual provisions with employees and third parties, is incompatible with the implementation of a singular industry standard. Trade secrets must not be generally known in order to qualify for protection under applicable law. Since industry standards would be published, any trade secrets disclosed in connection with standardization would no longer be entitled to trade secret protection. If standardization were to occur, we would be required to provide our intellectual property to competitors in order to participate in the market, thereby eliminating the trade secret protection on which we have historically relied. We would not be required to be compensated for the provision of this intellectual property, as we have not filed for patent protection of this intellectual property.

Our sales cycle can be long and complicated and requires considerable time and expense.

The timing of our sales is difficult to predict because of the length of our sales cycle, particularly with respect to sales of our products in the government market.

The typical sales cycle for our products in the government market includes a pre-sale process to define a potential customer’s needs and budget. Certain customers may choose, or be required, to conduct a request for information (“RfI”) or request for proposal (“RfP”) process, requiring us to openly bid for the project. In our response to these RfIs and RfPs, we offer potential customers specific commercial solutions covering detailed technical and commercial explanations as well as details on production capacities and ramp-up strategies. Proposals are evaluated based on various criteria, including technical requirements, reliability, associated risk and successful track-record of the manufacturer, and price. If we are selected, we enter into negotiations and, if successful, ultimately receive a purchase order from the customer. Many purchase orders allow for or require phased delivery of products over several months or years, with payments being made following delivery or achievement of other milestones. The sales cycle for our products from initial contact with a potential customer in the government market varies widely, ranging from a few months to well over a year. The sales process for our products for commercial applications depends on the individual customer and the size and structure of a project. Our sales team often engages in detailed discussions with potential customers to define the customer’s needs and

 

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budget. Following these discussions, we typically either sign an MoU or a term sheet or directly negotiate long-form agreements. From time to time, in particular with respect to large, established customers, we may also be required to participate in commercial RfI or RfP processes. As with sales in the government market, the entire commercial sales process may take from a few months to over a year.

There are many other factors specific to clients that contribute to the timing of their purchases, including budgetary constraints, funding authorization, and changes in their personnel. In addition, the significance and timing of our product enhancements, and the introduction of new products by our competitors, may also affect our customer’s purchases. For all of these reasons, it is difficult to predict whether a sale will be completed, the particular period in which a sale will be completed or the period in which revenue from a sale will be recognized. It is possible that in the future we may experience even longer sales cycles, more complex customer needs, higher upfront sales costs, and less predictability in completing some of our sales. Moreover, we may in the future enter into agreements under which we will not receive any payments or recognize any revenue until we complete a lengthy implementation cycle. We may also enter into strategic partnership agreements with key customers, which may include exclusivity arrangements and provisions that allow either party to terminate the relationship under certain specified circumstances. Accordingly, these relationships might not continue or be extended and may terminate entirely. If our sales cycle lengthens or our substantial upfront sales and implementation investments do not result in sufficient sales to justify our investments, our revenue could be lower than expected and it could have a material adverse effect on our business, financial condition, or results of operations.

We have limited experience with order processing and are subject to internal order processing risks that could materially impact our ability to process orders.

We develop, manufacture and assemble our laser communication products in-house. As part of our order processing management, we will need to implement adequate internal logistical and technical production processes to minimize project-based risks. Once a customer orders our products, we must deliver such products to the customer on a mutually agreed date. Since we have only limited experience with order processing, serial production and delivery logistics, there is a risk that unexpected or spontaneous demand for our products could lead to delays in our internal logistical and technical production processes as well as delays in delivery. This is especially true in the space domain, in which potential customers may demand a steep production increase of laser communication equipment for the rapid deployment of constellations in order to minimize the time during which the constellation is only partially deployed and therefore of limited use. Unanticipated developments with respect to component assembly, or inability to handle customer orders due to a lack of appropriate processes, structures or other factors, could materially impact our ability to process orders. Issues related to order processing could also damage our reputation and render the sourcing of future orders more difficult, thereby having an adverse effect on our business, results of operations, financial position and prospects.

We depend on third-party suppliers to provide us with components for our products, and any interruptions in supplies provided by these third-party suppliers, including due to the COVID-19 pandemic, may subject us to external procurement risks that negatively affect our business.

We depend on third-party suppliers to provide individual components such as optical components, special electronics and structural components for our products and we expect to continue to do so for future products. While some key components are manufactured to our specifications, most components are “off-the-shelf” and available commercially.

We generally do not maintain long-term supply contracts, but instead rely on informal arrangements and off-the-shelf purchases based on purchase orders. We do not carry a significant inventory of necessary components and our suppliers could discontinue the manufacture or supply of these components at any time. Establishing additional or replacement suppliers for any of these components, if required, or any supply interruption from our suppliers, could limit our ability to manufacture our products, result in production delays

 

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and increased costs and adversely affect our ability to deliver products to our customers on a timely basis, which could result in our failure to perform under customer contracts. If we are not able to identify alternate sources of supply for the components, we may need to modify our product to use substitute components, which could cause delays in shipments, increase design and manufacturing costs and increase prices for our products. Any such modified product might not be as effective as the predecessor product or might not gain market acceptance. This could lead to customer dissatisfaction, reputational harm and loss of customer orders, which would have an adverse effect on our business, results of operations, financial position and prospects. Furthermore, we experienced a supply shortage of certain components in 2020 due the COVID-19 pandemic, which generally led to disruptions in global supply chains. As we managed our supply chain effectively, this supply shortage did not have a quantifiable effect on our business or results of operations. However, if the COVID-19 pandemic continues to negatively impact global supply chains, including our suppliers, we may experience delays in shipments of timely ordered components or increasing prices due to limited supply, which may adversely affect our business and results of operation.

Some of our current suppliers are specialty suppliers providing components that are only available from a handful of suppliers worldwide (or in some cases a sole supplier), which means that off-the-shelf components may not be viable substitutes. It is therefore not always possible to adhere to our “second source strategy” (pursuant to which we always seek to have at least two qualified suppliers for every component). If these specialty suppliers become unable to deliver the required components, procuring these components from another supplier may only be possible at significant additional cost, if at all. As a result, there is a risk that we cannot obtain the components needed for manufacturing our products on a timely basis or at an economically viable cost, and, thus, become unable to deliver our products, resulting in reputational harm and loss of existing and future business.

Furthermore, an unexpected or spontaneous increase in demand could lead to our suppliers experiencing capacity constraints, as a result of which they may be unable to deliver to us the required quantities of a component or part on a timely basis, especially considering that certain of our suppliers are also at an early stage of development and may not have manufactured products at scale themselves. In addition, unexpected technical problems, delivery bottlenecks and quality issues at our suppliers, as well as issues with our suppliers’ partners or subcontractors, could also delay, or even entirely prevent, deliveries to our customers, resulting in breaches of customer contracts and loss of existing and future business.

In addition, it is possible that certain components are ultimately not qualified for use, or may not function as intended. The particularly long development cycles in our business and lengthy qualification of individual components render quick replacement of individual suppliers difficult. Insourcing of certain components may require lengthy preparations, license negotiations or significant capital expenditures, or may not be possible at all.

If we are unable to keep up with demand for our products by obtaining the components needed to successfully manufacture and deliver our products in a timely manner, our business could be impaired, and market acceptance for our products could be adversely affected.

Defects or performance problems in our products could result in loss of customers, reputational damage, lawsuits and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products.

To date, we have only delivered pre-serial and individual prototype versions of our products for demonstration purposes. Although we have implemented stringent quality controls, our products may contain undetected errors or defects, especially when first introduced, or may otherwise fail to meet our customers’ quality requirements. These errors, defects, product failures or poor performance can arise due to design flaws, defects in raw materials or components or manufacturing difficulties, which can affect both the quality and the performance of the product.

 

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Any actual or perceived errors, defects or poor performance in our products could result in the replacement or rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts or increases in customer service and support costs. Furthermore, our customers may suffer consequential damages significantly exceeding the value of the products we sell to them if our products are defective or fail to meet their quality requirements. Defective components may give rise to warranty, indemnity or product liability claims against us that could significantly exceed any revenue or profit we receive from such products. Moreover, our insurance coverage may be inadequate to cover our liabilities related to such claims and we may not be able to maintain adequate insurance in the future at rates we consider reasonable and commercially justifiable, and insurance may not continue to be available on the same terms as our current arrangements. The occurrence of a significant uninsured claim, or a claim in excess of the insurance coverage limits maintained by us, could harm our business, financial condition and results of operations.

If one of our products causes bodily injury or property damage, including as a result of product malfunctions, defects or improper installation, then we could be exposed to product liability claims. We could incur significant costs and liabilities if we are sued and if damages are awarded against us. Further, any product liability claim we face could be expensive to defend and could divert management’s attention.

We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.

If our operations continue to grow as planned, we will need to expand our sales and marketing, research and development, customer and commercial strategy, products and services, supply and manufacturing functions. We will also need to continue to leverage our manufacturing and operational systems and processes, and we cannot assure you that we will be able to scale the business and the manufacture of products as currently planned or within the envisaged timeframe. The continued expansion of our business may also require additional manufacturing and operational facilities, as well as space for administrative support, and we cannot assure you that we will be able to find suitable locations for the manufacture of our products.

Our continued growth could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring and training employees, finding manufacturing capacity to produce our products, and delays in production. We may have to invest significant additional resources and focus our attention on adapting our internal organization, function and processes which may cause distraction from our operations and negatively affect our business.

We may not be able to obtain sufficient financing for the operations and ongoing growth of our business.

The implementation of our business strategy requires significant capital outlays. The nature of our business also requires us to make capital expenditure decisions in anticipation of customer demand. We have, since our inception, financed our business operations, and expect to continue to finance our business operations. While we primarily seek to finance our business by raising equity capital, we entered into a credit agreement with three lenders for a credit line of approximately €25 million on September 15, 2021 (see also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement”). We anticipate that our future cash requirements will continue to be significant and that we will need to obtain additional financing, including the proceeds from this offering, to implement our business plan as described in this prospectus. The availability and cost of external financing depend on a number of factors, including our financial performance, general market conditions and, in the case of any debt financing, our credit rating. This financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business.

Our ability to raise equity financing largely depends on our ability to convince investors to fund our operations and growth, especially considering that we have not generated meaningful revenues to date and our market valuation is mostly based on our potential future financial performance rather than past or current financial performance. Our ability to raise financing will depend on the growth of the laser communication market, as well as our success in securing market share and implementing our business model. It is also dependent on our ability to position ourselves favorably to investors from different regions, with different

 

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investment focus and investment limitations. This is particularly relevant as our involvement in the government defense sector may make us unattractive to investors with certain environmental, social and corporate governance (ESG) requirements. Furthermore, our ability to raise equity financing depends on the general interest of investors in the aerospace sector and the sentiment of the financial markets at large, both of which are beyond our control.

Our ability to raise further debt financing, should we need or choose to do so, will largely depend on past financial results. Given that we and the industry in which we operate are still at a very early stage and due to our intensive development activities over the last few years, we have consistently incurred significant losses, which have a negative impact on our creditworthiness to banks and lenders. We may fail to obtain debt financing due to a perceived low creditworthiness, a lack of credit ratings, our management’s ability to negotiate with existing or potential lenders, as well as external factors such as general market interest rates, banks’ and other lenders’ credit policies or changes in the legal environment. Furthermore, any debt financing, if available, may involve restrictive covenants that could reduce our operational flexibility or profitability.

In addition, long-term disruptions to the capital or credit markets as a result of uncertainty or recession, changing or increased regulation or failures of significant financial institutions could adversely affect our access to capital. If adequate funds are not available on a timely basis, we may be required to curtail the development of our technology or products, or materially delay, curtail, reduce or terminate our research and development and commercialization activities. We could be forced to sell or dispose of our rights or assets. Any inability to raise adequate funds on commercially reasonable terms could have a material adverse effect on our business, financial condition, results of operation and prospects, including the possibility that a lack of funds could cause our business to fail and liquidate with little or no return to investors.

We are highly dependent on our senior management team and other highly qualified personnel, and if we are not successful in attracting or retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our success depends, in significant part, on the continued services of our senior management team and on our ability to attract, motivate, develop and retain a sufficient number of other highly qualified engineering, design, manufacturing and quality assurance, finance, marketing, sales and support personnel. Certain members of our senior management team have extensive experience in the aerospace industry, and we believe that their depth of experience is instrumental to our continued success. The loss of any one or more members of our senior management team, for any reason, including resignation or retirement, could adversely affect our business and competitiveness.

Competition for qualified employees is intense, and our ability to hire, attract and retain such employees depends, among other things, on our ability to provide competitive compensation. In addition, there is only a small pool of potential replacement employees with adequate competencies and knowledge. Any inability to hire, attract, train and develop qualified employees may result in high employee turnover and may force us to pay significantly higher wages, which may harm our profitability. In addition, we may have to hire a significant additional number of employees in order to be able to finalize the development of our products and start serial production according to our currently envisaged timeline.

Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.

Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our IT systems, which support our operations. Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from, among other things, computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the internet, attachments to emails, persons inside our

 

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organization, or persons with access to systems inside our organization or similar disruptive problems. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. Furthermore, foreign governments may target us given our involvement in government programs, including because we may be in possession of national security information and involved in the development of advanced technology systems. If we are unable to protect sensitive information, governmental authorities could question the adequacy of our security measures.

Our disaster recovery planning cannot account for all eventualities. Our business and operations could be adversely affected if, as a result of a significant cyber event or otherwise, our operations are disrupted or shut down, confidential or proprietary information of ours, our employees, our customers or other third parties such as suppliers is stolen, lost or disclosed, we lose customers, we incur costs or are required to pay fines in connection with confidential or export-controlled information that is disclosed, we must dedicate significant resources to system repairs or increase cyber security protection or we otherwise incur significant litigation or other costs as a result of any such event. Furthermore, negative publicity arising from these types of events could damage our reputation. While our insurance coverage could offset losses relating to some of these types of events, to the extent any such losses are not covered by insurance, a serious disruption to our systems could significantly limit our ability to manage and operate our business efficiently, which in turn could have a material adverse effect on our business, results of operations and financial condition. In addition, our products can be exposed to cyber-security risks, such as the risk of being breached or failure to detect, prevent or combat attacks, which could result in losses to our customers and claims against us. A cybersecurity breach could also hurt our reputation by adversely affecting our customers’ perception of the security of their information.

We may not be able to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and other incentives for which we may apply, which may negatively affect our ability to reach funding goals.

We may apply for German and foreign federal and state grants, loans and tax incentives under various government programs designed to stimulate the economy of the relevant jurisdiction or to support the development of aerospace related technologies. We anticipate that there may be new opportunities for us to apply for grants, loans and other incentives from the German federal or state government(s), the European Union or other governments or quasi-governmental organizations. Our ability to obtain funds or incentives from these sources is subject to the availability of funds under applicable programs and approval of our applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive. We cannot assure you that we will be successful in obtaining any of these grants, loans and other incentives. If we are not successful in obtaining any of these additional incentives and unable to find alternative sources of funding to meet our planned capital needs, our business and prospects could be materially adversely affected.

We are a supplier for government programs, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.

Within the value chain for the government aerospace communication industry, we are a sub-system supplier for system primes such as aircraft and satellite manufacturers. We have entered into contracts as a sub-system supplier with counterparties that are prime contractors for the U.S. government and we may also enter into contracts directly with the U.S. or non-U.S. governments in the future. As a result, we are and may in the future be subject to statutes and regulations applicable to companies doing business with the relevant government. Government contracts may contain provisions that give the government substantial rights and remedies, many of which are not typically found in commercial contracts with private sector counterparts and which are unfavorable to the contractors. For example, most U.S. government agencies include provisions that allow the government to

 

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unilaterally terminate or modify contracts for convenience, and in that event, the counterparty to the contract may generally recover only its incurred or committed costs and settlement expenses and profit on work completed prior to the termination.

In addition, government contracts typically contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

 

   

specialized disclosure and accounting requirements unique to government contracts;

 

   

financial and compliance audits that may result in potential liability for price adjustments, recoupment of government funds after such funds have been spent, civil and criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government;

 

   

public disclosures of certain contract and company information; and

 

   

mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.

If we fail to comply with government contracting laws, regulations and contract requirements, our government contracts may be subject to termination, and we may become subject to financial and/or other liability under our contracts or criminal law. Any penalties, damages, fines, suspension, or damages could adversely affect our ability to operate our business and our financial results.

We are exposed to foreign currency exchange risk and our financial position and results of operations may be negatively affected by the fluctuation of different currencies.

We conduct business transactions in foreign currencies. Accordingly, exchange rate movements can have an adverse effect on our financial position and results of operations. Exposure to foreign currency exchange risk arises, for example, from purchases and sales transacted by one of our operating units in currencies other than the unit’s functional currency. We operate primarily in Europe and the U.S. Some sales are thus transacted in foreign currency (U.S. dollars). U.S. dollar cash inflows are used to finance the Company’s U.S. subsidiary. As of June 30, 2021 and December 31, 2020, we had U.S. dollar receivables of €                 and €550,000, respectively.

Regulatory, Legal and Tax Risks

We are subject to regulatory risks, in particular related to evolving sanctions laws as well as governmental export controls, in a number of jurisdictions that could limit our customer base and result in higher compliance costs.

We are subject to regulatory risks, in particular related to complex and evolving export control and economic sanctions laws in certain of the markets in which we operate, including the United States and the European Union. Export control laws impose controls, export license requirements and restrictions on the export of certain products and technology. Any changes to our products or changes in export regulations may limit our ability to export our products and provide our services (such as product maintenance or installation services) in certain countries, or may require export authorizations, including by license, license exception or other appropriate government authorizations.

Export control and economic sanctions laws may include prohibitions on the sale or supply of certain products to embargoed or sanctioned countries and regions, governments, persons and entities. For example, while spaceborne laser communication terminals initially did not qualify as a dual use item under applicable German or EU regulations, in July 2020, the German government issued a so-called single intervention (Einzeleingriff) banning the shipment of spaceborne laser communication terminals to customers in China, which

 

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included the shipment of our laser communication products to a Chinese customer. As a result of this decision, we decided to withdraw from the Chinese market. Subsequently, the German legislature amended the national export list (Ausfuhrliste) and specifically categorized spaceborne laser communication terminals as a dual-use item, requiring prior governmental approval before exportation. However, due to the further enhancement of our products, our CONDOR laser terminal now also qualifies as a dual-use item under the EU’s Dual-Use Regulation, which supersedes the national dual-use regulations of the EU member states. Although the export of our CONDOR laser communication terminals is covered by the EU’s general export authorization (EU-Allgemeingenehmigung), we nevertheless will be required to obtain an (individual) export authorization if we export dual-use products to countries that are not covered by the EU’s general export authorization. In a number of other jurisdictions relevant to our operations, laser communication has not yet been specifically categorized as dual-use goods. If laser communication products were categorized as dual-use goods in other jurisdictions, our ability to sell products to certain markets could be adversely affected or we may be required to obtain export licenses. If we fail to obtain such licenses, our business and operations could be adversely affected.

In addition, various countries regulate the importation of certain products, through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products. Since laser communication is a new technology, import regulations that govern the operation of terminals may be issued and change over time. As of today, we are required to obtain approval for imports to the United States (in the form of what is known as an accession number) under certain performance standards issued by the U.S. Food and Drug Administration, which we have obtained. In addition, while we are currently not subject to the regulation and license requirements of the U.S. Federal Aviation Administration (FAA) or the European Aviation Safety Agency (EASA), we may become subject to such regulations and license requirements in the future. Violations of applicable export control laws and related regulations could result in criminal or administrative penalties, including fines, denial of export privileges, and debarment, which could have a material adverse impact on our business, including our ability to enter into contracts or subcontracts with U.S. or other government customers.

Currently, our largest potential customer base is located in North America. We believe that further potential markets may develop in certain Asian (except China) and Middle Eastern, as well as a number of European, countries. Our products could, therefore, become subject to international trade restrictions in these markets. For example, with respect to the United States, there is a risk that our products may become restricted under arms control provisions, such as the International Traffic in Arms Regulations (“ITAR”). To the best of our knowledge, none of the components we currently use in our products is subject to arms regulations and, thus, our products are not restricted under arms control provisions in the U.S., such as the ITAR. We have also implemented a strict non-ITAR procurement policy that requires us to procure components that are not subject to ITAR. However, we cannot assure you that in the future all required parts can be obtained under this strict policy. If our products become subject to the ITAR, we may experience lower customer demand for our products. To the extent that certain required parts can only be obtained in compliance with arms control regulations our products could also become subject to arms control regulations, which could have a significant negative effect on the marketability of our products. This would limit our potential customer base to a very limited number of potential customers who are able to import and purchase arms products in accordance with applicable regulations, which could have a material adverse effect on our commercialization plans.

Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our products.

We may be required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) to determine, disclose and report whether our products contain “conflict minerals” (tin, tungsten, tantalum and gold). In addition, Regulation (EU) 2017/821 of the European Parliament and of the Council of 17 May 2017, setting forth supply chain due diligence obligations for European Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas, contains similar obligations (“EU Conflict Minerals Regulation”). Even though we do not import such minerals directly, the electronic components we use in our products may contain such minerals and, as a consequence, we may be

 

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required to comply with these requirements and procedures. The implementation of these requirements could adversely affect the sourcing, availability and pricing of the materials used in the manufacture of components used in our products. In addition, we may incur additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used in or necessary to the production of our products and, if applicable, potential changes to products, processes, or sources of supply as a consequence of such verification activities. We may also face reputational challenges if we determine that certain of our products contain minerals that are not determined to be conflict-free.

If we do not maintain required security clearances from, and comply with our agreements with, the U.S. government, we may not be able to continue to perform our obligations under contracts involving the U.S. government.

To participate in certain U.S. government programs, we expect to seek and obtain security clearances from the U.S. Department of Defense, including by establishing a U.S. entity cleared for access to classified information. Given our non-U.S. ownership, we expect to enter into a special security agreement with the U.S. government that limits certain of our operations, as required under the national security laws and regulations of the United States. If we or our employees are unable to obtain or retain necessary security clearances, we may not be able to win new business, bid on new contracts or effectively rebid on expiring contracts. As a result, our business could be materially adversely affected. Further, if we violate the terms of the special security agreement or if we are found to have materially violated U.S. law, we may be suspended or barred from participating in any government contracts, whether classified or unclassified, and we could be subject to civil or criminal penalties.

Our business is and could become subject to a wide variety of extensive and evolving government laws and regulations. Failure to comply with such laws and regulations could have a material adverse effect on our business.

We are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to our technology and products, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at the German and foreign, federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact of, or the ultimate cost of compliance with, current or future regulatory or administrative changes. For example, the implementation of satellite internet via radio frequency generally requires a license, which will only allot a fraction of the available spectrum and requires a costly and time-consuming application process. Laser communication is currently not regulated by the International Telecommunication Union and can therefore be used without restrictions. However, we cannot assure you that comparable regulatory provisions applicable to laser communication will not be introduced. If laser communication becomes subject to extensive regulations, this could have a material adverse effect on our business and prospects.

Changes in law or the imposition of new or additional regulations that impact our business could negatively impact our performance in various ways, including by limiting our ability to collaborate with partners or customers or by increasing our costs and the time necessary to obtain required authorization. We monitor new developments and devote a significant amount of management’s time and external resources to compliance with these laws and regulations. We cannot assure you, however, that we are and will remain in compliance with all such requirements and, even when we believe we are in compliance, a regulatory agency may determine that we are not. Failure by us, our employees, affiliates, partners or others with whom we work to comply with applicable laws and regulations could result in administrative, civil, commercial or criminal liabilities, including suspension or debarment from government contracts or suspension of our export/import privileges.

 

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Positive market developments in the area of wireless laser communication could lead to increasingly intense political interest and influence impacting our business.

The reliable provision and expansion of critical infrastructure such as communication networks is at the core of national interests. Constellations (i.e., communications networks consisting of a large volume of platforms) could, if successful, become a cornerstone of the communication landscape of the future and we believe that laser communication technology will play a key role in these constellations. A positive development in the constellations and laser communication market could, therefore, lead to increasing political interest and influence impacting our business including, but not limited to, influence from the United States, which we consider our most important market.

Changes in laws, regulations, political leadership and environment, and/or security risks may dramatically affect our ability to conduct business in international markets, including sales to customers and purchases from suppliers. In particular, our operations may be impacted by German, U.S. or other national policies and priorities, political decisions and geopolitical relationships, any of which may be influenced by changes in the threat environment, political leadership, geopolitical uncertainties, world events, bilateral and multi-lateral relationships and economic and political factors. This is particularly relevant in light of the decision by the German government in July 2020 to ban the shipment of spaceborne laser communication terminals to customers in China, which included the shipment of our laser communication products to a Chinese customer, as a result of which we decided to exit the Chinese market. Due to the German government’s export ban, we lost a potential major market for our products and, if we do not prevail in our lawsuit before the Administrative Court of Berlin challenging the export ban, we are at significant risk of not being adequately compensated for the loss of business or at all. See “Business—Legal Proceedings.” We have only limited options for containing these risks and the occurrence and impact of any of these factors is difficult to predict, but one or more of them could have a material adverse effect on our financial position, results of operations and/or cash flows.

We may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology.

Our success and competitiveness depends, in significant part, on our ability to protect our intellectual property rights, including our laser communication technology and certain other practices, tools, technologies and technical expertise we utilize in designing, developing, implementing and maintaining applications and processes used in our products. To date, we have relied exclusively on trade secrets and other intellectual property laws, non-disclosure agreements with our employees, consultants, vendors, customers and other relevant persons and other measures to protect our intellectual property, and intend to continue to rely on these and other means.

For strategic reasons, we do not protect our intellectual property by filing patent applications related to our technology, inventions and improvements. Even if we filed patent applications and patents were granted, we cannot assure you we would be fully protected against third parties as those patents may not be sufficiently broad in their coverage, may not be economically significant, or may not provide us with any competitive advantage. Competitors may be able to design around any patents and develop products that provide outcomes comparable or superior to ours. Furthermore, the filing of a patent would entail the disclosure of our know-how, and breaches of patent rights related to a wrongful use of this know-how would be difficult to enforce in the international landscape. We believe that our intellectual property strategy differs significantly from the strategies of others involved in the laser communication market, many of whom have extensive patent portfolios and rely heavily on intellectual property registrations to enforce their intellectual property rights. As a result of this discrepancy in strategy, we may be at a competitive disadvantage with respect to the strength of our intellectual property protection. Unlike others involved in the laser communication market, who generally have patents providing exclusive control over their innovations, we have no recourse against any entity that independently creates the same technology as ours or legitimately reverse-engineers our technology.

 

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We generally enter into non-disclosure agreements with our employees, consultants and other parties with whom we have strategic relationships and business alliances. We have also entered into license agreements with various collaboration partners. We cannot, however, assure you that these agreements will be effective in controlling access to and distribution of our technology and proprietary information. Since we do not protect our intellectual property by filing patent applications, we rely on our personnel to protect our trade secrets, know-how and other proprietary information to a greater degree than we would if we had patent protection for our intellectual property. In jurisdictions in which our research and development is not protected by similar agreements, there is no protection against the manufacture and marketing of identical or comparable research and development by third parties, who are generally free to use, independently develop, and sell our developments and technologies without paying license or royalty fees. Furthermore, our former employees may perform work for our competitors and use our know-how in performing this work. As we scale our business to support serial production of our laser communication products for new customers by hiring personnel and entering into contracts with third parties, the risks associated with breaches of non-disclosure agreements, confidentiality agreements and other agreements pertaining to our technology and proprietary information will increase, and such breaches could have an adverse effect on our business and competitive position.

We may come to believe that third parties are infringing on, or otherwise violating, our intellectual property or other proprietary rights. To prevent infringement or unauthorized use, we may need to file infringement and/or misappropriation suits, which are expensive and time-consuming, could result in meritorious counterclaims against us and would distract management’s attention. In addition, in an infringement or misappropriation proceeding, a court may decide that one or more of our intellectual property rights is invalid, unenforceable, or both, in which case third parties may be able to use our technology without paying license fees or royalties. If we are unable to protect our intellectual property and proprietary rights, we may be unable to prevent competitors from using our own inventions and intellectual property to compete against us, and our business may be harmed.

We may be involved in legal proceedings based on the alleged violation of intellectual property rights, such as patent or trademark infringement claims, which may be time-consuming and incur substantial costs.

Our industry is characterized by competing intellectual property. We may, therefore, be subject to legal actions for violating intellectual property rights of others, including claims that competitors, collaborators or former employees have an interest in our trade secrets or other intellectual property, and as a result could be subject to significant litigation or licensing costs or face obstacles to selling our products.

As the number of competitors in the market for laser communication grows, the possibility of infringement claims against us increases. Established market players such as SpaceX, OneWeb, Telesat and Amazon may invest significant resources and capital to protect their intellectual property and scan the market for potential violations, and in many cases our competitors have well-developed patent and intellectual property rights strategies in place. There is generally a heightened risk that inquiries or legal proceedings based on the alleged violation of intellectual property rights are initiated by competitors that develop and test technologies similar to ours, particularly because our competitors may easily determine that we lack the ability to make counter-assertions because of our intellectual property strategy. Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can, particularly if they have substantially greater resources. Defending against such litigation is costly and time consuming due to the complexity of our technology and the uncertainty of intellectual property litigation, and would distract our management from our business. Without the protection afforded by patents, the costs we incur defending against such litigation may be greater than the costs incurred by our competitors who have received patent protection for their technologies. Furthermore, we may be required to incur greater costs than our competitors who have received patent protection for their technologies, as we lack the ability to offer cross-licensing arrangements for patents of our own. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

In the event that we become subject to a patent infringement or other intellectual property lawsuit and if the relevant patents or other intellectual property were upheld as valid and enforceable and we were found to infringe

 

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or violate those rights or the terms of a license to which we are a party, we could be prevented from selling any infringing products of ours unless we could obtain a license or were able to redesign the product to avoid infringement. If we are unable to obtain a license or successfully redesign, we might be prevented from selling our technology or products. If we are able to redesign, we may need to invest substantial resources in the redesign process. If there is an allegation or determination that we have infringed the intellectual property rights of a competitor or other person, we may be required to pay damages, a settlement or ongoing royalties, or we may be required to enter into cross-licenses with our competitors or we may be required to cease using certain technologies or abruptly change the focus of our development efforts so as to avoid infringing the rights of third parties. In any of these circumstances, we may be unable to sell our products at competitive prices or at all and our business, financial condition, results of operations, prospects and reputation could be harmed.

Furthermore, a licensor, collaborator, employee, consultant, adviser or other third party may dispute our or our licensor’s ownership of certain intellectual property rights. We seek to address these concerns in our contractual agreements; however, we may not have contractual arrangements with the party in question or these provisions may not be effective. If these provisions prove to be ineffective or if we or our licensors fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property rights, such as ownership of, or right to use, intellectual property, which could adversely impact our business, financial condition and results of operations.

In addition, we may be required to indemnify our customers against claims relating to the infringement of intellectual property rights of third parties related to our products. Third parties may assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers, or may be required to obtain licenses for the products or services they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.

Due to the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during discovery. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the price of the ADSs. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of the ADSs.

We have been and may become involved in litigation and administrative and regulatory proceedings, which require significant attention from our management and could result in significant expense to us and disruptions to our business.

We have been and may become involved in lawsuits and administrative and regulatory proceedings relating to our business, such as commercial contract claims, proceedings initiated by public authorities or other examinations and investigations. For example, in 2020 the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) initiated an investigation against us on the grounds of the alleged omission of an ad hoc disclosure under the ad hoc disclosure obligation of Article 17 para. 1 of the European Market Abuse Regulation. On January 14, 2020, we had announced, by means of a press release published on our website, that we had entered into a new multi-million Euro contract with a space customer. BaFin argued that the conclusion of this contract would have fallen under the ad hoc disclosure obligation of Article 17 para. 1 MAR, and that the publication on our website did not satisfy this obligation. BaFin currently still upholds its view of an existing infringement of the ad hoc disclosure obligation. Should an administrative offence be found, the amount of any fine would depend on BaFin’s determination of the severity of the offence. We expect a minimum fine of at least €225,000 will be imposed. The maximum possible amount of such fine is the highest of (i) €2.5 million, (ii) 2% of our total revenue in the financial year preceding the year in which BaFin imposes a fine, and (iii) three times the amount of any commercial advantage we may have had as a result of the alleged omission of an ad hoc disclosure under the ad hoc disclosure obligation of Article 17 para. 1 MAR. See “Business—Legal Proceedings.”

 

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Some of these proceedings may result in significant monetary damages or cause reputational harm. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any proceeding. An unfavorable outcome could materially adversely affect our business, financial condition and results of operations or limit our ability to engage in certain of our business activities. In addition, regardless of the outcome of any litigation, administrative or regulatory proceeding, such proceedings may be expensive, time-consuming, disruptive to normal business operations and require significant attention from our management.

We may be subject to claims that our employees, consultants or advisers have wrongfully used or disclosed alleged trade secrets of their former employers.

Some of our employees, consultants and advisers, including our senior management, were previously employed at other companies that are engaged in the development or production of laser communication technology or products. Some of these employees, consultants and advisers, including members of our senior management, may have executed proprietary rights, nondisclosure and/or non-competition agreements in connection with their previous employment. Although we try to ensure that these individuals do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such former employer. We are not aware of any such disclosures, or threatened or pending claims related to these matters, but in the future, litigation may be necessary to defend against such claims. If we fail in defending any such claims, we may lose valuable intellectual property rights or personnel, in addition to possibly paying monetary damages or being enjoined from conducting our business as contemplated. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Our risk management and internal control procedures may not prevent or detect violations of law.

Our business may or will be subject to various laws and regulations relating to, among other things, bribery and corruption, money laundering, antitrust and data protection, as well as export control regulations, trade and economic sanctions and embargoes on certain countries, persons, groups and/or entities, projects and/or activities. Our existing risk management and compliance processes and controls may not be sufficient to effectively prevent or detect inadequate practices, fraud and violations of law or group-wide policies by our subsidiaries, intermediaries, sales agents, employees, directors and officers. As a result, we may be exposed to legal sanctions, penalties and loss of orders as well as material harm to our reputation.

While we have procedures in place designed to ensure compliance with sanctions and other trade controls, and while we monitor our product developments closely regarding any further regulatory implications, we cannot assure you that our sanctions compliance procedures and trade controls policies will effectively prevent us from violating such laws and regulations. Unanticipated developments such as Germany’s decision to categorize our spaceborne laser communication terminals as dual-use goods (i.e., products that may have both civil and military applications) may require us to obtain new governmental approvals or licenses, which we have not anticipated, for the export of our products to countries which are not covered by the EU’s general export authorization. In addition, we cannot assure you that our compliance processes will be efficiently implemented in the future or that our subsidiaries, intermediaries, sales agents, employees, directors and officers will effectively follow these processes.

Our failure to maintain adequate internal controls, including in relation to the handling of conflicts of interest, the prevention of bribery, corruption, violations of sanctions and other trade control laws and regulations, and the handling of confidential information and information technology security, as the applicable standards regulating such internal control requirements are modified or amended from time to time, could result in violations of applicable laws, rules or regulations and adversely affect our business, financial condition and results of operations, and in particular on costs.

 

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We may become a passive foreign investment company (“PFIC”), which could result in adverse United States federal income tax consequences to United States investors.

Based on the projected composition of our income and valuation of our assets, including goodwill, we do not expect to be a PFIC for our current taxable year or in the future, although there can be no assurance in this regard. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (1) 75% or more of our gross income in a taxable year is passive income, or (2) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. Although we do not expect to become a PFIC, our PFIC status is a factual determination that is made annually and thus may be subject to change. It is therefore possible that we could become a PFIC in a future taxable year. In addition, our current position that we are not a PFIC is based in part upon the value of our goodwill which is based on the market value of the ADSs and ordinary shares. Accordingly, we could become a PFIC in the future if there is a substantial decline in the value of the ADSs and ordinary shares. If we are or were to become a PFIC, such characterization could result in adverse United States federal income tax consequences and burdensome reporting requirements to a holder of ADSs if such holder is a United States investor.

We may become exposed to unforeseen tax consequences as a result of operating across borders and in multiple jurisdictions.

The more markets in which we operate, the greater our exposure to unforeseen tax consequences. Any expansion internationally would increase the tax risks we face associated with international operations, including expanded compliance with potentially conflicting and changing laws of taxing jurisdictions where we do business, the complexity and adverse consequences of such tax laws, and potentially adverse tax consequences due to changes in such tax laws.

Risks Related to the ADSs and this Offering

We cannot assure you that an active and liquid market for the ADSs will develop.

While our ordinary shares are traded on the Xetra trading system of the Frankfurt Stock Exchange, no public market has previously existed for the ADSs in the United States and we cannot assure you that a market for the ADSs will develop or be sustained after this offering. Public trading markets may also experience volatility and disruption. This may affect the pricing of the ADSs in the market, the transparency and availability of trading prices, and the liquidity of the ADSs. We cannot predict the prices at which the ADSs will trade. The public offering price for the ADSs will be determined based in large part on the market price for our ordinary shares on the Frankfurt Stock Exchange at the time of this offering. This offering price may not be indicative of the market price of the ADSs or ordinary shares after this offering. If an active trading market for the ADSs does not develop or is not sustained, investors may not be able to sell their ADSs at or above the offering price or at the time that they would like to sell.

The market price of the ADSs could fluctuate significantly, which could result in substantial losses for purchasers of the ADSs in this offering.

The stock market in general and the market for smaller technology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result, you may not be able to sell your ADSs at or above the public offering price and you may lose some or all of your investment. Following this offering, the market price of the ADSs will be affected by the supply and demand for the ADSs, which may be influenced by numerous factors, many of which are beyond our control, including:

 

   

fluctuation in actual or projected results of operations;

 

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changes in projected earnings or failure to meet securities analysts’ earnings expectations;

 

   

the absence of analyst coverage;

 

   

negative analyst recommendations;

 

   

changes in trading volumes in the ADSs (including by the sale of shares or ADSs granted to our employees under employee participation programs);

 

   

large-volume or targeted transactions by short-sellers;

 

   

changes in our shareholder structure;

 

   

changes in macroeconomic conditions;

 

   

the activities of competitors and sellers;

 

   

changes in the market valuations of comparable companies;

 

   

our ability to successfully finalize development of, market and commercialize our products;

 

   

the recruitment or departure of key management or scientific personnel or other key employees;

 

   

significant lawsuits, including patent, shareholder or customer litigation;

 

   

changes in investor and analyst perception with respect to our business or the industry in general; and

 

   

changes in the statutory framework applicable to our business.

As a result, the market price of the ADSs may be subject to substantial fluctuation.

In addition, general market conditions and fluctuation of share prices and trading volumes could lead to pressure on the market price of the ADSs, even if there may not be a reason for this based on our business performance or earnings outlook. Furthermore, investors in the secondary market may view our business more critically than investors in this offering, which could adversely affect the market price of the ADSs. In addition, prices for companies with a limited operating history may be more volatile compared to share prices for established companies or companies from other industries.

If the market price of the ADSs declines as a result of the realization of any of these risks, investors could lose part or all of their investment in the ADSs.

Additionally, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the shares. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

The acquisition of a 20% or more voting interest in us by foreign investors requires governmental approval, which may restrict certain investments in and limit demand for the ADSs.

Pursuant to the cross-sectoral examination in Section 55 et seq. of the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, “AWV”), the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie, “BMWi”) may prohibit or restrict the acquisition of our shares or ADSs by a foreign acquirer (i.e., an investor that is resident or based outside the European Union (Unionsfremder)) if it endangers the public order or the security of Germany. According to an amendment to the AWV, which came into force on May 1, 2021, statutory notification requirements apply, inter alia, to any acquisition by a foreign acquirer of 20% or more of the voting rights of a company that develops or manufactures, among other things, goods intended for use in space or for use in space infrastructure systems as

 

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well as goods specifically required for the operation of laser communication networks, including the Company. If grounds for an objection exist, the BMWi may prohibit the direct acquirer of the ADSs from making such an acquisition within two months of the receipt of the approval request in writing or issue instructions in order to ensure the public order or security in Germany. See “Regulatory Environment—German Foreign Investment Regime.” As a result, any such requirement to obtain governmental approval or the issuance of an objection by the BMWi may restrict certain investments in the ADSs, limit demand for the ADSs, and have negative impact on the stock exchange price of the ADSs.

Following this offering, our existing shareholders (other than our existing public shareholders) will retain a significant interest in us, and their interests may conflict with ours or those of our other shareholders.

Following the completion of this offering, our existing shareholders (other than existing public holders of our ordinary shares) will continue to own approximately                 % of our outstanding share capital (or approximately                 % of our outstanding share capital if the underwriters exercise their option to purchase additional ADSs from us in full) and therefore retain a majority of the votes in our shareholders’ meeting. Our founders, members of our management and supervisory boards and known five percent shareholders, together with their affiliates, collectively own approximately 17.6% of our outstanding share capital, and following the completion of this offering will collectively own approximately                 % of our outstanding share capital (or approximately                 % of our outstanding share capital if the underwriters exercise their option to purchase additional ADSs from us in full). See “Principal Shareholders.” The interests of our existing shareholders may deviate from our interests or those of our other shareholders. Certain measures and transactions, including dividend payments, may be impossible to implement without the support of our existing shareholders. By virtue of the voting power held by our founders, management and five percent shareholders, they may have significant influence over the outcome of any corporate transaction or other matters submitted to our shareholders’ meeting for approval. In addition, some of our existing shareholders hold various interests in a number of companies and conflicts of interests may arise between these investments and our interests. Conflicts between the interests of our existing shareholders and our interests or those of our other shareholders may have a material adverse effect on our business, financial condition, results of operations and prospects.

We will incur increased costs as a result of becoming a U.S. public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a U.S. public company, and particularly if we are no longer an emerging growth company under U.S. federal securities regulation, we will incur significant legal, accounting and other expenses, including, but not limited to, costs and expenses for management board members’ and supervisory board members’ fees, increased directors and officers insurance costs, investor relations costs, and various other costs associated with being a U.S. public company. The Sarbanes-Oxley Act, applicable listing requirements and other applicable securities rules and regulations impose various requirements on U.S. public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to maintain directors and officers insurance.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur in connection therewith, or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act, or Section 404, and therefore are not required to conduct a formal assessment of the

 

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effectiveness of our internal control over financial reporting for that purpose. Upon becoming a U.S. public company, we will be required to comply with the SEC’s rules implementing Sections 302, 906 and 404(a) of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our annual reports and attest to the effectiveness of control over financial reporting. Though we will be required to disclose material changes in internal control over financial reporting on an annual basis, we will not be required to make an annual assessment of our internal control over financial reporting pursuant to Section 404(a) until the year of our second annual report required to be filed with the SEC.

To achieve compliance with Section 404 within the prescribed period, we will be engaged in documenting and evaluating our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We currently have limited accounting personnel and we have begun the process of evaluating the adequacy of our accounting personnel staffing level and other matters related to our internal control over financial reporting. Despite our efforts, the overall control environment is still immature and may expose us to errors, losses or fraud. Hence, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404(a). Identification of (additional) material weaknesses once we are a U.S. public company could result in an adverse reaction among our investors due to a loss of confidence in the reliability of our financial statements. As a result, the market price of the ADSs could be negatively affected, and we could become subject to investigations by the stock exchange on which the ADSs are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

Additionally, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm pursuant to Section 404(b). Furthermore, after the date that we are no longer an emerging growth company, our independent registered public accounting firm will only be required to attest to the effectiveness of our internal controls over financial reporting depending on our market capitalization. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not.

The consequences of being a public company could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not be able to adapt our internal controls or our reporting and risk management procedures to the requirements of a U.S. public company.

We will need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to U.S. publicly listed companies, including requirements relating to corporate governance, internal control over financial reporting, listing standards, notification requirements and securities and investor relations issues, which will divert management attention and may prove costly. An inability to adapt our internal controls as well as our reporting and risk management procedures to the requirements of a public company could have a material adverse effect on our business, financial condition, results of operations and prospects.

In connection with the audits of our consolidated financial statements for the years ended December 31, 2019 and 2020, we identified material weaknesses 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 consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses that were identified primarily related to (i) a lack of sufficient resources with an appropriate level of technical accounting and SEC

 

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reporting experience and clearly defined roles within our finance and accounting functions, and (ii) a lack of design and operating effectiveness of information technology general controls for information systems that are relevant to the preparation of our consolidated financial statements.

We have relied on the assistance of external service providers with expertise in these matters to assist us in the preparation of our consolidated financial statements and in our compliance with SEC reporting obligations related to this offering and expect to continue to do so while we remediate these material weaknesses. While we have initiated a remediation plan to address these material weaknesses, our control environment still needs to be improved, and as a result, we may be exposed to errors. As part of this plan, we intend to (i) implement an enterprise resource planning (“ERP”) system from SAP AG in the second half of 2021, and (ii) hire additional senior level and staff accountants to implement robust processes and provide us with additional technical expertise. In the interim, we will continue to engage third parties as required to assist with technical accounting and tax matters. While we are working to remediate the weaknesses as quickly and efficiently as possible, we cannot at this time provide an estimate of the timeframe for implementing our plan to remediate these material weaknesses. These remediation measures may be time consuming and costly, and might place significant demands on our financial and operational resources.

Neither our management nor any outside advisor has performed an evaluation of our internal control over financial reporting in accordance with the provision of the Sarbanes Oxley Act because no such evaluation has been required. Had we or an outside advisor performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes Oxley Act, additional material weaknesses may have been identified. Any failure to establish or maintain an effective system of internal controls over financial reporting or to remediate material weaknesses could limit our ability to report our financial results accurately and in a timely manner or to detect and prevent fraud. If our efforts to establish and maintain an effective system of internal controls over financial reporting fail, regulatory authorities may initiate legal proceedings against us and our business, financial condition, results of operations and prospects could be adversely affected.

Future offerings of debt or equity securities by us could adversely affect the market price of the ADSs, and future issuances of equity securities could lead to a substantial dilution of our shareholders.

We will require additional capital in the future to finance our business operations and growth. We may seek to raise such capital through the issuance of additional equity or debt securities with conversion rights (e.g., convertible bonds and option rights). An issuance of additional equity or debt securities with conversion rights could potentially reduce the market price of the ADSs. We currently cannot predict the amounts and terms of such future offerings.

If offerings of equity or debt securities with conversion rights are made without granting preemptive rights to our existing shareholders, these offerings will dilute the economic and voting rights of our existing shareholders. Preemptive rights may be restricted or excluded by a resolution of our shareholders’ meeting or by another corporate body designated by our shareholders’ meeting. Our management board is authorized until May 13, 2026 to issue shares or grant rights to subscribe for shares up to our authorized share capital from time to time and to limit or exclude preemptive rights in connection therewith. This could cause existing shareholders to experience substantial dilution of their interest in us.

In addition, dilution may arise from the acquisition or investment by us in companies in exchange, fully or in part, for newly issued ADSs or shares, share options or conversion rights granted to our business partners or our customers as well as from the exercise of share options or conversion rights granted to our employees in the context of existing or future share option programs or the issuance of ADSs or shares to employees in the context of existing or future employee participation programs. Any future issuance of ADSs or shares could reduce the market price of the ADSs and dilute the holdings of existing shareholders.

 

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Future sales by major shareholders, or the perception of future sales, could materially adversely affect the market price of the ADSs.

For various reasons, shareholders may sell all or some of their shares or ADSs, including in order to diversify their investments, subject to certain restrictions described below. Certain of our existing shareholders hold a substantial number of our shares, and may acquire a substantial number of the ADSs in the future after completion of this offering. In addition, we may explore a delisting of our ordinary shares from the Frankfurt Stock Exchange in the medium term taking into consideration future trading volumes, administrative costs and other factors. In case of a delisting of our ordinary shares from the Frankfurt Stock Exchange, our shareholders may seek to sell their ordinary shares on the Frankfurt Stock Exchange or deposit their ordinary shares with the depositary or the custodian for the depositary in exchange for ADSs. Sales of a substantial number of our shares or ADSs in the public market following the successful completion of the offering or the issuance by the depositary of ADSs in connection with a potential delisting from the Frankfurt Stock Exchange, or the perception that such sales or issuances might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of additional equity securities.

Upon completion of this offering,                  ADSs will be outstanding representing                  ordinary shares, or approximately                 % of our outstanding share capital (or                  ADSs outstanding representing                  ordinary shares, or approximately                 % of our outstanding share capital, if the underwriters exercise their option to purchase additional ADSs from us in full). The ADSs offered in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), except for any ADSs that may be held or acquired by our “affiliates,” as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. In addition, following the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register our ordinary shares issuable under our stock option programs. Any such registration statement on Form S-8 will become effective automatically upon filing. Accordingly, ordinary shares issued upon exercise of a share option and registered pursuant to the Form S-8 registration statement will be available for sale in the open market upon exercise by the holders, subject to vesting and holding restrictions, as applicable, Rule 144 limitations applicable to our affiliates and the contractual lock-up provisions. See “Shares and ADSs Eligible for Future Sale.” In connection with this offering, we and the members of our management board and supervisory board have each entered into lock-up agreements pursuant to which we and they will not be permitted to sell ADSs or ordinary shares for 180 days after the date of this prospectus, without the prior consent of the representatives of the underwriters. See “Underwriting.”

We have broad discretion with respect to the use of the net proceeds from this offering and may not use them effectively.

Our management will have considerable discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of the ADSs. Shareholders may not be able to assess whether the proceeds are being used appropriately. We have not quantified or allocated any specific portion or range of the net proceeds to us for any particular purpose. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business and cause the price of the ADSs to decline. See “Use of Proceeds” in this prospectus.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the ADSs and trading volume could decline.

The trading market for the ADSs will depend in part on the research and other reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our shares or ADSs or publishes inaccurate or unfavorable research about our business, the trading price of the ADSs

 

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may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for the ADSs could decrease, which might cause the ADS price and trading volume to decline.

We do not expect to pay any dividends in the foreseeable future.

We have not yet paid any dividends to our shareholders and do not currently intend to pay dividends for the foreseeable future. Under German law, dividends may only be distributed from our distributable profit (Bilanzgewinn) reflected in our unconsolidated financial statements (as opposed to the consolidated financial statements for us and our subsidiaries) prepared in accordance with German generally accepted accounting principles of the German Commercial Code (Handelsgesetzbuch). Such accounting principles differ from IFRS as issued by the IASB in material respects.

Our ability to pay dividends therefore depends upon the availability of sufficient net retained profits. In addition, future financing arrangements may contain covenants that impose restrictions on our ability to pay dividends. Any determination to pay dividends in the future will be at the discretion of our management board and will depend upon our results of operations, financial condition, contractual restrictions, including restrictions imposed by existing or future financing agreements, restrictions imposed by applicable laws and other factors management deems relevant.

Consequently, we do not expect to pay dividends in the foreseeable future, and as a result any return on an investment in the ADSs will be solely dependent upon the appreciation of the trading price of the ADSs, which may not occur. See “Dividend Policy” in this prospectus.

Holders of the ADSs may be subject to limitations on transfer of their ADSs.

The ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. As a result, you may not be able to trade or otherwise transfer your ADSs in the manner or at the time you choose. See “Description of American Depositary Shares” in this prospectus.

Holders of ADSs are not treated as shareholders of our company and the exercise of voting rights by holders of the ADSs is limited by the terms of the deposit agreement.

By participating in this offering, you will become a holder of ADSs with underlying shares in a German public company. Holders of ADSs are not treated as our shareholders, unless they withdraw the shares underlying the ADSs from the depositary. The depositary and the custodian for the depositary are the holders of the ordinary shares underlying the ADSs. Holders of ADSs, therefore, do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement.

Holders of the ADSs may exercise their voting rights with respect to the ordinary shares underlying their ADSs only in accordance with the provisions of the deposit agreement. If we ask the depositary to solicit your instructions, then upon receipt of voting instructions from a holder of the ADSs in the manner set forth in the deposit agreement, the depositary for the ADSs will endeavor to vote such holder’s underlying ordinary shares in accordance with those instructions. Under our articles of association, the minimum notice period required for convening a shareholders’ meeting corresponds to the statutory minimum period, which is currently 36 days. When a shareholders’ meeting is convened, a holder of the ADSs may not receive notice of a shareholders’ meeting sufficiently in advance of the meeting to permit such holder to withdraw the ordinary shares underlying its ADSs from the depositary to allow the holder to cast its vote with respect to any specific matter at the

 

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meeting. In addition, the depositary and its agents may not be able to send voting instructions to a holder of the ADSs or carry out such holder’s voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to a holder of the ADSs in a timely manner, but such holder may not receive the voting materials in time to ensure that such holder can instruct the depositary to vote the shares underlying its ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, a holder of the ADSs may not be able to exercise its right to vote and may lack recourse if the ordinary shares are not voted as requested by such holder. See “Description of American Depositary Shares” in this prospectus.

The rights of shareholders in companies subject to German corporate law differ in material respects from the rights of shareholders of U.S. corporations.

We are a stock corporation (Aktiengesellschaft) incorporated under German law, and by participating in this offering you will become a holder of ADSs representing ordinary shares of a German stock corporation. Our corporate affairs are governed by our articles of association and by the laws governing stock corporations incorporated in Germany. You should be aware that the rights of shareholders of a German stock corporation under German law differ in important respects from those of shareholders of a U.S. corporation. These differences include, in particular:

 

   

Under German law, certain important resolutions, including, for example, capital decreases, measures under the German Transformation Act (Umwandlungsgesetz), such as mergers, conversions and spin-offs, the issuance of convertible bonds or bonds with warrants attached and the dissolution of the German stock corporation apart from insolvency and certain other proceedings, require the vote of a 75% majority of the capital represented at the relevant shareholders’ meeting (Hauptversammlung). Therefore, the holder or holders of a blocking minority of more than 25% or, depending on the attendance level at the shareholders’ meeting, the holder or holders of a smaller percentage of the shares in a German stock corporation may be able to block any such votes, possibly to our detriment or the detriment of our other shareholders.

 

   

As a general rule under German law, a shareholder has no direct recourse against the members of the management board (Vorstand) or supervisory board (Aufsichtsrat) of a German stock corporation in the event that they have breached their duty of loyalty or duty of care to the German stock corporation. Apart from insolvency or other special circumstances, only the German stock corporation itself has the right to claim damages from members of the management board or the supervisory board. A German stock corporation may waive or settle such damage claims only if at least three years have passed since the violation of a duty occurred and the shareholders approve the waiver or settlement at the shareholders’ meeting with a simple majority of the share capital represented at such meeting, unless a minority holding, in the aggregate, 10% or more of the German stock corporation’s share capital objects to the shareholder resolution approving the waiver or settlement and has its objection formally recorded in the minutes of the shareholder meeting by a German civil law notary.

For more information, we have provided summaries of relevant German corporate law and of our articles of association under “Description of Share Capital and Articles of Association.”

Holders of the ADSs may not be able to participate in any future preemptive subscription rights issues or elect to receive dividends in shares, which may cause additional dilution to their holdings.

Under German law, the existing shareholders of a stock corporation generally have a preemptive right to subscribe for shares, in proportion to the amount of shares they hold, in connection with any issuance of ordinary shares, convertible bonds, bonds with warrants, profit participation rights and participating bonds. However, a shareholders’ meeting may vote, by a majority representing at least three-quarters of the share capital represented at the meeting, to waive, or authorize the management of the company to waive (with the approval of the supervisory board), for a capital increase from authorized capital, this preemptive right provided that, from the

 

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company’s perspective, there exists good and objective cause for such waiver, especially for a capital increase of up to 10% of the share capital if the issue price of the new shares is not significantly lower than their market price.

Certain non-German shareholders may not be able to exercise their preemptive subscription rights in our future offerings due to the legislation and regulations of their home country. For example, ADS holders in the U.S. will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary need not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

Investors may have difficulty enforcing civil liabilities against us, our management board members, our supervisory board members.

Certain members of our supervisory board and management board and the experts named in this prospectus are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible, or may be very difficult, to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Germany. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in Germany will depend on the particular facts of the case as well as the laws and treaties in effect at the time. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. With very narrow exceptions, proceedings in Germany would need to be conducted in the German language, and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action based upon the civil liability provisions of the U.S. federal securities laws against us, certain members of our supervisory board and management board and the experts named in this prospectus in a German court. The United States and Germany do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters, though recognition and enforcement of foreign judgments in Germany is possible in accordance with applicable German laws.

German and European insolvency laws are substantially different from U.S. insolvency laws and may offer our shareholders less protection than they would have under U.S. insolvency laws.

As a company with its registered office in Germany, we are subject to German insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings as of June 2017. Should courts in another European country determine that the insolvency laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency laws in Germany or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for our shareholders to recover the amount they could expect to recover in a liquidation under U.S. insolvency laws.

 

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We are an emerging growth company, as defined in the Securities Act, and we cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors, given that we may rely on these exemptions.

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and therefore we may take advantage of certain exemptions from reporting requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, presenting only limited selected financial data in the registration statement on Form F-1 of which this prospectus is a part, not being required to comply with the auditor attestation requirements of Section 404 in subsequent Annual Reports filed on Form 20-F and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements. As a result, our shareholders may not have access to certain information that they may deem important. In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, which allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Such provisions are only applicable under U.S. GAAP. We currently prepare our financial statements in accordance with IFRS as issued by the IASB, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an “emerging growth company,” we may be able to take advantage of the benefits of this extended transition period. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if our total annual gross revenue exceeds $1.07 billion, if we issue more than $1.00 billion in non-convertible debt securities during any three-year period, or if we are a large accelerated filer and the market value of the ADSs held by non-affiliates exceeds $700 million as of the end of any second quarter before that time. Investors may find the ADSs less attractive because we have relied on the reporting requirement exemptions described above. If some investors find the ADSs less attractive, there may be a less active trading market for the ADSs and the price of the ADSs may become more volatile.

As a foreign private issuer, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient than those of a U.S. domestic public company.

Upon completion of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to German laws and regulations with regard to such matters, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports with respect to their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information. In addition, foreign private issuers are required to file their annual report on Form 20-F within four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, holders of the ADSs may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer and, therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign

 

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private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2022.

In the future, we would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which would be required to include financial statements prepared under U.S. GAAP, and which would be more detailed and extensive than the forms available to a foreign private issuer. We will also have to comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of Nasdaq. As a U.S. listed public company that is not a foreign private issuer, we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer. These expenses would relate to, among other things, the obligation to present our financial information in accordance with U.S. GAAP in the future. Additionally, a loss of our foreign private issuer status would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

As we are a foreign private issuer and intend to follow certain home country corporate governance practices, holders of the ADSs may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

As a foreign private issuer, we have the option to follow certain home country corporate governance practices rather than those of Nasdaq, provided that we disclose the requirements we are not following and describe the home country practices we are following. The standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

 

   

have a majority of the board be independent (although all of the members of the audit committee must be independent under the Exchange Act);

 

   

have a compensation committee or a nominating or corporate governance committee consisting entirely of independent directors;

 

   

have regularly scheduled executive sessions with only independent directors; or

 

   

adopt and disclose a code of ethics for directors, officers and employees.

We have relied on and intend to continue to rely on some of these exemptions. As a result, holders of the ADSs may not have the same protections afforded to shareholders of companies that are subject to all Nasdaq corporate governance requirements.

Upon the completion of this offering, the ADSs and ordinary shares will be listed on two separate stock markets and investors seeking to take advantage of price differences between such markets may create unexpected volatility in the price of the ADSs.

Our ordinary shares are already listed and traded on the Xetra trading system of the Frankfurt Stock Exchange. Upon completion of this offering our ordinary shares will be listed and traded on the Frankfurt Stock Exchange and the ADSs will be listed and traded on Nasdaq. While our ordinary shares and ADSs are traded on these markets, respectively, price and volume levels for our ordinary shares or ADSs could fluctuate significantly, independent of the price of the ADSs or trading volume on either market. Investors could seek to sell or buy our ordinary shares or ADSs to take advantage of any price differences between the two markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in the price of

 

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the ADSs and in the volumes of ADSs available for trading. In addition, we may explore a delisting of our ordinary shares from the Frankfurt Stock Exchange in the medium term taking into consideration future trading volumes, administrative costs and other factors. In case of a delisting of our ordinary shares from the Frankfurt Stock Exchange, our shareholders may seek to sell their ordinary shares on the Frankfurt Stock Exchange or deposit their ordinary shares with the depositary or the custodian for the depositary in exchange for ADSs as the date for our delisting on the Frankfurt Stock Exchange draws near, which could result in volatility in the trading price of the ADSs. Furthermore, following such delisting, trading in our equity securities will be available only on Nasdaq in the form of trading in the ADSs. If we are unable to continue to meet the regulatory requirements for listing on Nasdaq, we may lose our listing on the exchange, which could further impair the liquidity of the ADSs.

If we were to pay dividends, holders of the ADSs may be unable to claim tax credits with respect to, or tax refunds to reduce German withholding tax applicable to, the payment of such dividends, or such dividends may effectively be taxed twice.

As a German tax resident company, if we were to pay dividends, such dividends will be subject to German withholding tax. Currently, the applicable aggregate German withholding tax rate is 26.375% of the gross dividend (25% income tax plus 5.5% solidarity surcharge thereon). This German tax can be reduced to the applicable rate under the Treaty (as defined below), which is generally 15%, if the applicable taxpayer is eligible for such Treaty rate and files an application containing a specific German tax certificate with the German Federal Central Tax Office (Bundeszentralamt für Steuern). If such a tax certificate cannot be delivered to the ADS holder due to applicable settlement mechanics or lack of information regarding the ADS holder, holders of the ADSs may be unable to benefit from the double tax treaty relief (including “Eligible U.S. Holders” as defined under the Treaty) and may be unable to file for a credit of such withholding tax in its jurisdiction of residence. Further, the payment made to the ADS holder equal to the net dividend may, under the tax law applicable to the ADS holder, qualify as taxable income that is in turn subject to withholding, which could mean that a dividend is effectively taxed twice. There can be no guarantee that the information delivery requirement can be satisfied in all cases, which could result in adverse tax consequences for affected ADS holders. ADS holders should note that the applicable interpretation circular (Besteuerung von American Depositary Receipts (ADR) auf inländische Aktien) issued by the German Federal Ministry of Finance (Bundesministerium der Finanzen), dated May 24, 2013 (reference number IV C 1-S2204/12/10003), as amended by the circular dated December 18, 2018 (reference number IV C 1-S2204/12/10003), or the ADR Tax Circular, is not binding on German courts, and there is no certainty as to whether a German tax court will follow the ADR Tax Circular in determining the German tax treatment of the ADSs. In addition, the ADR Tax Circular does not include details on how an ADR program should be designed. If the ADSs were determined not to fall within the scope of application of the ADR Tax Circular, or a German tax court did not follow the ADR Tax Circular, and profit distributions made with respect to the ADSs were not treated as a dividend for German tax purposes, a holder of the ADSs would not be entitled to a refund of any taxes withheld on the dividends under German tax law and profit distributions made with respect to the ADSs may be effectively taxed twice.

The interpretation of the treatment of ADSs by the German tax authorities is subject to change.

The specific treatment of ADSs under German tax law is based on administrative provisions issued by the fiscal authorities, which are not codified law and are subject to change. Tax authorities may modify their interpretation and the current treatment of ADSs may change. According to the circular issued by the German Federal Ministry of Finance (BMF-Schreiben), dated May 21, 2019, (reference number IV C 1 – S 1980-1/16/10010 :001, ADSs are not treated as capital participation (Kapitalbeteiligung) within the meaning of Section 2 para. 8 of the Investment Tax Code (Investmentsteuergesetz). This interpretation by the fiscal authorities may have adverse effects on the taxation of investors. For example, an investment fund may no longer be considered an equity fund or mixed fund within the meaning of Section 2 para. 6 and 7 of the Investment Tax Code if such fund acquires ADSs and, as result, has invested less than 50% or 25% of its assets, respectively, in capital participations.

 

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ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiffs in an action of that kind.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the deposit agreement, including any claim under U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other ADS holders bring a claim against us or the depositary in connection with matters arising under the deposit agreement or relating to the ADSs, including claims under federal securities laws, you may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiffs in that action.

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial.

No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any ADS holder or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The prospectus contains forward-looking statements that relate to our current expectations and views of future events. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, these forward-looking statements can be identified by words or phrases such as “believe,” “may,” “will,” “expect,” “estimate,” “could,” “should,” “anticipate,” “aim,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar or comparable expressions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future business and financial performance, including our revenue, operating expenses and our ability to achieve profitability and maintain our future business and operating results;

 

   

our strategies, plans, objectives and goals, including, for example, the planned completion of the development of our products and the intended expansion of our product portfolio or geographic reach;

 

   

the expected start of serial production of our products and terminal production output;

 

   

our planned monetization of our technology and products;

 

   

our use of the net proceeds from the sale of ADSs by us in this offering; and

 

   

our expectations regarding the development of our industry, market size and the competitive environment in which we operate.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions, many of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate, are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Risk Factors,” the following:

 

   

we are a development-stage company with limited operating history and a history of significant losses and we may never be able to execute our business strategy, generate revenue or reach profitability;

 

   

our success and future growth are dependent upon our potential customers’ investments in the development of a market for wireless laser communication;

 

   

our potential customer base for the use of our products is limited;

 

   

we deploy innovative technologies and solutions in our products, which may not be fully functional, and the initial deployment of our products by customers could prove unsuccessful;

 

   

positive market developments in the area of wireless laser communication could lead to increasingly intense competition and endanger our market positioning;

 

   

our business is subject to the implementation of a singular industry standard guaranteeing interoperability between different laser communication products, which could be unsuccessful;

 

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if a singular industry standard guaranteeing interoperability between laser communication products of different vendors were to be implemented, we could incur additional costs and lose our intellectual property protection;

 

   

our sales cycle can be long and complicated and requires considerable time and expense;

 

   

we have limited experience with order processing and are subject to internal order processing risks that could materially impact our ability to process orders;

 

   

we depend on third-party suppliers to provide us with components for our products, and any interruptions in supplies provided by these third-party suppliers, including due to the COVID-19 pandemic, may subject us to external procurement risks that negatively affect our business;

 

   

defects or performance problems in our products could result in loss of customers, reputational damage, lawsuits and decreased revenue, and we may face warranty, indemnity and product liability claims arising from defective products;

 

   

we may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy;

 

   

we may not be able to obtain sufficient financing for the operations and ongoing growth of our business;

 

   

we are highly dependent on our senior management team and other highly qualified personnel, and if we are not successful in attracting or retaining highly qualified personnel, we may not be able to successfully implement our business strategy;

 

   

our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security;

 

   

we may not be able to obtain, or agree on acceptable terms and conditions for, all or a significant portion of the government grants, loans and other incentives for which we may apply;

 

   

we are a supplier for government programs, which subjects us to risks including early termination, audits, investigations, sanctions and penalties;

 

   

we are subject to regulatory risks, in particular related to evolving sanctions laws as well as governmental export controls, in a number of jurisdictions that could limit our customer base and result in higher compliance costs;

 

   

if we do not maintain required security clearances from, and comply with our agreements with, the U.S. government, we may not be able to continue to perform our obligations under contracts involving the U.S. government;

 

   

our business is and could become subject to a wide variety of extensive and evolving government laws and regulations, and failure to comply with such laws and regulations could have a material adverse effect on our business;

 

   

positive market developments in the area of wireless laser communication could lead to increasingly intense political interest and influence impacting our business;

 

   

we may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology;

 

   

we may be involved in legal proceedings based on the alleged violation of intellectual property rights, such as patent or trademark infringement claims, which may be time-consuming and cause us to incur substantial costs;

 

   

we have been and may become involved in litigation and administrative and regulatory proceedings, which require significant attention from our management and could result in significant expense to us and disruptions to our business;

 

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we may be subject to claims that our employees, consultants or advisers have wrongfully used or disclosed alleged trade secrets of their former employers; and

 

   

our risk management and internal control procedures may not prevent or detect violations of law.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus, including the uncertainties and factors discussed under “Risk Factors” and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect. All forward-looking statements made in this prospectus are qualified by these cautionary statements.

Comparison of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $                 million (or approximately $                 million if the underwriters exercise their option to purchase additional ADSs from us in full), based on an assumed initial public offering price of $                 per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on                 , 2021, based on the Euro/U.S. dollar exchange rate of €1.00 to $                 as of                 , 2021.

Each $1.00 increase (decrease) in the assumed initial public offering price per ADS would increase (decrease) our net proceeds, after deducting the estimated underwriting discounts and estimated commissions and expenses, by approximately $                 million. Each increase (decrease) of 100,000 in the number of ADSs offered by us would increase (decrease) our net proceeds, after deducting the estimated underwriting discounts and estimated commissions and expenses, by $                 million.

The principal reasons for this offering are to further fund our business, to increase our public profile and awareness, create a public market for the ADSs and facilitate our future access to public equity markets. We intend to use the net proceeds from this offering as follows:

 

   

approximately     % to ramp-up serial production to allow for short-term product deployment within large-scale customer programs;

 

   

approximately     % to further advance our existing products and to expand our product portfolio to support new applications and increase our addressable market;

 

   

approximately     % for investments in additional research and development equipment to further accelerate product development in both our German and U.S. facilities;

 

   

approximately     % to grow our sales and marketing efforts to expand access to government and commercial customers, including the establishment of a U.S. entity cleared for access to classified information; and

 

   

approximately     % to repay the outstanding amount of €7.5 million and any accrued and unpaid commitment fee, interest and premium, if any, under the credit agreement entered into with three lenders for a credit line of approximately €25 million on September 15, 2021 (see also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement”).

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. We cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors, including the factors described in “Risk Factors.” As a result, our management will have broad discretion in the application of the net proceeds of this offering, and investors will be relying on our judgment regarding the application of the net proceeds.

 

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DIVIDEND POLICY

We have never paid or declared any dividends in the past, and we do not anticipate paying any dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development of our technology and products and the start of serial production as well as the further development and expansion of our business. Except as required by law, any future determination to pay dividends will be dependent upon our results of operations, financial condition, contractual restrictions and capital requirements.

All of the shares represented by the ADSs that are the subject of the offering contemplated by this prospectus will generally have the same dividend rights as all of our other outstanding shares. However, the depositary may limit distributions based on practical considerations and legal limitations. See “Description of American Depositary Shares—Dividends and Other Distributions.” Any distribution of dividends proposed by our management and supervisory boards requires the approval of our shareholders in a shareholders’ meeting. See “Description of Share Capital—Dividend Rights,” which explains in more detail the procedures we must follow and the German law provisions that determine whether we are entitled to declare a dividend.

For information regarding the German withholding tax applicable to dividends and related United States refund procedures, see “Taxation—German Taxation—German Taxation of ADSs.”

 

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CAPITALIZATION

The table below sets forth our cash and cash equivalents and capitalization as of June 30, 2021:

 

   

on an actual basis;

 

   

on an adjusted basis to reflect the amount of €7.5 million drawn under a credit agreement entered into on September 15, 2021; and

 

   

on a further adjusted basis to reflect (i) the issuance and sale by us of the ADSs in this offering at an assumed initial public offering price of $                 per ADS, the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on                , 2021, based on the Euro/U.S. dollar exchange rate of €1.00 to $             as of                 , 2021, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the underwriters’ option to purchase additional ADSs and (ii) the application of the net proceeds of the offering to fully repay the outstanding amount of €7.5 million and any accrued and unpaid commitment fee, interest and premium, if any, under the credit agreement.

You should read this table in conjunction with our audited consolidated financial statements and notes thereto included elsewhere in this prospectus as well as “About This Prospectus,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of June 30, 2021  
     Actual     As
Adjusted(1)
    As further
Adjusted(2)
 
     (unaudited)  
     (in € millions)  

Cash and cash equivalents

     18.4       25.9                 
  

 

 

   

 

 

   

 

 

 

Total debt(3)

     7.9       15.4    

Equity

      

Share capital

     4.1       4.1    

Capital reserves

     113.9       113.9    

Exchange rate differences

     0.2       0.2    

Accumulated deficit

     (63.4     (63.4  
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     54.8       54.8    
  

 

 

   

 

 

   

 

 

 

Total capitalization

     62.7       70.2    
  

 

 

   

 

 

   

 

 

 

 

(1)

Since June 30, 2021, we have drawn €7.5 million under a credit agreement entered into on September 15, 2021. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreement”. We expect to repay the drawn amount and any accrued and unpaid commitment fee, interest and premium, if any, under the credit agreement in full with the net proceeds from this offering.

(2)

A $1.00 increase or decrease in the assumed initial public offering price of $                per ADS would increase or decrease the as adjusted amount of each of cash and cash equivalents, share capital, equity attributable to the equity holders of the Company and total capitalization by approximately $                million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase or decrease in the number of ADSs sold by us in this offering by 100,000, would increase or decrease the as adjusted amount of each of cash and cash equivalents, share capital, equity attributable to the equity holders of the Company and total capitalization by approximately $                million, assuming no change in the assumed initial public offering price of $                per ADS and after deducting the estimated underwriting discounts and commissions. The as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

(3)

Total debt comprises current and non-current loan liabilities and lease obligations.

 

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DILUTION

If you invest in the ADSs in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per ADS and the as adjusted net tangible book value per ADS after completion of this offering. Dilution results from the fact that the initial public offering price per ADS is substantially in excess of the net tangible book value per ADS attributable to our existing shareholders for our ordinary shares that will be outstanding immediately prior to the closing of this offering.

As of June 30, 2021, we had a historical net tangible book value of €                 million, corresponding to a historical net tangible book value of €                 per ordinary share or €                 per ADS based on an ADS to ordinary share ratio of                  to                 . Net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the number of our ordinary shares outstanding as of June 30, 2021. Net tangible book value per ADS represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the number of our ordinary shares outstanding as of June 30, 2021 converted to ADS at a ratio of                  to                 .

After giving effect to the issuance and sale of                  ADSs offered by us in the offering at an assumed initial public offering price of $                 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on                 , 2021 based on a Euro/U.S. dollar exchange rate of €1.00 to $                 as of                 , 2021, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2021 would have been €                 million (or $                 million), representing €                 (or $                ) per ordinary share outstanding or €                 (or $                ) per ADS. This represents an immediate increase in net tangible book value of €                 (or $                ) per ordinary share or €                 (or $                ) per ADS to existing shareholders and an immediate dilution in net tangible book value of €                 (or $                ) per ordinary share or €                 (or $                ) per ADS to new investors purchasing ADSs in this offering. Dilution for this purpose represents the difference between the price per ADS paid by these purchasers and the as adjusted net tangible book value per ADS immediately after the completion of this offering.

If the underwriters exercise their option to purchase additional ADSs from us in full, our as adjusted net tangible book value per ADS after the offering would be €                 (or $                ) per ADS, representing an immediate increase in as adjusted net tangible book value per ADS of €                 (or $                ) per ADS to existing shareholders and immediate dilution of €                 (or $                ) per ADS in as adjusted net tangible book value per ADS to new investors purchasing ADSs in this offering, based on an assumed initial public offering price of $                 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on , 2021 based on a Euro/U.S. dollar exchange rate of €1.00 to $ as of , 2021, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table illustrates this dilution to new investors purchasing ADSs in the offering, assuming either no exercise or full exercise of the underwriters’ option to purchase additional ADSs:

 

     No exercise      Full exercise  
     (in €)      (in $)      (in €)      (in $)  

Assumed initial public offering price

           

Historical net tangible book value per ADS as of June 30, 2021

           

Increase in net tangible book value per ADS attributable to investors purchasing ADSs in this offering

           

As adjusted net tangible book value per ADS after this offering

           

Dilution per ADS to new investors in this offering

           

 

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The as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

Each $1.00 increase (decrease) in the assumed initial public offering price of $                 per ADS would increase (decrease) our as adjusted net tangible book value after this offering by $                 per ADS, and the dilution in as adjusted net tangible book value to new investors by $                 per ADS, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 100,000 in the number of ADSs offered by us would increase (decrease) our as adjusted net tangible book value after this offering by $                 per ADS, and decrease (increase) the dilution to investors participating in this offering by approximately $                 per ADS, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

To the extent we grant options or other equity awards to our employees or members of our management board or our supervisory board in the future, and those options or other equity awards are exercised in the future or other issuances of our ordinary shares are made, there will be further dilution to new investors.

The following table presents on an as adjusted basis, as of June 30, 2021, after giving effect to the issuance and sale of the ADSs in this offering, the differences between the shareholders as of June 30, 2021, the new investors with respect to the number of ADSs purchased from us, the numbers of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share at an assumed initial public offering price of $                 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on                 , 2021 based on a Euro/U.S. dollar exchange rate of €1.00 to $                 as of                 , 2021, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and excluding the underwriters’ option to purchase additional ADSs:

 

     Ordinary Shares
Purchased
     Total Consideration      Average Price per
Ordinary Share
     Average Price per
ADS
 
     Number      Percent      Amount      Percent  
                   (in €)      (in $)             (in €)      (in $)      (in €)      (in $)  

Existing shareholders

                          

New investors

                          

Total

                          

If the underwriters exercise their option to purchase additional ADSs in full, our existing shareholders would own                  ordinary shares or     % in the aggregate and our new investors would own                  ordinary shares or     % in the aggregate.

Each $1.00 increase (decrease) in the assumed initial public offering price of $                 per ADS, which reflects the U.S. dollar equivalent of the closing price of our ordinary shares on the Frankfurt Stock Exchange on                 , 2021 based on a Euro/U.S. dollar exchange rate of €1.00 to $                 as of                 , 2021, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, would increase (decrease) total consideration paid by new investors by $                 million or     %.

The number of our ordinary shares to be outstanding after this offering is based on the number of ordinary shares outstanding as of                     , 2020, and excludes any ordinary shares that may be reserved for future issuance under any performance share and stock option plans.

 

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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 in conjunction with our historical financial statements, prepared in accordance with IFRS as issued by IASB, and the related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this prospectus. Actual results could differ materially from those contained in any forward-looking statements.

Overview

We believe we are a leading developer and manufacturer (in terms of production capacity) of advanced laser communication technology for aerospace communications networks in government and commercial markets. Laser communication networks provide connectivity from the sky, allowing for high data rates and secure, long-distance data transmission between moving objects for wireless terrestrial, airborne- and space-based applications. Our technology and products are designed to provide the backbone for connectivity to link satellites, high-altitude platforms, unmanned aerial vehicles, aircraft and the ground with secure wireless data transmission. We aim to industrialize laser communication by focusing on standardization and cost-efficiency. We believe that we are one of the first companies to develop laser communication technology at commercially attractive price points for use in both government and commercial markets. By leveraging our strong technical expertise and early mover advantage, we aim to become the go-to supplier for the “internet above the clouds.”

Laser communication offers significant technical and operational advantages for wireless data transmission compared to other wireless communication systems, which mostly use RF technologies to transmit information. RF-based communication is generally characterized by lower bandwidth, significant license requirements and a wide beam divergence, which makes it much more susceptible to interception. Laser communication, on the other hand, benefits from its higher bandwidth capacity, lower latency, improved security, lower power requirements and a license-free spectrum. Laser communication has achieved world record transmission rates of 13.16 terabits per second (according to the DLR), as compared to RF’s maximum transmission rate of 36 gigabits per second (according to the Facebook Connectivity Lab). Current demand for laser communication is predominantly driven by government applications in defense, surveillance, intelligence and border control, which seek to leverage the superior capabilities of laser communication. With its significant advantages and wide range of applications, laser communication is highly attractive for the development of next-generation communication networks, in particular for space and airborne applications.

We were founded in 2009 by former scientists of the DLR and have invested in developing and optimizing our laser communication technology, which we are now commercializing. We have developed pre-serial product versions of our flagship CONDOR inter-satellite link terminal and our HAWK airborne terminal, and are currently ramping up serial production to enable customers to deploy our technology at scale. We believe that we are one of a few companies offering a commercially viable laser communication terminal solution combining light weight, robustness, high data rate and high power efficiency at attractive prices. In 2020, we were awarded two contracts by Telesat and another customer for our CONDOR terminals in connection with two U.S. governmental programs launched by DARPA and the SDA, respectively. We also received an order from a major U.S. aerospace and defense company for our HAWK terminals, which allows us to introduce these terminals to the U.S. government market. We believe that these contracts offer significant potential to scale the number of terminals we may provide for these government programs and allow us to gain early access to additional prospective customers. We also believe that the introduction of laser communication technology at commercially attractive price points has the potential to create a significant market for laser communication for years to come.

We aim to industrialize laser communication by focusing on developing standardized and modularized products suitable for a wide array of customers and applications. We have benefited from advancing on the

 

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learning curve with the development of the pre-serial product versions of our CONDOR and HAWK terminals, as we continuously seek to decrease the costs of deploying laser communication. By moving from singular prototype production to pre-serial production levels, we have already reduced our material costs per unit by around 80%. We are currently ramping up serial production and we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 and target a per year production rate of up to 2,000 units going forward. While the majority of our terminals produced in 2020 were used for internal and external test and demonstration campaigns, most of the units produced in 2021 are intended for customer delivery. We expect to continue to incur significant expenses related to the ramp-up of serial production, the further development of our technology and products as well as the expansion of our sales and marketing activities. We intend to use the net proceeds from this offering and, to the extent required, proceeds from future financings, to cover these expenses.

We are in the early phases of serial production and have only recently begun to monetize our technology. Our revenue amounted to €1,349 thousand for the six month period ended June 30, 2021 and €679 thousand for 2020. Our operating loss (EBIT) amounted to €16,240 thousand in the six month period ended June 30, 2021 and we reported a net loss of €16,077 thousand for the same period. In 2020, operating loss (EBIT) amounted to €19,257 thousand and we reported a net loss of €19,770 thousand. We manage our business based on our two operating segments, which are also our reportable segments in accordance with IFRS 8. Our two reportable segments include our Space segment, which currently comprises our flagship CONDOR terminal, and our Air segment, which currently comprises our flagship HAWK terminal. Our measure of segment profitability for each reportable segment is operating profit / (loss) (EBIT).

Key Factors Affecting Our Results of Operations

We believe that the factors discussed below have significantly affected our results of operations, financial position and cash flow in the historical periods for which financial information is presented in this prospectus, and that these factors will continue to have a material effect on our results of operations, financial position and cash flow in the future.

Development of the Laser Communication Market

Our ability to successfully develop and commercialize our laser communication products depends on the willingness of potential customers to invest in the development of constellations in the context of aerospace communication networks. Over the past decade, the laser communication market has started to take shape, driven by rapid technological developments in the space industry, particularly the advent of smaller, lower-cost satellites. While government remains a critical driver for further expansion of global space activities, a number of well-funded technology companies, such as Elon Musk’s SpaceX, have developed formidable commercial space capabilities. At the same time, as private sector space capabilities increase, governments have begun to realize the value of the private commercial space industry and have become increasingly supportive and reliant on private companies to catalyze innovation and advance national space objectives. The combination of increased access to capital, economies of scale, and open innovation models has driven rapid growth in the commercial space market in recent years.

Current demand for laser communication is predominantly driven by both government organizations and commercial players seeking to establish LEO aerospace communication networks. The U.S. government has been the strongest proponent to date of aerospace network capabilities and has made the development of government space architectures by using large-scale LEO constellations a priority. We believe that our business will benefit from the successful demonstration and deployment of laser communication technology primarily by the governmental sector, laying the foundation for large-scale deployment in commercial and diversified markets.

 

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Regulatory Environment and Government Regulation

We are subject to a wide variety of laws and regulations relating to various aspects of our business, including complex and evolving export control laws as well as economic sanctions laws promulgated by the United States, Germany and the European Union. Export control and economic sanctions laws may include prohibitions on the sale or supply of certain products to embargoed or sanctioned countries and regions, governments, persons and entities. For example, in July 2020, the German government prohibited a shipment of our CONDOR terminals to a customer in China based on the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz). The ban was issued on the grounds of essential security interests, in order to prevent a disturbance of the peaceful coexistence of nations and to prevent a substantial disturbance of Germany’s foreign relations, as the CONDOR terminals would have a potential use in the fields of military reconnaissance and communication. To comply with the ban, in 2020, we terminated all business relationships with customers in China, as a result of which we suffered significant losses in revenue. Following this decision, in 2020, the German government categorized laser communication network products as dual-use goods. See “Risk Factors—Regulatory, Legal and Tax Risks—We are subject to regulatory risks, in particular related to evolving sanctions laws as well as governmental export controls, in a number of jurisdictions that could limit our customer base and result in higher compliance costs.”

In addition to such export controls laws and regulations, various countries regulate the importation of certain products, through import permitting and licensing requirements. We are also subject to international trade restrictions in certain of our markets which may impact the sale and delivery of our products going forward.

Commercialization of our Technology and Serial Production

To further drive commercialization of our technology and ramp-up serial production, we must complete the ongoing expansion of our production and development facilities, purchase and integrate related equipment, and achieve several research and development milestones. In 2020, we rented an additional production facility in Oberpfaffenhofen, Germany, which required substantial installation of manufacturing equipment that has now been completed. We also made investments in our laboratory and testing equipment, including our micro-vibration link testbed and clean room facilities. We also have incurred, and expect to continue to incur, significant costs in connection with the expansion of our facility in Los Angeles, which includes the industry’s first laser communication interoperability lab. Based on our current set-up, we expect to be able to increase production output from eleven terminals in 2020 to 50 air and space terminals in 2021 and target a per year production rate of up to 2,000 units going forward.

We will require substantial additional capital to modify our existing technology for use in related products. Until we can generate sufficient revenue from product deliveries, we expect to finance our operations through a combination of existing cash, the net cash proceeds of this offering, possible additional public offerings, debt financings, collaborations, and licensing arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts.

Customer Demand

We have received significant interest in our technology and products from a wide array of different potential customers, including, among others, government agencies, aerospace companies and private satellite providers. Within the value chain for the government aerospace communication industry, we are a sub-system supplier for system primes such as aircraft and satellite manufacturers that are prime contractors for the U.S. government. In the commercial market, we primarily contract with companies aiming to establish smaller Earth observation and surveillance constellations for our CONDOR terminals. In this context, we also enter into strategic partnership agreements with certain key customers for the further development of our products.

In 2019, we signed a contract with a commercial customer in the U.K. for certain parts of our CONDOR terminal, which we delivered in 2019. We did not have any government customers in 2019. In 2020, we received

 

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an order from a U.S. aerospace and defense company in 2020 to introduce our HAWK terminal to the U.S. governmental market. We delivered two HAWK terminals to this customer in the fourth quarter of 2020, following which our customer conducted initial system testing and demonstrations in deployment scenarios. To a limited extent, we also provided development and training services with respect to our HAWK terminals to this customer. We also sold certain components used in our CONDOR terminal to a Canadian customer and conducted a feasibility analysis for a Belgian customer in 2020. While we have not yet entered into contracts directly with the U.S. or non-U.S. governments, we consider our customers that are prime contractors for the U.S. government as government customers. Accordingly, taking into account our Belgian customer for which we conducted a feasibility analysis, we had two commercial customers and one government customer in 2020. In addition, in 2020, we were awarded two contracts by Telesat and a U.S. customer relating to our CONDOR terminals in connection with two U.S. governmental programs launched by DARPA and the SDA, respectively, for which we recognized revenue in the six months ended June 30, 2021.

As a result of our government track record and our first mover advantage, we have also been able to secure initial wins in the commercial market. In May 2021, we signed an MoU with Cloud Constellation, a constellation builder seeking to deploy OISLs in its planned LEO-based constellation. Based on this MoU, we will agree to sell to Cloud Constellation a certain number of our CONDOR terminals and we will also agree to grant Cloud Constellation and its partners access to our laboratory and various test facilities. On July 30, 2021, we entered into a definitive agreement with SpaceLink, a commercial constellation builder seeking to develop a MEO-based constellation that deploys OISLs to relay data for space systems in LEO. Under the SpaceLink agreement, we have agreed to develop a new laser communication terminal for SpaceLink’s satellites in MEO. We have also agreed to sell more than 40 laser communication terminals to SpaceLink, comprising such newly developed MEO terminals as well as our CONDOR terminals. Additionally, in July 2021, we signed an MoU with JR Aerospace, an Indian investment and technology company, to accelerate our entry into the Indian aerospace market. Finally, in August 2021, we received a purchase order from an undisclosed commercial customer, under which we will deliver up to 20 CONDOR terminals over four years.

We remain in active discussions with other potential customers and anticipate a considerable increase in customer demand as the constellation markets continue to develop. While initial customer orders are and will continue to be primarily used for pilot projects, we believe that following the successful initial deployment of our products, many of our customers will continue to use our products for the further rollout of their envisioned missions. The timing of receipt of revenues, if any, from projects with our customers is, however, uncertain and subject to change because many factors affect the scheduling of projects or missions. Adjustments to or cancellations of contracts may also occur.

Research & Development

Research and development activities are central to our business. In 2020, we started pre-serial production of both our HAWK and CONDOR terminals and continued to improve our products with a view to ramping up serial production. We have expanded our testing facilities for product qualification in order to be able to conduct almost all testing in-house except for radiation testing and special EMC measurements. We expect that this approach will significantly accelerate the development cycle, thereby shortening time to market for next product generations.

Under IFRS (as with U.S. GAAP), research costs are expensed. However, unlike U.S. GAAP, IFRS has broad-based guidance that requires companies to capitalize development costs, including internal costs, when certain criteria are met. In particular, internally developed intangible assets (e.g., development expenses related to a prototype) are generally capitalized and amortized under IFRS, rather than expensed as they would be under U.S. GAAP. This difference requires companies that prepare their financial statements in accordance with IFRS as issued by IASB, like us, to distinguish development activities from research activities, and to analyze whether and when the criteria for capitalizing development costs are met.

 

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Under our accounting policies, we generally capitalize costs for the development of a technology until the time that development of such technology is completed. For our recent development projects, “AIR technology” (the technological foundation for our HAWK terminal) and “SPACE technology” (the technological foundation for our CONDOR terminal), we defined such point in time as the time of final development of a technology, followed by delivery of products based on such final technology to customers. Subsequently, all expenses incurred to maintain the value of the relevant technology are then expensed. With respect to the development of our AIR and SPACE technologies, development costs included costs for the development of certain components for use in our HAWK and CONDOR terminals, respectively. Since we completed the development of the technology for our HAWK terminal in mid-2020, all subsequent expenses incurred in connection with our AIR technology have been recognized as expenses. For our SPACE technology, we reached this milestone in March 2021. Future development costs relating to the AIR technology, SPACE technology or a new technology will only be capitalized if the requirements for capitalization under IFRS as issued by the IASB are fulfilled. The related capitalized costs of both our AIR and SPACE technologies are being amortized over their expected useful lives of 15 years. The expected useful lives of these technologies are estimated based on the experience of our laser experts and the expected product life, which is in turn determined on the basis of our own technical assessment and market studies.

In 2020, we invested a total of €14,449 thousand in research and development of our technology, of which €8,248 thousand was capitalized. We expect that our research and development expenses will increase over the next several years as we continue to modify our existing technology for use in related products and to develop other laser communication-related technologies.

In addition, protection of our intellectual property is fundamental to the long-term success of our business. We believe that our continued success depends in large part on our proprietary technology, the skills of our employees and the ability of our employees to continue to innovate and incorporate advances into our products. We rely exclusively on a combination of trade secret, copyright and trademark laws and contractual provisions with employees and third parties, to establish and protect our intellectual property rights. While our expertise in laser communication technology is critical to our success, we typically keep our inventions as trade secrets to avoid public disclosure. We do not own any patents and do not have any patent applications pending. We may incur significant losses without the protection afforded by patents. See “Risk Factors—Regulatory, Legal and Tax Risks—We may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology.”

Personnel Costs

Personnel costs, which include salaries and wages as well as pensions and other social security contributions, account for a significant share of our costs. As we grow our business, we expect these costs to increase. We believe that our success depends, in significant part, on the continued services of our senior management team and on our ability to attract, motivate, develop and retain a sufficient number of other highly qualified personnel such as engineering, design, manufacturing and quality assurance, finance, marketing, sales and support personnel. We cannot guarantee that our efforts to retain and motivate management and key employees or attract and retain other highly qualified personnel in the future will be successful. Competition for qualified employees is intense, and our ability to hire, attract and retain such employees depends, among others things, on our ability to provide competitive compensation. This may require us to increase compensation for current and new employees over time. See “Risk Factors—Risks Related to Our Business—We are highly dependent on our senior management team and other highly qualified personnel, and if we are not successful in attracting or retaining highly qualified personnel, we may not be able to successfully implement our business strategy.”

Currency Fluctuations

Our reporting currency is the euro. Some of our current sales are, and we expect that a significant portion of our future sales will be, denominated in U.S. dollars. Fluctuations in foreign currency exchange rates and, in

 

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particular, the relative strength or weakness of the U.S. dollar and the euro can have a significant impact on our performance and results of operations. A weakening of the U.S. dollar against the euro could have a negative impact on results derived from sales made in U.S. dollars. Conversely, a strengthening of the U.S. dollar against the euro could have a positive impact, for example, to the extent that we use U.S. dollar revenue to pay euro denominated costs. Fluctuations in foreign currency rates could result in either a gain or a loss and could have a significant impact on our performance and results of operations. See “Risk Factors—Risks Related to Our Business—We are exposed to foreign currency exchange risk and our financial position and results of operations may be negatively affected by the fluctuation of different currencies.”

Components of Our Results of Operations

Our income statement presents costs using the “nature of expense” method. In our income statement, this results in an (unnetted) gross presentation (i.e., before the deduction of any amounts capitalized) of the costs incurred broken down by type or nature of expenditure including cost of materials, personnel costs, depreciation and amortization, and other operating costs. All capitalized amounts relate to the construction of property, plant and equipment or the development of intangible assets, and are presented within the line-item Own work capitalized. This approach is common in Germany. Outside of Germany, IFRS financial statements are more commonly prepared using the cost of sales method, under which expenses are broken down not by type of expense (materials, personnel, depreciation and amortization), but by function (production, administration, sales), and capitalized costs are not included in the income statement.

The components of our results of operations include the following:

Revenue: We generate revenue from contracts with customers for the delivery of goods or the provision of services. Our goods primarily include our CONDOR and HAWK terminals and the services rendered by us mainly consist of the provision of development and training services for our terminals.

Other operating income: Other operating income comprises income from government grants.

Cost of materials: Our cost of materials includes cost for raw materials and consumables used as well as costs for services purchased.

Personnel costs: Our personnel costs consist of wages and salaries as well as social security contributions, pensions and other employee benefits. Personnel expenses corresponds to personnel costs excluding capitalized costs.

Depreciation and amortization of other intangible assets and property, plant and equipment: Depreciation and amortization of other intangible assets and property, plant and equipment includes amortization of intangible assets and depreciation of property, plant and equipment and impairments of rights of use.

Other operating costs: Our other operating costs primarily consist of legal and consulting fees, office and IT costs, selling and travel costs, rent and maintenance, other office supplies, costs for preparation and audit of financial statements and accounting expenses, other staff costs as well as administrative offense proceedings. Other operating expenses corresponds to other operating costs excluding capitalized costs.

Change in inventories of finished goods and work in progress: Change in inventories of finished goods and work in progress relates to the ongoing production of space and air terminals.

Own work capitalized: Own work capitalized consists primarily of capitalized development costs shown under internally generated intangible assets. In addition, other own work capitalized includes own work for the construction of property, plant and equipment.

 

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Results of Operations

The following table shows information for the six months ended June 30, 2020 and June 30, 2021 and is derived from our unaudited condensed interim financial statements and the related notes thereto, which are included elsewhere in this prospectus:

 

     For the six months ended June 30,  
     2020            2021  
     (unaudited)
(in € thousands)
           (unaudited)
(in € thousands)
 
     Air     Space     Group            Air     Space     Group  

Revenue

     0       90       90            0       1,349       1,349  

Other operating income

     89       141       230            24       247       271  

Cost of materials

     (696     (1,826     (2,522          (1,079     (3,352     (4,431

of which capitalized costs

     (583     (1,127     (1,710                (632     (632

Personnel costs

     (2,763     (4,840     (7,603          (2,859     (7,901     (10,812 )(1) 

of which capitalized costs

     (620     (1,627     (2,247                (1,392     (1,392

Depreciation, amortization and impairment of other intangible assets and property, plant, and equipment

     (384     (430     (814          (482     (1,434     (1,916

of which capitalized costs

     (127     (335     (462                (187     (187

Other operating costs

     (627     (1,409     (2,147 )(2)           (533     (3,236     (4,160 )(3) 

of which capitalized costs

     (92     (241     (333                (260     (260

Change in inventories of finished goods and work in progress

     740       0       740            420       568       988  

Own work capitalized(4)

     1,422       3,330       4,752            0       2,471       2,471  

Operating profit / loss (EBIT)

     (2,219     (4,944     (7,274          (4,509     (11,288     (16,240

Interest and similar income

     n/a       n/a       17            n/a       n/a       (7

Net foreign exchange gain / (loss)

     n/a       n/a       (36          n/a       n/a       170  

Net finance costs

     n/a       n/a       (19          n/a       n/a       163  

Profit / loss before taxes (EBT)

     n/a       n/a       (7,293          n/a       n/a       (16,077

Consolidated net profit / loss

     n/a       n/a       (7,293          n/a       n/a       (16,077

Other comprehensive income /loss

                 

Items which may be subsequently reclassified to profit and loss

     n/a       n/a       22            n/a       n/a       (138

Other comprehensive income / loss after tax

     n/a       n/a       22            n/a       n/a       (138

Total comprehensive income /loss

     n/a       n/a       (7,271          n/a       n/a       (16,215

 

(1)

Includes non-segment specific expenses in the amount of €52 thousand for the IPO bonus to the members of the management board and selected employees. See also “Management—Compensation of Management Board and Supervisory Board Members—Compensation of Management Board Member.”

(2)

Includes non-segment specific expenses in the amount of €111 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(3)

Includes non-segment specific expenses in the amount of €391 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(4)

Own work capitalized is comprised of capitalized costs relating to the construction of property, plant and equipment or the development of intangible assets, which are offset by capitalized costs included in the respective other line items.

 

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The following table shows information for the years ended December 31, 2019 and December 31, 2020 and is derived from our audited financial statements and the related notes thereto, which are included elsewhere in this prospectus:

 

     For the year ended December 31,  
     2019            2020  
     (in € thousands)            (in € thousands)  
     Air     Space     Group            Air     Space     Group  

Revenue

     —         114       114            589       90       679  

Other operating income

     105       147       252            74       220       294  

Cost of materials

     (926     (1,864     (2,790          (2,290     (3,931     (6,221

of which capitalized costs

     (570     (1,519     (2,089          (1,263     (2,810     (4,073

Personnel costs

     (3,781     (4,585     (9,407 )(1)           (4,923     (11,911     (16,834

of which capitalized costs

     (1,239     (1,312     (2,551          (621     (3,300     (3,921

Depreciation, amortization and impairment of other intangible assets and property, plant, and equipment

     (501     (616     (1,117          (666     (1,177     (1,843

of which capitalized costs

     (240     (254     (494          (126     (676     (802

Other operating costs

     (1,078     (1,556     (2,813 )(2)           (1,320     (3,581     (5,344 )(3) 

of which capitalized costs

     (135     (142     (277          (92     (487     (579

Change in inventories of finished goods and work in progress

     230       42       272            11       626       637  

Own work capitalized(4)

     2,184       3,227       5,411            2,102       7,273       9,375  

Operating profit / loss (EBIT)

     (3,767     (5,091     (10,078 )           (6,423     (12,391     (19,257 ) 

Interest and similar income

     n/a       n/a       73            n/a       n/a       18  

Net foreign exchange gain / (loss)

     n/a       n/a       109            n/a       n/a       (531

Net finance costs

     n/a       n/a       182            n/a       n/a       (513

Profit / loss before taxes (EBT)

     n/a       n/a       (9,896          n/a       n/a       (19,770

Consolidated net profit / loss

     n/a       n/a       (9,896          n/a       n/a       (19,770

Other comprehensive income / loss

                 

Items which may be subsequently reclassified to profit and loss

     n/a       n/a       (43          n/a       n/a       367  

Other comprehensive income / loss after tax

     n/a       n/a       (43          n/a       n/a       367  

Total comprehensive income / loss

     n/a       n/a       (9,939          n/a       n/a       (19,403

 

(1)

Includes non-segment specific expenses in the amount of €1,041 thousand relating to a stock option agreement between a shareholder of Mynaric AG and Bulent Altan, our Chief Executive Officer and a member of our management board, which are recognized in accordance with IFRS 2.

(2)

Includes non-segment specific expenses in the amount of €179 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(3)

Includes non-segment specific expenses in the amount of €443 thousand relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

(4)

Own work capitalized is comprised of capitalized costs relating to the construction of property, plant and equipment or the development of intangible assets, which are offset by capitalized costs included in the respective other line items.

Revenue

Comparison of the Six Month Period ended June 30, 2020 and 2021

Revenue increased significantly from €90 thousand in the six months ended June 30, 2020 to €1,349 thousand in the six months ended June 30, 2021, due to a substantial increase in revenue in our Space segment driven by sales of our CONDOR terminals. Our Air Segment generated no revenue in the six months ended June 30, 2020 and June 30, 2021.

On a regional level, revenue in our Space segment in the six months ended June 30, 2021 consisted exclusively of revenue from sales in the United States.

 

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Comparison of the Year ended December 31, 2019 and 2020

Revenue increased significantly from €114 thousand in 2019 to €679 thousand in 2020, primarily due to a substantial increase in revenue in our Air segment driven by sales of our HAWK terminals from no revenues in 2019 to €589 thousand in 2020. This increase in our Air segment revenue was partially offset by a slight decrease in revenue by 21.1% in our Space segment from €114 thousand in 2019 to €90 thousand in 2020, mainly driven by lower customer orders that contributed to revenue in 2020.

On a regional level, revenue in our Air segment in 2020 consisted of revenue from sales in the United States and Canada. Revenue in our Space segment in 2019 and 2020 stemmed from sales in the U.K. and Belgium.

Other Operating Income

Comparison of the Six Month Period ended June 30, 2020 and 2021

Other operating income increased by 17.8% from €230 thousand in the six months ended June 30, 2020 to €271 thousand in the six months ended June 30, 2021, primarily due to an increase in income from government grants.

Comparison of the Year ended December 31, 2019 and 2020

Other operating income increased by 16.7% from €252 thousand in 2019 to €294 thousand in 2020, primarily due to an increase in income from government grants, notwithstanding that there was no other operating income in 2020 for certain other items including late payment penalties claimed.

Cost of Materials

The following table provides our cost of materials for the periods presented:

 

     For the year ended
December 31,
    For the six months
ended June 30,
 
     2019     2020     2020     2021  
     (in € thousands)     (unaudited)
(in € thousands)
 

Cost of materials

     (2,790     (6,221     (2,522     (4,431

Of which capitalized costs

     2,089       4,073       1,710       632  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of materials excluding capitalized costs

     (701     (2,148     (812     (3,799

Comparison of the Six Month Period ended June 30, 2020 and 2021

Cost of materials increased by 75.7% from €2,522 thousand in the six months ended June 30, 2020 to €4,431 thousand in the six months ended June 30, 2021, primarily due to a substantial increase of cost for raw materials and consumables used driven by our requirements for increased quantity of materials in connection with the production of our CONDOR terminals and, more generally, the ongoing preparations for the pre-serial production of our CONDOR and HAWK terminals. The portion of capitalized costs included in cost of materials decreased by 63.0% from €1,710 thousand in the six months ended June 30, 2020 to €632 thousand in the six months ended June 30, 2021, primarily due to the completion of the development of our AIR technology in June 2020 and our SPACE technology in March 2021. Cost of materials excluding capitalized costs increased by 367.9% from €812 thousand in the six months ended June 30, 2020 to €3,799 thousand in the six months ended June 30, 2021, primarily reflecting the wind down of our technology development activities and ramp up of serial production.

 

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Comparison of the Year ended December 31, 2019 and 2020

Cost of materials increased by 123.0% from €2,790 thousand in 2019 to €6,221 thousand in 2020, primarily due to a substantial increase of cost for raw materials and consumables used from €1,208 thousand in 2019 to €4,715 thousand in 2020 driven by our requirements for increased quantity of materials in 2020 in connection with ongoing preparations for the pre-serial production of our CONDOR and HAWK terminals. The portion of capitalized costs included in cost of materials increased by 95.0% from €2,089 thousand in 2019 to €4,073 thousand in 2020, primarily due to an increase in capitalized development costs driven by further development of our space products. Cost of materials excluding capitalized costs increased by 206.4% from €701 thousand in 2019 to €2,148 thousand in 2020, primarily reflecting the wind down of our technology development activities and ramp up of serial production.

Personnel Costs

The following table provides our personnel costs for the periods presented:

 

     For the year ended
December 31,
    For the six months
ended June 30,
 
     2019     2020     2020     2021  
     (in € thousands)     (unaudited)
(in € thousands)
 

Personnel costs

     (9,407 )(1)      (16,834     (7,603     (10,812 )(2) 

Of which capitalized costs

     2,551       3,921       2,247       1,392  
  

 

 

   

 

 

   

 

 

   

 

 

 

Personnel expenses (i.e., personnel costs excluding capitalized costs)

     (6,856     (12,913     (5,356     (9,420

 

(1)

Includes non-segment specific expenses in the amount of €1,041 thousand relating to a stock option agreement between a shareholder of Mynaric AG and Bulent Altan, our Chief Executive Officer and a member of our management board, which are recognized in accordance with IFRS 2.

(2)

Includes non-segment specific expenses in the amount of €52 thousand for the IPO bonus to the members of the management board and selected employees. See also “Management—Compensation of Management Board and Supervisory Board Members—Compensation of Management Board Member.”

Comparison of the Six Month Period ended June 30, 2020 and 2021

Personnel costs increased by 42.2% from €7,603 thousand in the six months ended June 30, 2020 to €10,812 thousand in the six months ended June 30, 2021, primarily due to the significant increase in our headcount to support the ramp-up of our pre-serial production activities for our HAWK and CONDOR products as well as to support the increase in our research and development activities. Wages and salaries increased from €6,708 thousand in the six months ended June 30, 2020 to €9,274 thousand in the six months ended June 30, 2021, as we continued to increase our headcount. The portion of capitalized costs included in personnel costs decreased by 38.1% from €2,247 thousand in the six months ended June 30, 2020 to €1,392 thousand in the six months ended June 30, 2021, primarily due to the completion of the development of our AIR technology in June 2020 and our SPACE technology in March 2021. Personnel expenses (i.e., personnel costs excluding capitalized costs) increased by 75.9% from €5,356 thousand in the six months ended June 30, 2020 to €9,420 thousand in the six months ended June 30, 2021.

Comparison of the Year ended December 31, 2019 and 2020

Personnel costs increased by 79.0% from €9,407 thousand in 2019 to €16,834 thousand in 2020, primarily due to the significant increase in our headcount to support the ramp-up of our research and development efforts and pre-serial production activities for our HAWK and CONDOR products. Wages and salaries increased from €8,306 thousand in 2019 to €14,710 thousand in 2020, as we significantly increased our headcount in 2020. Share-based payments amounted to €1,125 thousand in 2020, which mainly related to the accelerated vesting of

 

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stock options due to the resignation of two former members of our management board. In 2019, share-based payments amounted to €1,146 thousand, primarily relating to the granting of stock options to Bulent Altan, our Chief Executive Officer and a member of our management board, by one of our shareholders. The portion of capitalized costs included in personnel costs increased by 53.7% from €2,551 thousand in 2019 to €3,921 thousand in 2020, primarily due to an increase in capitalized development costs driven by further development of our space products. Personnel expenses (i.e., personnel costs excluding capitalized costs) increased by 88.3% from €6,856 thousand in 2019 to €12,913 thousand in 2020.

Depreciation, Amortization and Impairment of Other Intangible Assets and Property, Plant and Equipment

The following table provides our depreciation, amortization and impairment of other intangible assets and property, plant and equipment for the periods presented:

 

     For the year ended
December 31,
    For the six months
ended June 30,
 
     2019     2020     2020     2021  
     (in € thousands)     (unaudited)
(in € thousands)
 

Depreciation, amortization and impairment of other intangible assets and property, plant and equipment

     (1,117     (1,843     (814     (1,916

Of which capitalized costs

     494       802       462       187  
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation, amortization and impairment of other intangible assets and property, plant and equipment excluding capitalized costs

     (623     (1,041     (352     (1,729

Comparison of the Six Month Period ended June 30, 2020 and 2021

Depreciation, amortization and impairment of other intangible assets and property, plant and equipment increased by 135.4% from €814 thousand in the six months ended June 30, 2020 to €1,916 thousand in the six months ended June 30, 2021, primarily due to the depreciation and amortization related to our Space segment, which accounted for €1,434 thousand of depreciation and amortization in the first six months ended June 30, 2021, and the ongoing amortization of our AIR technology. The portion of capitalized costs included in depreciation, amortization and impairment of other intangible assets and property, plant and equipment decreased by 59.5% from €462 thousand in the six months ended June 30, 2020 to €187 thousand in the six months ended June 30, 2021, primarily due to the completion of the development of our AIR technology in June 2020 and our SPACE technology in March 2021. Depreciation, amortization and impairment of other intangible assets and property, plant and equipment excluding capitalized costs increased by 391.2% from €352 thousand in the six months ended June 30, 2020 to €1,729 thousand in the six months ended June 30, 2021.

Comparison of the Year ended December 31, 2019 and 2020

Depreciation, amortization and impairment of other intangible assets and property, plant and equipment increased by 65.0% from €1,117 thousand in 2019 to €1,843 thousand in 2020, primarily due to higher investments in the expansion of our development and production capacities and the initial amortization of our AIR technology, which accounted for €157 thousand of depreciation and amortization in 2020. The portion of capitalized costs included in depreciation, amortization and impairment of other intangible assets and property, plant and equipment increased by 62.3% from €494 thousand in 2019 to €802 thousand in 2020, primarily due to increased depreciation on investments in laboratory, research and testing facilities. Depreciation, amortization and impairment of other intangible assets and property, plant and equipment excluding capitalized costs increased by 67.1% from €623 thousand in 2019 to €1,041 thousand in 2020.

 

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Other Operating Costs

The following table provides our other operating costs for the periods presented:

 

     For the year ended
December 31,
    For the six months
ended June 30,
 
     2019     2020     2020     2021  
     (in € thousands)     (unaudited)
(in € thousands)
 

Other operating costs(1)

     (2,813     (5,344     (2,147     (4,160

Of which capitalized costs

     277       579       333       260  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other operating expenses (i.e., other operating costs excluding capitalized costs)

     (2,536     (4,765     (1,814     (3,900

 

(1)

Includes non-segment specific expenses of €179 thousand in 2019, €443 thousand in 2020, €111 thousand in the six months ended June 30, 2020 and €391 thousand in the six months ended June 30, 2021, in each case relating to the preparation and audit of our financial statements as well as remuneration for the members of our supervisory board.

Comparison of the Six Month Period ended June 30, 2020 and 2021

Other operating costs increased by 93.8% from €2,147 thousand in the six months ended June 30, 2020 to €4,160 thousand in the six months ended June 30, 2021, primarily due to legal and consulting fees as well as ongoing IT costs related to the implementation of a new SAP ERP system. We also incurred higher costs relating to the purchase of services as well as tools and devices in connection with the continued expansion of our development and production capacities. The portion of capitalized costs included in other operating costs decreased by 21.9% from €333 thousand in the six months ended June 30, 2020 to €260 thousand in the six months ended June 30, 2021, primarily due to the completion of the development of our AIR technology in June 2020 and our SPACE technology in March 2021. Other operating expenses (i.e., other operating costs excluding capitalized costs) increased by 115.0% from €1,814 thousand in the six months ended June 30, 2020 to €3,900 thousand in the six months ended June 30, 2021.

Comparison of the Year ended December 31, 2019 and 2020

Other operating costs increased by 90.0% from €2,813 thousand in 2019 to €5,344 thousand in 2020, primarily due to the increase in legal and consulting fees as well as reporting, auditing and accounting costs driven by reorganization considerations, preparations for this offering and the introduction and implementation of a new SAP ERP system. We also incurred higher costs relating to the purchase of services as well as tools and devices in connection with the continued expansion of our development and production capacities. In addition, other personnel costs increased, driven by higher recruiting costs in connection with our increase in headcount. The portion of capitalized costs included in other operating costs increased by 109.0% from €277 thousand in 2019 to €579 thousand in 2020, due to an increase in capitalized development costs driven by further development of our AIR and SPACE technologies. Other operating expenses (i.e., other operating costs excluding capitalized costs) increased by 87.9% from €2,536 thousand in 2019 to €4,765 thousand in 2020.

 

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Change in Inventories of Finished Goods and Work in Progress

Change in inventories of finished goods and work in progress for the periods presented is comprised as follows:

 

     For the year
ended December 31,
     For the six months
ended June 30,
 
     2019      2020      2020      2021  
     (in € thousands)      (unaudited)
(in € thousands)
 

Increase in inventories of work in progress

     272        757        467        18  

Increase in inventories finished goods

     —          —          393        970  

Write-downs

     0        -120        -120        0  

Total changes in inventories

     272        637        740        988  

Comparison of the Six Month Period ended June 30, 2020 and 2021

Change in inventories of finished goods and work in progress increased by 146.8% from €393 thousand in the six months ended June 30, 2020 to €970 thousand in the six months ended June 30, 2021, primarily due to ramped up production of our HAWK and CONDOR terminals.

Comparison of the Year ended December 31, 2019 and 2020

Change in inventories of finished goods and work in progress increased by 134.2% from €272 thousand in 2019 to €637 thousand in 2020, primarily due to ramped up production of our HAWK terminals in connection with a contract we entered into with a U.S. customer to introduce our HAWK product to the U.S. governmental market. This increase was partially offset by impairments with respect to two HAWK terminals in 2020 in the amount of €120 thousand due to technological improvements in our products resulting in such terminals becoming obsolete.

Own Work Capitalized

Own work capitalized for the periods presented is comprised as follows:

 

     For the year
ended December 31,
     For the six months
ended June 30,
 
     2019      2020      2020      2021  
     (in € thousands)      (unaudited)
(in € thousands)
 

Cost of materials

     2,089        4,073        1,710        632  

Personnel costs

     2,551        3,921        2,247        1,392  

Depreciation, amortization and impairment of other intangible assets and property, plant and equipment

     494        802        462        187  

Other operating costs

     277        579        333        260  

Total

     5,411        9,375        4,752        2,471  

Comparison of the Six Month Period ended June 30, 2020 and 2021

Own work capitalized decreased by 48.0% from €4,752 thousand in the six months ended June 30, 2020 to €2,471 thousand in the six months ended June 30, 2021, primarily due to the final development of our SPACE technology, followed by delivery of our products based on such final technology to customers in March 2021.

Comparison of the Year ended December 31, 2019 and 2020

Own work capitalized increased by 73.3% from €5,411 thousand in 2019 to €9,375 thousand in 2020, primarily due to an increase in capitalized development costs driven by further development of our space

 

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products. In addition, own work capitalized for the construction of property, plant and equipment increased from €87 thousand in 2019 to €1,127 thousand in 2020, mainly due to the ongoing expansion of our development and production capacities in 2020, which includes our link testbed and clean room facilities.

Operating Profit / (Loss) (EBIT)

Comparison of the Six Month Period ended June 30, 2020 and 2021

Operating loss (EBIT) increased by 123.3% from €7,274 thousand in the six months ended June 30, 2020 to €16,240 thousand in the six months ended June 30, 2021, primarily due to higher investments in our development and production capacities and higher personnel costs resulting from headcount growth. The substantial increase in operating loss (EBIT) was further driven by the completion of the development of our AIR technology in mid-2020 and of our SPACE technology in March 2021 following which all expenses incurred to maintain the value of our AIR and SPACE technology have been recognized as expenses, see “—Key Factors Affecting Our Results of Operations—Research and Development.” Broken down by segment, the increase in operating loss was primarily driven by our Space segment.

In our Space segment, operating loss (EBIT) increased by 128.3% from a loss of €4,944 thousand in the six months ended June 30, 2020 to €11,288 thousand in the six months ended June 30, 2021, which was mainly due to significantly higher personnel costs and cost of purchased material and services in connection with the initial development and ongoing improvements of our space products. Furthermore, as we completed the development of our SPACE technology in March 2021, all subsequent expenses incurred in connection with our SPACE technology have been recognized as expenses, which further contributed to the increase in operating loss (EBIT) in our Space segment in the six months ended June 30, 2021.

In our Air segment, operating loss (EBIT) increased by 103.2% from a loss of €2,219 thousand in the six months ended June 30, 2020 to €4,509 thousand in the six months ended June 30, 2021, mainly due to the significantly higher personnel costs and cost of purchased material and services in connection with the initial development and ongoing improvements of our space products. The increase in operating loss (EBIT) was further impacted by the completion of the development of our AIR technology in mid-2020 following which all expenses incurred to maintain the value of our AIR technology have been recognized as expenses.

Comparison of the Year ended December 31, 2019 and 2020

Operating loss (EBIT) increased by 91.1% from €10,078 thousand in 2019 to €19,257 thousand in 2020, primarily driven by higher investments in our development and production capacities and higher personnel costs resulting from headcount growth. The substantial increase in operating loss (EBIT) was further driven by the completion of the development of our AIR technology in mid-2020 following which all expenses incurred to maintain the value of our AIR technology have been recognized as expenses, see “—Key Factors Affecting Our Results of Operations—Research and Development.” Broken down by segment, the increase in operating loss was primarily driven by our Space segment.

Operating loss (EBIT) in our Space segment increased by 143.4% from a loss of €5,091 thousand in 2019 to €12,391 thousand in 2020, mainly as a result of the significantly higher personnel costs and cost of purchased material and services in connection with the initial development and ongoing improvements of our space products.

In our Air segment, operating loss (EBIT) increased by 70.5% from a loss of €3,767 thousand in 2019 to €6,423 thousand in 2020 mainly due to the significantly higher personnel costs and cost of purchased material and services in connection with the initial development and ongoing improvements of our air products.

 

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Net Finance Costs

Comparison of the Six Month Period ended June 30, 2020 and 2021

Net finance costs increased significantly from negative €19 thousand in the six months ended June 30, 2020 to €163 thousand in the six months ended June 30, 2021, primarily due to a positive result from foreign currency effects relating to the U.S. dollar in connection with an intercompany loan granted by us to our U.S. subsidiary.

Comparison of the Year ended December 31, 2019 and 2020

Net finance costs increased by 381.9% from €182 thousand in 2019 to negative €513 thousand in 2020, primarily due to a negative result from foreign currency effects relating to the U.S. dollar in connection with an intercompany loan granted by us to our U.S. subsidiary.

Profit / Loss before Taxes (EBT)

Comparison of the Six Month Period ended June 30, 2020 and 2021

Profit / loss before taxes (EBT) increased by 120.4% from a loss of €7,293 thousand in the six months ended June 30, 2020 to a loss of €16,077 thousand in the six months ended June 30, 2021 due to the foregoing reasons.

Comparison of the Year ended December 31, 2019 and 2020

Profit / loss before taxes (EBT) increased by 99.8% from a loss of €9,896 thousand in 2019 to a loss of €19,770 thousand in 2020 due to the foregoing reasons.

Liquidity and Capital Resources

Since our inception, we have not generated any significant revenue from the sale of our technology or products, and have incurred significant operating losses and negative cash flows from our operations. We are in the early phases of serial production and have only recently begun to monetize our technology. To date, we have primarily raised capital and funded our operations with proceeds from the sale of our ordinary shares and debt financing, and we have also received limited grants from government agencies and similar bodies like the European Union for participation in specific research and development projects. As of June 30, 2021, we had cash and cash equivalents of €18.4 million compared to €43.2 million as of December 31, 2020. Our cash and cash equivalents consist primarily of cash in bank accounts. In September 2021, we entered into a credit agreement for a credit line of approximately €25 million in September 2021 (see “—Credit Agreement”). As of October 15, 2021, we had €28 million in available liquidity primarily consisting of cash and cash equivalents and unused credit lines available as well as other highly liquid assets.

We have planned for significant increases in revenue and cash flows in 2022 as we ramp up the commercial production of our CONDOR and HAWK terminals. While some of the revenues planned for 2022 are subject to firm contractual obligations, significant amounts are not or are based on our expectations that more than the contractually agreed minimum number of terminals will be ordered by the respective customers. Furthermore, we are actively pursuing multiple commercial opportunities to sell our CONDOR and HAWK terminals to an expanding customer base. In light of the uncertainties associated with realizing our operational plan, we seek to raise sufficient financing through this offering and we are actively pursuing other options, including both equity and debt financing, to fund our operations. Our ability to raise external financing has been, and will continue to be, highly dependent on making further progress in the development of our technology and products. We believe, however, that we will be successful in raising the required financing to fund our operational and financial obligations. If we are unable to do so, these material uncertainties may cast substantial doubt on our ability to continue as a going concern.

 

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Credit Agreement

On September 15, 2021, we entered into a credit agreement with Formue Nord Fokus A/S, Modelio Equity AB (publ) and Munkekullen 5 förvaltning AB as lenders for a credit line of approximately €25 million until March 31, 2022. Loans can be drawn in a minimum amount of €5 million subject to a drawdown fee of 1% of the utilized amount. Outstanding loans under the credit agreement bear interest at a rate of 1% per beginning 30 days. The credit agreement also requires us to pay a commitment fee totaling 6% of the aggregate commitments of approximately €25 million. The commitment fee and interest on the drawn amount are due and payable together with the repayment of the loan amount(s). The loan agreement has a maturity date of March 31, 2022 subject to an option for a one-time extension for three months. If the credit agreement is extended an extension fee of 3% of the total credit line will be added to the loan amount. The availability of the credit line terminates and all amounts outstanding thereunder become due upon the completion of a financing transaction by the Company. As of October 19, 2021, the outstanding loan amount under the credit agreement was €7.5 million.

Cash Flow Statement

The following table shows selected information taken from our cash flow statement for the years ended December 31, 2019 and 2020:

 

     For the year ended December 31,     For the six months ended June 30,  
              2019                       2020                       2020                       2021           
                 (unaudited)  
     (in € thousands)     (in € thousands)  

Net cash used in operating activities

     (8,319     (16,935     (7,854     (18,220

Net cash used in investing activities

     (7,167     (15,010     (6,378     (5,972

Net cash from financing activities

     11,466       66,340       12,022       (588

Net increase/(decrease) in cash and cash equivalents

     (4,020     34,395       (2,210     (24,780

Cash and cash equivalents at the beginning of the period

     12,923       8,914       8,914       43,198  

Cash and cash equivalents at end of period

     8,914       43,198       6,700       18,444  

Net cash used in operating activities

Comparison of the Six Month Period ended June 30, 2020 and 2021

Net cash used in operating activities increased from a cash outflow of €7.9 million in the six months ended June 30, 2020 to a cash outflow of €18.2 million in the six months ended June 30, 2021, mainly driven by an increase in net loss for the six months ended June 30, 2021. Changes in working capital further contributed to the higher cash outflow as inventories increased due to ongoing preparations for serial production. Adjustments for non-cash items, however, had a positive effect as they increased substantially in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, mainly due to an increase in depreciation, amortization and impairments driven by the completion of the development of our AIR technology in mid-2020 and of our SPACE technology in March 2021.

Comparison of the Year ended December 31, 2019 and 2020

Net cash used in operating activities increased from a cash outflow of €8.3 million in 2019 to a cash outflow of €16.9 million in 2020, mainly driven by an increase in net loss for 2020. Adjustments for non-cash items increased substantially in 2020 compared to 2019, mainly due to an increase in depreciation, amortization and impairments driven by the completion of the development of our AIR technology as well as equity settled share-based payment transactions. Changes in working capital contributed to the higher cash outflow as inventories increased due to ongoing preparations for serial production.

 

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Net cash used in investing activities

Comparison of the Six Month Period ended June 30, 2020 and 2021

Net cash used in investing activities decreased from a cash outflow of €6.4 million in the six months ended June 30, 2020 to a cash outflow of €6.0 million in the six months ended June 30, 2021. This decrease was partially due to the final development of our AIR and SPACE technologies which resulted in a lower cash outflow of acquisition of intangible assets. Cash outflow relating to acquisition of property, plant and equipment, however, increased from €1.6 million in the six months ended June 30, 2020 compared to €3.5 million in the six months ended June 30, 2021, primarily driven by the expansion of our development and production capacity at our production facilities.

Comparison of the Year ended December 31, 2019 and 2020

Net cash used in investing activities increased from a cash outflow of €7.2 million in 2019 to a cash outflow of €15.0 million in 2020, primarily due to an increase in cash outflow relating to acquisition of property, plant and equipment to expand development and production capacity at our production facilities, which amounted to €6.7 million in 2020 compared to €1.9 million in 2019. The increase in cash outflow was further driven by increased cash outflows for the acquisition of intangible assets to €8.3 million in 2020 compared to €5.3 million in 2019, most of which represents capitalized development costs associated with increased development and production activities in 2020.

Net cash from financing activities

Comparison of the Six Month Period ended June 30, 2020 and 2021

Net cash used in financing activities increased from a cash inflow of €12.0 million in the six months ended June 30, 2020 to a cash outflow of €0.6 million in the six months ended June 30, 2021. This was primarily due to the lack of proceeds from issue of share capital which significantly contributed to the high cash inflow in the six months ended June 30, 2020 and a decrease in proceeds from other financial assets.

Comparison of the Year ended December 31, 2019 and 2020

Net cash from financing activities increased from a cash inflow of €11.5 million in 2019 to a cash inflow of €66.3 million in 2020, primarily driven by the receipt of proceeds in the aggregate amount of €66.7 million from our private placement of new shares in February 2020, a rights offering in October 2020, the issuance of a convertible bond, which was converted into stock in December 2020, as well as an interim loan taken out in 2020. The increase was partially offset by higher payments in respect of lease liabilities relating to our new facilities, an increase in interest expense (attributable to the convertible bond), repayment of the interim loan and increased interest under IFRS 16 lease accounting rules.

Financial Liabilities

The table below summarizes the maturity profile of our financial liabilities based on contractual undiscounted payments as of June 30, 2021:

 

     Carrying amount      Less than
1 year
     1-5 years      More than
5 years
 
     (in € thousands)  

Trade payables and other payables

     6.512        6.512        0        0  

Lease liabilities

     7.935        1.295        3.969        3.251  

Current other financial liabilities

     80        80        0        0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     14.527        7.887        3.969        3.251  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Changes in Accounting Policies and Disclosures

Certain new accounting standards and interpretations have been published that are not mandatory for the audited financial statements as of December 31, 2020 and have not been early-adopted by us. These standards are not expected to have a material impact on our audited financial statements in the current or future reporting periods. For information regarding changes in accounting policies, and the impact of such changes in accounting policies on our financial statements, if any, see note 3.3 to our consolidated financial statements included elsewhere in this prospectus.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to a variety of risks in the ordinary course of our business, including, but not limited to, credit risk, liquidity risk, default risk, market risk, and currency and interest rate risk. We regularly assess each of these risks to minimize any adverse effects on our business as a result of those factors. For discussion and sensitivity analyses of our exposure to these risks, see note 33 to our consolidated financial statements included elsewhere in this prospectus.

Critical Accounting Policies and Use of Estimates and Assumptions

We prepare our financial statements in accordance with IFRS, which includes all standards issued by the IASB and related interpretations issued by the IFRS Interpretations Committee. The preparation of our audited financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts in the audited financial statements. We continually evaluate our judgments and estimates in relation to assets, liabilities, contingent liabilities and expenses. We base our judgments and estimates on historical experience and on other various factors, we believe to be reasonable under the circumstances, the result of which forms the basis of 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 and conditions and may materially affect the financial results or the financial position reported in future periods. For information on critical accounting policies and our use of estimates and assumptions, see note 4 to our consolidated financial statements included elsewhere in this prospectus.

Internal Control over Financial Reporting

In connection with the audits of our consolidated financial statements for the years ended December 31, 2019 and 2020, we identified material weaknesses 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 consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses that were identified primarily related to (i) a lack of sufficient resources with an appropriate level of technical accounting and SEC reporting experience and clearly defined roles within our finance and accounting functions, and (ii) a lack of design and operating effectiveness of information technology general controls for information systems that are relevant to the preparation of our consolidated financial statements.

We have relied on the assistance of external service providers with expertise in these matters to assist us in the preparation of our consolidated financial statements and in our compliance with SEC reporting obligations related to this offering and expect to continue to do so while we remediate these material weaknesses. We have initiated a remediation plan to address these material weaknesses. As part of this plan, we intend to (i) implement an enterprise resource planning (ERP) system from SAP AG in the second half of 2021, and (ii) to hire additional senior level and staff accountants to implement robust processes and provide us with additional technical expertise. In the interim, we will continue to engage third parties as required to assist with technical accounting

 

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and tax matters. While we are working to remediate the weaknesses as quickly and efficiently as possible, we cannot at this time provide an estimate of the timeframe for implementing our plan to remediate these material weaknesses. See also “Risk Factors—Risks Related to the ADSs and this Offering—We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate the material weaknesses, or if other control deficiencies are identified, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.”

 

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BUSINESS

Overview

We believe we are a leading developer and manufacturer (in terms of production capacity) of advanced laser communication technology for aerospace communications networks in government and commercial markets. Laser communication networks provide connectivity from the sky, allowing for high data rates and secure, long-distance data transmission between moving objects for wireless terrestrial, airborne- and space-based applications. Our technology and products are designed to provide the backbone for connectivity to link satellites, high-altitude platforms, unmanned aerial vehicles, aircraft and the ground with secure wireless data transmission. We aim to industrialize laser communication by focusing on standardization and cost-efficiency. We believe that we are one of the first companies to develop laser communication technology at commercially attractive price points for use in both government and commercial markets. By leveraging our strong technical expertise and early mover advantage, we aim to become the go-to supplier for the “internet above the clouds.”

Laser communication offers significant technical and operational advantages for wireless data transmission compared to other wireless communication systems, which mostly use RF technologies to transmit information. RF-based communication is generally characterized by lower bandwidth, significant license requirements and a wide beam divergence, which makes it much more susceptible to interception. Laser communication, on the other hand, benefits from its higher bandwidth capacity, lower latency, improved security, lower power requirements and a license-free spectrum. Laser communication has achieved world record transmission rates of 13.16 terabits per second (according to the DLR), as compared to RF’s maximum transmission rate of 36 gigabits per second (according to the Facebook Connectivity Lab). Current demand for laser communication is predominantly driven by government applications in defense, surveillance, intelligence and border control, which seek to leverage the superior capabilities of laser communication. With its significant advantages and wide range of applications, laser communication is highly attractive for the development of next-generation communication networks, in particular for space and airborne applications.

We were founded in 2009 by former scientists of the DLR and have invested in developing and optimizing our laser communication technology, which we are now commercializing. We have developed pre-serial product versions of our flagship CONDOR inter-satellite link terminal and our HAWK airborne terminal, and are currently ramping up serial production to enable customers to deploy our technology at scale. We believe that we are one of a few companies offering a commercially viable laser communication terminal solution combining light weight, robustness, high data rate and high power efficiency at attractive prices. In 2020, we were awarded two contracts by Telesat and another customer for our CONDOR terminals in connection with two U.S. governmental programs launched by DARPA and the SDA, respectively. We also received an order from a major U.S. aerospace and defense company for our HAWK terminals, which allows us to introduce these terminals to the U.S. government market. We believe that these contracts offer significant potential to scale the number of terminals we may provide for these government programs and allow us to gain early access to additional prospective customers. We also believe that the introduction of laser communication technology at commercially attractive price points has the potential to create a significant market for laser communication for years to come.

We aim to industrialize laser communication by focusing on developing standardized and modularized products suitable for a wide array of customers and applications. We have benefited from advancing on the learning curve with the development of the pre-serial product versions of our CONDOR and HAWK terminals, as we continuously seek to decrease the costs of deploying laser communication. By moving from singular prototype production to pre-serial production levels, we have already reduced our material costs per unit by around 80%. We are currently ramping up serial production and we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 and target a per year production rate of up to 2,000 units going forward. While the majority of our terminals produced in 2020 were used for internal and external test and demonstration campaigns, and most of the units produced in 2021 are intended for customer delivery.

 

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We are in the early phases of serial production and have only recently begun to monetize our technology. Our revenue amounted to €1,349 thousand for the six month period ended June 30, 2021 and €679 thousand for 2020. Our operating loss (EBIT) amounted to €16,240 thousand in the six month period ended June 30, 2021 and we reported a net loss of €16,077 thousand for the same period. In 2020, operating loss (EBIT) amounted to €19,257 thousand and we reported a net loss of €19,770 thousand. We manage our business based on our two operating segments, which are also our reportable segments in accordance with IFRS 8. Our two reportable segments include our Space segment, which currently comprises our flagship CONDOR terminal, and our Air segment, which currently comprises our flagship HAWK terminal. Our measure of segment profitability for each reportable segment is operating profit / (loss) (EBIT). We are headquartered in Gilching, near Munich, Germany, with additional offices in Los Angeles and the Washington D.C. area, and had 200 FTEs as of March 31, 2021.

Our Market Opportunity

Globally, the need for fast, secure and ubiquitous network connectivity is growing, as existing network technologies are reaching their limits. Existing data networks, like the internet, are largely based on terrestrial infrastructure such as fiber optic networks, which provide for excellent connectivity in urban, densely populated areas but cannot be expanded infinitely, resulting in rural and remote areas often lacking reliable or secure terrestrial infrastructure access. Current alternative connectivity solutions, such as RF-based network connectivity provided by satellites in geostationary orbit, are expensive and characterized by low bandwidth and high latency connectivity, as well as limited security from hacking and spoofing. Even where broadband connectivity is available, existing network technologies are reaching their capacity limits. Over the past decade, internet traffic has grown significantly and this growth is expected to continue, driven largely by the increase in mobile internet usage and the IoT, which are to be supported by high speed, high bandwidth networks.

The increased market demand for internet connectivity requires network operators to look beyond existing communication infrastructure, with a particular focus on aerospace communication networks. Aerospace communication networks will consist of a large number of interconnected network nodes established by various platforms in air and space (such as satellites, high-altitude platforms, unmanned aerial vehicles and aircraft). We believe that laser communication will play a key role in connecting these platforms, as it offers significant advantages over traditional wireless communication systems, such as higher bandwidth capacity, low latency, improved security, lower power requirements and license-free spectrum.

Over the past decade, the laser communication market has started to take shape, driven by rapid technological developments in the space industry, particularly the advent of smaller, lower-cost satellites enabling large-scale deployment. These developments have led to greater accessibility for companies and governments to new space-based applications. While government remains a critical driver for further expansion of global space activities, a number of well-funded technology companies, such as Elon Musk’s SpaceX, have developed formidable commercial space capabilities. At the same time, as private sector space capabilities increase, governments have begun to realize the value of the private commercial space industry and have become increasingly supportive and reliant on private companies to catalyze innovation and advance national space objectives. The combination of increased access to capital, economies of scale, and open innovation models has driven rapid growth in the commercial space market in recent years. We believe that the global space industry is at an inflection point today, transitioning from a phase of discovery to phases of deployment and commercialization. We consider these developments in the broader space economy as crucial for the market for our industrialized laser communication equipment to take shape and fully materialize.

Current demand for laser communication is predominantly driven by both government organizations and commercial players seeking to establish LEO aerospace communication networks. The U.S. government has been the strongest proponent to date of aerospace network capabilities and has made the development of government space architectures using large-scale LEO constellations a priority. As privacy and security of military communication is a critical requirement for defense communications, governments seek to leverage the

 

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superior capabilities of laser communication to enable secure and stealth data exchange, battlefield connectivity, intelligence, surveillance and reconnaissance (“ISR”) data distribution and teamed systems of systems. In the future, such government space architectures are expected to move to multi-orbit “proliferated” constellations (i.e., large constellations of small satellites), particularly those based in LEO.

Just as the internet was initially developed as a defense communication network before evolving to diversified, commercial applications, we believe aerospace communication networks will serve not just government but also industry and consumer needs over the medium-term, presenting a significant market opportunity. We believe that we are currently in the early phase of a multi-decade rollout of laser communication capabilities in aerospace communication networks, which will lead to more widespread use across commercial applications such as broadband satellite, data relay, Earth observation and in-orbit data processing services. As a result, we believe that the initial deployment of our products in the government market provides a foundation for our presence in the commercial market, and believe that validation from our government customers will help position our products for future large-scale deployment.

Our Value Proposition

Our laser communication technology and products are designed to overcome the current limitations of existing communication systems in air and space. By leveraging our strong technical expertise and first mover advantage, we believe that we are well-positioned to take advantage of the current market opportunity in government driven end-markets, by building key relationships which will position us for wider deployment as technologies are adopted at scale.

Our value proposition to customers comprises the following:

 

   

Industry-leading technology: Our laser-based communication technology utilizes an accurately steered infrared laser beam at a wavelength of approximately 1550 nanometers to transmit data wirelessly through air and allows for superior performance parameters compared to RF-based communication systems (i.e., systems utilizing radio frequencies in the electromagnetic spectrum bands). Our technology and products are designed to meet the demanding conditions of aerial and space applications and offer high performance in terms of data rate, power consumption, size and weight.

 

   

Standardization enabling multiple use cases: Unlike traditional aerospace companies, which historically focused on developing bespoke solutions for individual customers, we seek to offer standardized and modularized products suitable for a wide array of customers and applications. Our technology is designed to serve multiple use cases and potential markets, extending beyond government to commercial and industrial use. As the market for laser communication develops over the medium- to long-term, we believe our technology will be extensible across applications, domains, and target platforms. We consider the establishment of an open industry standard as critical for diversified use of laser communications systems. We actively support cross-vendor interoperability of laser communication systems (e.g., through the establishment of our own interoperability laboratory) and were the first company to successfully demonstrate implementation of SDA’s OISL industry standard.

 

   

Cost-efficiency: We aim to industrialize laser communication by focusing on cost-efficient solutions to decrease the costs of deploying laser communication for our customers and target markets. To this end, we seek to leverage proven industrialized processes and supply chain strategies from other industries, including the use of a “commercial off-the-shelf” strategy developed in the automotive, medical device and telecommunication industries. By advancing on the learning curve from singular prototype production to pre-serial production levels, we have already reduced our material costs per unit by around 80%. We expect to be able to further reduce both material costs and assembly costs in connection with the commencement of serial production.

 

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High volume terminal production capabilities: We believe that the ability to manufacture laser terminals at scale will be a key differentiator as laser communication proliferates. We recently completed installation of assembly and manufacturing equipment at a customized production facility in Oberpfaffenhofen, near Munich, enabling high volume production and are currently ramping up serial production. Based on our current set-up, we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 and target a per year production rate of up to 2,000 units going forward.

Key Investment Highlights

Significant growth potential for laser communication in government and commercial markets

We believe that the increasing need for fast, secure and ubiquitous network connectivity opens up significant growth potential for laser communication in the near- to medium-term. Current demand for laser communication is predominantly driven by government needs, with the U.S. government spearheading the adoption of laser communication technology. U.S. allies and other governments are also evaluating new technologies as part of their national objectives to modernize their space capabilities. As privacy and security of military communication is a critical requirement for defense communications, governments seek to leverage the superior capabilities of laser communication to enable secure and stealth data exchange, battlefield connectivity as well as ISR data distribution. The U.S. government has invested significantly in research and development as well as deployment of laser communication and other technologies. MarketsandMarkets estimates that the military communications market, one of the fastest growing defense segments, is expected to account for approximately $40.6 billion in spending by 2025, with total global defense spending reaching more than $2.1 trillion by 2025 (based on our assumption of a compound annual growth rate of 2%, based on historical growth rates published by the Stockholm International Peace Research Institute).

While government funding is currently driving laser communication demand, we see increasing activity in the commercial market. In particular, we expect the space segment to grow, as space-enabled broadband connectivity has become central to businesses and individuals and the need to stay connected has spread to locations that cannot readily access existing terrestrial networks. To keep pace with growing demand from underserved regions and an increasing number of applications, network operators will need to look beyond terrestrial infrastructure. The inherent capabilities of laser communication technology can help network operators address these key challenges. According to Grand View Research, the aggregate telecommunication services market is expected to increase to approximately $2.2 trillion by 2025 (based on a compound annual growth rate of 5.4%) and, according to investment manager ARK Invest, the satellite broadband market is expected to reach $50 to $100 billion in the medium term. We believe that laser communication will enable aerospace constellations in the commercial market to serve cellular backhaul (e.g., 4G/5G), automotive, infrastructure, maritime and consumer applications. For example, by establishing laser-enabled optical mesh networks through satellites in LEO or MEO, laser communication may enable such satellites to perform as virtual cell towers connecting various devices, such as ships, aircraft, cars, satellites, trains and even terrestrial cell towers, providing hundreds of kilometers of coverage radius per network node compared to only a few kilometers provided by terrestrial cell towers.

We believe that laser communication will eventually be attractive to a wide range of diversified markets across a number of industries. For example, we believe that laser communication will offer significant advantages for high quantity IoT connectivity involving significant volumes of devices and for private optical mesh networks and backbone connectivity for industries such as aviation. In addition, laser-enabled quantum key distribution (QKD) from space to on premise optical ground stations may offer widely accessible data security. Laser communication may also play a key role for broadband connectivity through high-altitude platforms (including balloons and drones) functioning as semi-permanent telecommunication platforms in the stratosphere providing regionally limited and/or temporary broadband services comparable to Facebook’s Project Aquila or Google’s Project Loon.

 

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Multi-year government programs driving near-term adoption and technology validation

The government sector has historically been a first mover in deploying next generation technologies, and has been an early adopter of laser communication in both the space and airborne markets. In the United States, recent government efforts to develop and deploy laser communication are driven by the U.S. government’s vision of a CJADC2, the ultimate goal of which is to digitally connect all elements of the U.S. military across all five warfighting domains, consisting of air, land, sea, space and cyberspace.

The most prominent government projects currently deploying laser communication are the SDA’s NDSA, a proposed multi-layered network of small satellite constellations primarily in LEO, and DARPA’s Blackjack program, which aims to develop and validate the critical elements for a global high-speed network in LEO providing for highly connected and resilient coverage, both of which are part of the CJADC2:

 

   

SDA’s NDSA: The NDSA will be comprised of seven layers of satellite constellations each providing a unique capability. These layers will all be tied together by a so-called “transport layer,” a low-latency data and communications proliferated “mesh network” of satellites (i.e., a decentralized network comprising various wireless nodes with each node acting as a forwarding node to transfer the data) connected through OISLs. In addition to the transport layer, the NDSA will include a “tracking layer” comprised of sensor satellites to detect and track missiles, which also will use OISLs to connect to SDA’s transport layer satellites. Laser communication is one of the most critical technologies the SDA is evaluating in connection with the NDSA, as OISLs are key to making LEO communication satellites useful. The SDA is currently working on a “Tranche 0” constellation comprising 28 satellites equipped with OISLs. The Tranche 0 constellation is designed to serve as the prototype for a number of subsequent tranches, with current plans to launch a new tranche every two years. In August 2021, the SDA issued a request for proposal soliciting bids for its “Tranche 1” constellation. Tranche 1, expected to launch in late 2024, will include a transport layer with roughly 144 data relay satellites equipped with 430 to 720 laser communication terminals (assuming three to five terminals per satellite).

 

   

DARPA’s Blackjack program: Much of the technology that the SDA needs for its constellations is being co-developed under DARPA’s Blackjack program. Blackjack seeks to incorporate and capitalize on commercial sector advances in LEO, including the design of LEO constellations intended for broadband internet service that are designed and manufactured with previously unavailable economies of scale. DARPA has awarded more than a dozen contracts to large defense contractors and start-up companies, each working on a different technology set. As part of Phase 2 of the Blackjack program, which is currently ongoing, DARPA plans to launch several “risk reduction” flights to test laser communication with government payloads in orbit and to demonstrate OISL interoperability with different hardware.

There are numerous additional government programs in the airborne market focusing on the development of connected systems and shared networks based on different communication technologies, including laser communication. These programs include, most notably, the U.S. military’s ABMS, a military IoT being developed as one of the core elements of the CJADC2, which will enable the joint force to quickly collect, analyze and transmit data at machine speeds. The ABMS is designed to securely connect sensors, data, decision-makers and weapons across multiple domains and to enable ubiquitous connectivity and availability offering powerful capabilities for command and control. As another example, under Project Skyborg, the U.S. Air Force aims to develop a digital artificial intelligence architecture to support a family of low-cost, modular UAVs that can communicate via a network shared with manned aircraft, enabling MUM-T. In Europe, Airbus Defense and Space and its French partner Dassault Aviation are currently working on the Future Combat Air System (FCAS), a program aiming to develop a family of air systems connected by an advanced air combat cloud network. This cloud network will be designed to deliver common situational awareness by instantaneously capturing, sharing, merging and processing large amounts of data from all connected core air vehicles and unmanned platforms.

 

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We believe that these government programs, most of which are driven by the U.S. government, are crucial for the ongoing development and implementation of aerospace communication networks in general, and laser communication systems specifically.

Well-positioned in the government market with significant program wins

While laser communication is in the early stages of development, we expect to benefit from our strong technical expertise and first mover advantage in industrializing laser communication technology, paving the way for large-scale deployment. We are deeply engaged with pioneering customers and well-positioned in the government market with respect to both of our flagship products, our CONDOR inter-satellite link terminal and HAWK airborne terminal.

Most notably, in connection with the SDA’s NDSA, in September 2020, we were awarded the first part of an expected multi-million Euro contract in the mid-seven digit range for the delivery of our CONDOR terminals to a customer for its work on Tranche 0. Initial delivery of equipment to this customer took place in first half of 2021. Tranche 0 is scheduled to be ready for demonstration in 2023. As part of our engagement in the NDSA, in 2021, we successfully demonstrated the industry’s first over-the-air transmission using an OISL terminal communicating with an independently built testbed, both of which are compliant with the SDA’s OISL industry standard. We believe that this demonstration marks a crucial milestone in the industrialization of laser communication and, as such, a first step in the technology’s widespread adoption within the satellite industry and beyond.

In October 2020, we were selected by Telesat to supply multiple units of our CONDOR terminals for Telesat’s work on DARPA’s Blackjack program. Our CONDOR terminals are scheduled to be delivered in late 2021 to Lockheed Martin, which is acting as DARPA’s system integrator, with the satellites scheduled to launch in 2022. As part of our engagement in the Blackjack program, we agreed to establish the industry’s first laser communication interoperability laboratory in Los Angeles that will simulate conditions in space to test interoperability between different vendors’ terminals. The interoperability laboratory is intended to help establish a common laser communication standard within the Blackjack program and potentially beyond, and assist our customers in de-risking their supply chains, which we believe can facilitate future large-volume deployment of laser communication.

In 2020, we received an order for two of our HAWK terminals from a U.S. aerospace and defense customer, introducing our HAWK product to the U.S. government market. We delivered the pre-serial product versions of our HAWK terminals to this customer in the fourth quarter of 2020, and our customer has started initial system testing and demonstrations in deployment scenarios. Through this partnership, we believe that we are well-positioned to successfully introduce our HAWK terminal to other U.S. government programs.

We believe that by positioning ourselves well within initial government programs in both the space and airborne markets, we will be poised to take advantage of future government initiatives in the U.S. and the other geographies in which we operate.

Strong positioning in the commercial market, leveraging government track record

While the initial development and implementation of aerospace communication networks in general, and laser communication systems specifically, are driven by government programs, in recent years large commercial players have emerged seeking to build large constellations for establishing alternative communication networks. For example, well-funded aerospace companies such as SpaceX (Elon Musk), OneWeb, Telesat and Kuiper (Amazon) have committed substantial resources to deploying satellite mega-constellations, which are expected to be connected with each other through OISLs. SpaceX already has 12 Starlink satellites equipped with OISLs in orbit and aims to expand deployment to all Starlink satellites beginning in 2022. OneWeb announced in March 2021 that its second

 

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generation of satellites will use OISLs for interconnection. Canadian-based Telesat, an established satellite operator, and Kuiper (Amazon), have announced that they are working on a high-speed, low-latency broadband network. While a few of these companies may develop laser communication capabilities in-house, we believe that most will rely on third-party suppliers, such as us, capable of providing laser communication products that are affordable, scalable and interoperable. We regularly engage in discussions with these and other key players in the market, whether or not they seek to rely on third-party suppliers, aiming to strengthen our network of potential industry partners. We believe that by establishing strong relationships with these market participants, we can develop significant potential for future partnerships or collaborations that will utilize our products or components.

As a result of our government track record and our first mover advantage, we have also been able to secure initial wins in the commercial market. In May 2021, we signed an MoU with Cloud Constellation, a constellation builder seeking to deploy OISLs in its planned LEO-based constellation. Based on this MoU, we will agree to sell to Cloud Constellation a certain number of our CONDOR terminals and we will also agree to grant Cloud Constellation and its partners access to our laboratory and various test facilities. On July 30, 2021, we entered into a definitive agreement with SpaceLink, a commercial constellation builder seeking to develop a MEO-based constellation that deploys OISLs to relay data for space systems in LEO. Under the SpaceLink agreement, we have agreed to develop a new laser communication terminal for SpaceLink’s satellites in MEO. We have also agreed to sell more than 40 laser communication terminals to SpaceLink, comprising such newly developed MEO terminals as well as our CONDOR terminals. Additionally, in July 2021, we signed an MoU with JR Aerospace, an Indian investment and technology company, to accelerate our entry into the Indian aerospace market. Finally, in August 2021 we received a purchase order from an undisclosed commercial customer, under which we will deliver up to 20 CONDOR terminals over four years.

Beyond communication, commercial constellation operators are targeting several additional applications, including Earth observation and IoT, which may result in a number of smaller companies seeking to provide data relay, secure storage or intelligence services in this market segment. We believe that laser communication is in the early phases of widespread use across commercial applications, and we believe we are well-positioned to serve this market.

Industry leading production capabilities with flexibility to scale

We believe that the ability to manufacture laser communication terminals at scale will be a key differentiator as laser communication proliferates. We have made significant investments in our manufacturing infrastructure and have demonstrated a proven ability to manufacture both our CONDOR and HAWK terminals. Our recently completed production facility in Germany has state-of-the-art capabilities, which we believe provide an advantage versus our competitors. We have created a baseline capacity and are currently ramping up serial production. Based on our current set-up, we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021 (some of which we expect to use for internal purposes to improve our production processes and product development) and target a per year production rate of up to 2,000 units going forward.

Learning curve benefits driving continued cost reductions over time

By realizing learning curve benefits as we have scaled from singular prototype production to pre-serial production, we have already reduced our material costs per unit by around 80%. We expect to be able to further reduce both material costs and assembly costs in connection with the commencement of serial production. We believe that by focusing on cost-efficient solutions and by improving our superior production capabilities, we will be able to significantly decrease the costs of deploying laser communication for our customers and target markets.

Highly skilled management team with strong industry expertise and deep relationships

We are led by a dedicated and highly skilled senior management team with significant industry experience, including at SpaceX, Boeing, SES, Iridium, Siemens, Panasonic and, in the case of our co-founder and Chief

 

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Technology Officer, at the DLR. In addition, we have assembled a world-class team of engineers and manufacturing experts who comprise our industry leading research and development team. As of March 31, 2021, we had 200 FTEs from over 40 nationalities, of which 120 FTEs were qualified engineers dedicated to research and development. We believe that the technological expertise and talent of our team allows us to industrialize and commercialize our technology and products, and that this team will provide us with a sustainable competitive advantage over time.

Our Operations

Our laser communication technology and products are designed to provide the backbone for connectivity to link satellites, aircraft, UAVs and high-altitude platform stations to the ground. We have introduced two distinct product families for laser-enabled communication in air and space, our CONDOR inter-satellite link flight terminal and our HAWK airborne flight terminal. We have a highly qualified research and development team committed to enhancing our current product portfolio and to developing our pipeline of new and complementary products. We manufacture our own products in our customized facility in southern Germany, which boasts state-of-the-art production capabilities. We source the majority of the components for our products from third-party suppliers. Although some components are manufactured to our specifications, many of our components are commercial off-the-shelf and are broadly available.

Our Products

We have two principal product families: CONDOR, an optical inter-satellite link flight terminal providing for satellite-to-satellite communications in space, and HAWK, an airborne flight terminal providing for air-to-air and air-to-ground links of airborne vehicles. We have developed and delivered pre-serial production versions of each of these products to initial customers and are currently ramping up initial serial production.

Product Roadmap

We have a strong track record of designing and manufacturing space and airborne laser communication terminals that deliver superior technological results and performance. In 2012, we developed an initial prototype of an airborne laser terminal (which we refer to as a “singleton”). With this initial prototype, we successfully demonstrated, together with Airbus, the maturity and readiness of laser communication in an air-to-ground scenario in 2013, reaching a data rate of 1.25 Gbit/s—a world record in data transmission via laser communication technology. We continuously developed and tested a variety of components and specifications to further improve our technology and completed our second prototype (singleton) in 2014, with which we conducted several internal test and demonstration missions. As a result of our continuous efforts, we developed our first demonstration prototype of our airborne laser terminal, of which we sold a number of units to initial customers, including Facebook. Following further refinement of our technology and components, we completed the development of pre-serial product versions of our flagship CONDOR and HAWK terminals in 2021 and 2020, respectively.

In addition to our flagship products, we developed demonstration prototypes of our ARMADILLO and RHINO ground stations in 2017 and 2018, respectively. Our ARMADILLO and RHINO ground stations are designed to offer high-speed access points for air-to-ground and space-to-ground communication scenarios, respectively. We sold both our ARMADILLO and RHINO prototypes to initial customers, including Facebook, for testing and demonstration purposes. In 2017, we tested, in collaboration with Facebook, our HAWK prototype in combination with our ARMADILLO prototype and reached a second world record by successfully demonstrating the viability of our technology through a series of tests culminating in a 10 Gbps air-to-ground transmission from a moving aircraft. We currently do not actively promote or market our ARMADILLO and RHINO ground stations, as use cases and demand are still emerging. In certain cases, we use these prototypes for testing and demonstration scenarios with prospective customers. As the market evolves, we believe that ground stations will play a vital role in the further development and deployment of aerospace communication networks.

 

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The following graphic illustrates the development roadmap of our products since inception:

 

 

LOGO

Space Terminals

In our Space segment, we currently offer our flagship CONDOR terminal which is designed to be attached to satellites in order to establish connections between satellites. Our CONDOR terminal provides the backbone for inter-satellite connectivity in LEO. It is capable of establishing links for inter-plane scenarios independent of satellite motion with coarse pointing assembly as well as intra-plane connections without coarse pointing assembly. Use cases for our CONDOR terminal include, among others, government and military secured communication, backbone connectivity for optical mesh networks for commercial satellite constellations and in-orbit optical relay links for surveillance and Earth observation satellites.

The following graphic illustrates the main characteristics of our CONDOR terminal:

 

 

LOGO

We started pre-serial production of our CONDOR terminals for internal testing and qualification purposes in 2020. Initial delivery of equipment to a customer took place in first half of 2021.

By leveraging our SPACE technology, we recently entered into a definitive agreement with SpaceLink to develop a new spaceborne laser communication terminal for SpaceLink’s satellites in MEO. These MEO terminals will be designed to relay data within SpaceLink’s MEO constellation as well as from MEO

 

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satellites to space systems in LEO. In developing our new MEO terminals, we will focus on unit design and qualification, including component selection and radiation testing, to meet SpaceLink’s mission, system and programmatic requirements.

Air Terminals

In our Air segment, we currently offer our flagship HAWK terminal for air operations, which is installed on airborne vehicles and provides high-speed laser connections between aircraft, balloons, drones and other UAVs. Our HAWK terminal is designed for air-to-air and air-to-ground scenarios by using advanced sensor technology. Use cases include, among others, ultra-secure connectivity for ISR missions of UAVs in defense theaters, the establishment of temporary or regionally limited optical mesh networks to provide broadband connectivity and general high-speed UAV connectivity for government and commercial applications.

The following graphic illustrates the main characteristics of our HAWK terminal:

 

 

LOGO

We started pre-serial production of our HAWK terminals in 2020 with initial production units used for internal testing and qualification purposes. Customer-led testing campaigns started in late 2020 and are expected to continue throughout 2021.

Our Go-To-Market Strategy

We are a sub-system supplier in the aerospace communication industry providing products to system primes, such as aircraft and satellite manufacturers, and in certain cases (such as with Telesat) to system operators. We aim to influence both the system primes who build the satellite constellations and the system operators who make the ultimate decisions to deploy laser terminals.

The following graphic illustrates our position as sub-system supplier in the aerospace communication industry:

 

LOGO

 

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Currently, our largest market is North America, specifically the United States. We also focus on selling our products into select other countries such as Israel, Japan, Korea and India and Western European countries. Over time, we believe that additional potential markets may develop across the globe.

Customer Acquisition

We seek to generate sales leads and acquire new customers through our established relationships in the industry, direct sales efforts, trade show attendance, general marketing efforts and public relations. We generally aim to establish relationships with potential customers early in their decision-making processes through our participation in test or demonstration missions, as we believe that this will provide us early insights into customer needs and market developments.

We have a diverse network across the government market, including relationships with a number of system primes who contract with government agencies for the installation and integration of large space- and airborne-based communication systems. To participate in certain U.S. government programs, we may establish a U.S. entity cleared for access to classified information. We believe that our recent government and commercial contract wins and the successful demonstration of OISL interoperability in accordance with the SDA’s industry standard will help us further deepen our network and enable us to engage in leading government projects aiming to develop and deploy laser communication networks.

We also seek to leverage our established government relationships to drive engagement with potential commercial customers. In the commercial market, we target companies aiming to establish smaller Earth observation and surveillance constellations for our CONDOR terminals. For our HAWK terminals, we focus on UAV and unmanned aircraft system builders who work with customers requiring significant data and increased bandwidth for their applications. As in the government market, we also seek to establish and advance our relationships with system primes, which focus on integrating new technologies and products into existing airframes of vehicles manufactured by third parties.

In addition to our direct sales and marketing activities, we have developed a global network of distributors for our airborne laser-based communication products. For example, for our HAWK terminal, we have distribution relationships in Australia, Israel and Japan and we are actively working to establish additional partnerships in other jurisdictions, such as India and South America.

Sales Cycle

The typical sales cycle for our products in the government market includes a pre-sale process to define a potential customer’s needs and budget. While certain customers may choose, or be required, to conduct a RfI or RfP process, allowing several companies to openly bid for the project, we focus on developing relationships with potential customers early in their decision-making processes, positioning us to avoid RfP processes where possible. In our response to these RfIs and RfPs, we offer potential customers specific commercial solutions covering detailed technical and commercial explanations as well as details on production capacities and ramp-up strategies. Proposals are evaluated based on various criteria, including technical requirements, reliability, associated risk and successful track-record of the manufacturer, and price. If we are selected, we enter into negotiations and, if successful, ultimately receive a purchase order from the customer. Many purchase orders allow for or require phased delivery of products over several months or years, with payments being made following delivery or achievement of other milestones. Through our participation in these processes, we have developed an extensive library of materials and processes for responding effectively and efficiently in a timely manner. The entire sales process can take anywhere from a few months to over a year.

The sales process for our products for commercial applications depends on the individual customer and the size and structure of a project. Our sales team often engages in detailed discussions with potential customers to define the customer’s needs and budget. Following these discussions, we typically either sign an MoU or a term

 

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sheet or directly negotiate long-form agreements. From time to time, in particular with respect to large, established customers, we may also be required to participate in RfI or RfP processes. As with sales in the government market, the entire commercial sales process may take from a few months to over a year.

Customer Awards

In September 2020, we were awarded the first part of an expected multi-million Euro contract in the mid-seven digit range for the delivery of our CONDOR terminals to a customer for its work on Tranche 0. Initial delivery of equipment to this customer took place in the first half of 2021. As part of this program, we successfully cooperated with the U.S. Naval Research Laboratory in connecting OISL standard-compliant modems via optical fiber in an R&D environment. This is, to our knowledge, the first successful interoperability demonstration between two independently developed implementations of laser communication under the SDA’s OISL standard communications protocol.

Additionally, in October 2020, we were selected by Telesat to supply multiple units of our CONDOR terminals for Telesat’s work (as system operator) on DARPA’s Blackjack Track B program. The terminals are scheduled to be delivered in 2021 to DARPA’s Blackjack system integrator, with satellites scheduled to launch in 2022. Through this mission, Telesat aims to demonstrate the capabilities, as well as the interoperability, of laser communication products from different vendors. As part of this program, we have agreed to establish the industry’s first interoperability laboratory in Los Angeles that will simulate conditions in space to test interoperability between different laser communication terminals.

In April 2020, we received an order for HAWK terminals from a major U.S. aerospace and defense company. We delivered pre-serial product versions of our HAWK terminals to this customer in the fourth quarter of 2020, following which our customer conducted initial system testing and demonstrations in deployment scenarios. We continue to work with this customer to expand the mission scope of our HAWK product in airborne scenarios.

As a result of our government track record and our first mover advantage, we have also been able to secure initial wins in the commercial market. In May 2021, we signed an MoU with Cloud Constellation, a constellation builder seeking to deploy OISLs in its planned LEO-based constellation. Based on this MoU, we will agree to sell to Cloud Constellation a certain number of our CONDOR terminals and we will also agree to grant Cloud Constellation and its partners access to our laboratory and various test facilities. On July 30, 2021, we entered into a definitive agreement with SpaceLink, a commercial constellation builder seeking to develop a MEO-based constellation that deploys OISLs to relay data for space systems in LEO. Under the SpaceLink agreement, we have agreed to develop a new laser communication terminal for SpaceLink’s satellites in MEO. We have also agreed to sell more than 40 laser communication terminals to SpaceLink, comprising such newly developed MEO terminals as well as our CONDOR terminals.

Additionally, in July 2021, we signed an MoU with JR Aerospace, an Indian investment and technology company, to accelerate our entry into the Indian aerospace market. Finally, in August 2021 we received a purchase order from an undisclosed commercial customer, under which we will deliver up to 20 CONDOR terminals over four years.

Our Technology

Laser communication is a highly attractive broadband technology providing for fast, secure and reliable data transmission. Due to the nature of the laser and the small divergence angle of the transmitter, detecting and intercepting laser beams is difficult, making laser communication more secure than existing RF-based wireless systems. In contrast, RF waves are characterized by a much wider beam divergence, and in certain cases even spread spherically, which opens up a broader area for the detection, interception, manipulation, theft and interruption of data. The secure nature of laser communication is key for governments and commercial players seeking to deploy laser communication as part of the next generation of satellite constellations.

 

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The graphic below illustrates the advantages of laser communication versus existing RF-based communication technology in terms of security due to the nature of the laser’s beam size:

 

 

LOGO

While a narrow laser beam is advantageous for thwarting detection, interception and exploitation, it requires higher precision in aligning sending and receiving stations compared to RF technologies. Accordingly, when used in connection with moving objects such as aircraft and satellites, the laser beam needs to be continuously retraced and repositioned between the moving platforms. The alignment mechanism we have developed for our CONDOR and HAWK terminals overcomes this challenge by utilizing two stages of steerable mirrors for the coarse and fine pointing mechanism, respectively. Our laser-based communication system utilizes an accurately steered infrared laser beam at a wavelength of approximately 1550 nanometers to transmit data wirelessly and allows for superior performance parameters compared to competing RF-based communication systems (i.e., systems utilizing radio frequencies in the electromagnetic spectrum bands).

The graphic below illustrates the technological benefits of laser communication compared to existing RF-based communication technologies in terms of distance, data and bandwidth:

 

 

LOGO

Research & Development and Engineering

Research & development is critical to our business strategy. We have developed strong in-house capabilities in product design, engineering, testing and quality assurance, covering the entire research and development process from conception to completion. We are committed to investing in a robust research and development program to enhance our current product portfolio and to develop our pipeline of new and complementary products.

Our research & development activities were initially based on a license granted to us by the DLR under a cooperation and licensing agreement entered into in 2013. Under this agreement, the DLR granted us a non-exclusive, non-assignable and non-sublicensable limited license for two of DLR’s patents, a software program and know-how related to ground and flight terminals for optics-free communication. In a subsequent amendment, we were granted an exclusive license for certain applications, which include ground-based optical communications, air-based optical communications and ground-air communications. We pay annual license fees

 

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under our agreement with the DLR. The agreement will terminate on December 31, 2027. Given the rapid technological developments in our industry and the limited extent of our current reliance on this license, we do not expect that we will need this license for development of our products going forward and accordingly we currently do not intend to seek an extension of this agreement beyond its termination date.

We also collaborate with research institutes for the development and manufacture of certain optical components and products. For example, in cooperation with a German technology research institute, we have developed a metal telescope primarily for use in our CONDOR terminal that allows us to significantly reduce costs compared to alternative components. We are currently working on expanding our manufacturing capabilities to bring the telescope production for our CONDOR terminal in-house in the near-term. For our HAWK terminals, we have been working on the development of an ultra-sensitive photo diode in cooperation with a French research institute, which is designed to convert fast optical pulses into corresponding electrical signals for optical measurement. Through its superior sensitivity capabilities, our photo diode will allow us to use more standardized versions of other optical components in our products, reducing overall system complexity and cost. We expect to be able to implement this ultra-sensitive photo diode into our HAWK terminals in the near term. Additionally, by leveraging “commercial off-the-shelf” components developed in the telecommunication industry, we seek to further develop techniques to increase optical bandwidth in a cost-efficient manner, which will allow us to significantly decrease the “cost per bit” over time.

As part of our research and development activities, we have developed significant in-house testing capabilities for our products. For example, we have established a micro-vibration link testbed, which simulates the operational use of our products in air and space (e.g., vibrations during satellite or aircraft operations) while also allowing us to conduct interoperability tests with other vendors. We installed our first micro-vibration link testbed in our research and development facility at our headquarters in Gilching, Germany, and are currently working on a second testbed for our interoperability laboratory in Los Angeles. In addition to our micro-vibration testbed, we use a vibration and shock testbed that simulates heavy vibrations and shocks experienced during rocket launch and aircraft landing and turbulences. We also conduct data transmission tests, in which we simulate different link distances, acquisition tests (which include far-field simulations of the laser beam) and scenario and full motion testing (which allows us to replicate certain flight conditions in our labs). Additionally, we have installed clean room facilities which include a thermal-vacuum chamber that simulates various temperature and pressure gradients and thermal chambers which are required for temperature shock simulations. We also perform radiation tests, including the exposure of our electronics to harmful radiation to be expected in space, which we do not conduct in-house.

Our research and development team consists of in-house staff, including engineers, machinists and researchers as well as quality and manufacturing personnel. Our research and development team conceptualizes technologies and then builds and tests prototypes before refining and/or redesigning as necessary. Our goal is to develop standardized, cost-effective laser communication products and to build tools and testbeds for handover to serial production. As of March 31, 2021, we had 120 FTEs dedicated to research and development.

We have made substantial investments in product and technology development since our inception. Research and development expenditure totaled €7.4 million in the year ended December 31, 2019 and €14.4 million in the year ended December 31, 2020, of which €5.3 million and €8.2 million, respectively, were capitalized. For more information on the capitalization of development costs under IFRS, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results of Operations—Research & Development.” We conduct the majority of our research and development activities at our facility in Gilching, Germany. We believe that the close interaction between our research and development, marketing and manufacturing groups allows for timely and effective realization of our technology and products.

Manufacturing and Supply Chain

We have developed highly sophisticated and proprietary manufacturing capabilities in recent years. Initially, we manufactured the prototypes and pre-serial product versions of our CONDOR and HAWK terminals in

 

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our headquarters in Gilching, Germany. In 2020, we leased a larger, customized production facility in Oberpfaffenhofen, near Munich, to support ramping up serial production. Our facility in Oberpfaffenhofen has approximately 1,600 square meters (approximately 17,200 square feet) of production and warehouse space and we currently employ around 30 FTEs in the production of our laser terminals in this facility. Based on our current set-up, we expect to be able to increase production output from eleven terminals in 2020 to 50 terminals in 2021. Going forward, we may be required to install additional production equipment as we further scale our business. We may also consider outsourcing production of our products to third parties or customers by means of a license or licensing certain components of our products to third parties.

We work with third-party suppliers to provide components used in our products and we expect to continue to do so for future products. Although some components are manufactured to our specifications (such as certain optical or electronic components), most components are available commercially-off-the-shelf. In order to mitigate the risks related to a single-source of supply, we always seek to have at least two qualified suppliers for every component. We forecast our component needs based on current utilization patterns and sales forecasts of future demand. We generally do not maintain long-term contracts with suppliers, but instead rely on informal arrangements and off-the-shelf purchases based on purchase orders. As we expand our business, we may seek to enter into framework agreements with certain suppliers to ensure continuous supply of critical components for our products.

We believe that our manufacturing capabilities and know-how provide significant barriers to entry, and we have demonstrated an ability to manufacture efficient and effective laser communication products at attractive prices. We believe that customers view our manufacturing capabilities as differentiated in the market.

Our Competitive Landscape

To our knowledge, only a limited number of companies focus on the development of laser communication capabilities in the aerospace industry. Our main direct competitors include, among others:

 

   

TESAT Spacecom, an Airbus subsidiary headquartered in Germany, specializing in the production of payload equipment for communication satellites;

 

   

Thales Alenia Space, a joint venture between Thales and Leonardo headquartered in France, that designs, operates and delivers satellite-based systems that help customers position and connect;

 

   

SA Photonics, a privately-held company headquartered in California, USA, specializing in free space optical communications, fiber lasers and optical sensing systems; and

 

   

Ball Aerospace, a Ball Corporation subsidiary headquartered in Colorado, USA, specializing in the development and testing of terrestrial-based applications for laser technology.

We believe that we are differentiated based on our know-how and expertise in ramping up serial production and supply chains, whereas our competitors have historically focused on developing bespoke, non-scalable solutions for individual projects. We believe that customers are seeking more standardized and industrialized solutions that provide the requisite technical capabilities without the additional costs associated with bespoke products and with the capability to ramp up production quickly. We also believe we are the only company offering laser communication terminal products for all altitudes of aerospace applications ranging from the ground, aviation airspace and the stratosphere up to LEO.

Information Technology

We use several standard software programs for our business operations and our own proprietary software and applications in connection with operating our products. We seek to control costs and improve our ability to deliver our products by maintaining reliable systems.

 

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We engage in a variety of measures designed to address potential cybersecurity risks. Our efforts include firewalls, antivirus software, patches, data encryption, log monitors, routine backups and routine password modifications. Notwithstanding these efforts, our internal information technology systems environment continues to evolve and our business policies and internal security controls may not keep pace as new threats emerge.

Intellectual Property

Protection of our intellectual property is fundamental to the long-term success of our business. We believe that our continued success depends in large part on our proprietary technology, the skills of our employees and the ability of our employees to continue to innovate and incorporate advances into our products. We rely exclusively on a combination of trade secret, copyright and trademark laws, as well as contractual provisions with employees and third parties, to establish and protect our intellectual property rights. While our expertise in laser communication technology is critical to our success, we typically keep our inventions as trade secrets to avoid public disclosure.

We do not own any patents and do not have any patent applications pending. We have non-exclusive licenses from third parties for the use of certain components in our products. For example, we entered into a license agreement with a German technology research institute in September 2020 under which we were granted a limited, non-exclusive license to manufacture certain optical components based on the know-how and the intellectual property of the institute. The license agreement has a term until December 31, 2034. We agreed to pay royalties based on costs of product sales. Upon expiry of the agreement, we will be permitted to use such know-how and intellectual property freely without any further obligation to pay royalties.

We own five trademarks and 37 internet domain names. We provide our products to customers pursuant to terms and conditions that impose restrictions on use and disclosure of our proprietary and confidential information. We also seek to avoid disclosure of our intellectual property using contractual obligations, by requiring employees, consultants and contractors with access to our proprietary information to execute nondisclosure, non-competition and intellectual property assignment agreements. In addition, we generally control access to our proprietary and confidential information through the use of internal and external controls. See “Risk Factors—Risks Related to Our Business—We may be unable to adequately protect our intellectual property and proprietary rights and prevent others from making unauthorized use of our products and technology.”

Insurance Coverage

We have insurance policies in place that we consider customary for our industry, including general liability insurance, product liability insurance, transportation insurance, and loss of property and earnings insurance. We believe that our insurance policies contain market-standard exclusions and deductibles. We regularly review the adequacy of our insurance coverage and consider the scope of our insurance coverage to be customary in our industry.

We have also taken out a directors and officers (“D&O”) insurance policy that covers the current and future members of the management board and supervisory board with total coverage of up to €5.0 million per year and various sublimits depending on the specific nature of claims. Our D&O insurance also provides for a deductible for all members of the management board in line with the relevant provisions of the German Stock Corporation Act (Aktiengesetz), i.e., each member of the management board remains personally responsible in the case of any finding of personal liability, as the case may be, for 10% of the total amount of such personal liability. Claims in the United States or Canada, or pursuant to United States or Canadian law, are subject to a deductible in the amount of 10% of the related damages, at a minimum of €50,000 and a maximum of €100,000 for each claim.

 

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Employees

As of June 30, 2021, we employed 214 FTEs, of which 198 FTEs were based in Germany and 16 FTEs were based in the United States.

The following table shows the figures of our FTEs broken down by region as of the relevant date indicated:

 

     As of December 31,      As of June 30,  
         2019              2020              2021      

Germany

     92.5        179.6        198.0  

United States

     5        7        16  
  

 

 

    

 

 

    

 

 

 

Total

     97.5        186.6        214  
  

 

 

    

 

 

    

 

 

 

We do not employ a significant number of temporary employees.

Facilities

We do not currently own any real property.

Our headquarters are located at Dornierstraße 19, 82205 Gilching, Germany. We lease approximately 4,500 square meters (approximately 48,400 square feet) of office space and development and pre-production facilities. The lease has a term of ten years, expiring in 2029. We have the option to extend our lease for an additional 10 years (two extension options, each for a five-year period). In 2020, we leased an additional production facility in Oberpfaffenhofen, Germany, with approximately 1,600 square meters (approximately 17,200 square feet) of production and warehouse space. Our lease for this facility has a term of five years, expiring in 2025.

We also maintain offices in California and the Washington D.C. area. Our office in California is located at 13100 Yukon Ave Unit A, Hawthorne, CA 90250. Our lease for this office covers approximately 900 square meters (approximately 10,000 square feet) of office space and development facilities (such as our interoperability laboratory) and has a term of 63 months, expiring in 2026. Our Washington D.C. area office is located at Arlington Tower, 1300 North 17th Street, Arlington, Virginia 22209. Our lease for this office covers approximately 260 square meters (approximately 2,800 square feet) of office space and has a term of four years, expiring in 2025. We have the option to extend our lease for an additional three years.

We believe this office space will be sufficient to meet our needs for the next 12 to 18 months and that suitable additional space will be available as and when needed.

Legal Proceedings

From time to time, we may be involved in various claims and government, legal or arbitration proceedings arising out of our operations, including ordinary course litigation with former employees. As of the date of this prospectus, we are involved in the following proceedings:

In July 2020, the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) prohibited the export of laser communication terminals for installation on LEO satellites to customers in China based on Section 6 in conjunction with Section 4 para. 1 of the German Foreign Trade and Payments Act (Außenwirtschaftsgesetz, “AWG”). The ban was issued on the grounds of essential security interests of the Federal Republic of Germany, in order to prevent a disturbance of the peaceful coexistence of nations and to prevent a substantial disturbance to the foreign relations of the Federal Republic of Germany (Section 4 para 1 no. 1, 2 and 3 AWG), as our laser communication terminals would have a potential use in the

 

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fields of military reconnaissance and communication. To comply with the ban, in 2020 we terminated all business relationships with customers in China. At the same time, we have challenged the export ban with a lawsuit before the Administrative Court of Berlin in connection with seeking compensation for losses we suffered as a result of the export ban. After an initial exchange of written pleadings, a date for a court hearing is to be set by the court.

On February 17, 2020, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) initiated an investigation against us on the grounds of the alleged omission of an ad hoc disclosure under the ad hoc disclosure obligation of Article 17 para. 1 of the European Market Abuse Regulation (“MAR”). On January 14, 2020, we had announced, by means of a press release published on our website, that we had entered into a new multi-million Euro contract with a space customer. During the ongoing investigation, BaFin argued that the conclusion of a contract of such dimensions would have fallen under the ad hoc disclosure obligation of Article 17 para. 1 MAR, and that the publication on our website did not satisfy this obligation. On March 16, 2020, as requested, we provided BaFin with additional information about the contract and the negotiations leading up to it as well as our explanation as to why we did not file an ad hoc disclosure in this case. On November 13, 2020, BaFin informed us that notwithstanding the additional information we provided, it still upholds its view of an existing infringement of the ad hoc disclosure obligation. BaFin has now entered the process of investigating the alleged omission of an ad hoc disclosure as an administrative offence (Ordnungswidrigkeit). Should an administrative offence be found, the amount of any fine would depend on BaFin’s determination of the severity of the offence. We expect a minimum fine of at least €225,000 to be imposed. The maximum possible amount of such fine is the highest of (i) €2.5 million, (ii) 2% of our total revenue in the financial year preceding the year in which BaFin imposes a fine, and (iii) three times the amount of any commercial advantage we may have had as a result of the alleged omission of an ad hoc disclosure under the ad hoc disclosure obligation of Article 17 para. 1 MAR.

On August 17, 2021, we received a notification of a hearing from the BaFin, which initiated an investigation against us on the grounds of the alleged delay of an ad hoc disclosure under the ad hoc disclosure obligation of Article 17 para. 1 MAR relating to the capital increase in connection with an accelerated book building transaction in February 2020. We submitted a written response to the BaFin on September 17, 2021.

In 2020, Airborne Wireless Network (“ABWN”), a former customer, filed a complaint in the Superior Court of the State of California against Mynaric Lasercom GmbH under a contract relating to the delivery of two prototype versions of laser terminals for airborne applications. In its complaint, ABWN alleged breach of contract due to alleged quality issues with respect to the two terminals delivered by us in 2018 and sought damages in an unspecified amount. The terminals were accidentally damaged in the course of delivery and we repaired one terminal and replaced the second terminal with a new one. On April 20, 2021, we participated in settlement negotiations with ABWN, which did not result in any resolution. Court proceedings are expected to begin in October 2021.

Apart from the proceedings described above, we are not and have not been party to any government, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which we are aware) during the past twelve months, which may have, or have had in the recent past, significant effects on our financial position or profitability.

 

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REGULATORY ENVIRONMENT

Overview

We are subject to a wide variety of laws and regulations relating to various aspects of our business, including with respect to our technology and products, employment and labor, health care, tax, privacy and data security, health and safety, and environmental issues. Laws and regulations at the non-U.S. and U.S. federal, state and local levels frequently change, especially in relation to new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future regulatory or administrative changes. For example, as of the date of this prospectus, laser communication is not regulated by the United Nations’ International Telecommunication Union and can, thus, be used without restrictions such as license requirements. There is, however, no guarantee that relevant laws, rules and regulations remain unchanged and will not become more comprehensive and stringent in the future. If we fail to comply with any applicable laws, rules, or regulations, we may be subject to civil liability, administrative orders, fines or even criminal sanctions. See “Risk Factors—Regulatory, Legal and Tax Risks.”

The following provides a brief overview of certain selected areas of laws and regulations applicable to our business operations.

Laser Safety Provisions

We develop and test our technology and products in our headquarters in Gilching, Germany, and are currently ramping up serial production of our products in our production facility in Oberpfaffenhofen, Germany. In developing and manufacturing our products, we must comply with applicable German and EU laws and regulations on laser safety requirements. For example, Directive 2006/25/EC of the European Parliament and of the Council of 5 April 2006 sets forth minimum requirements for the protection of workers from risks to their health and safety arising or likely to arise from exposure to artificial optical radiation (including laser radiation) during their work in the European Union. In Germany, this directive was implemented by the Regulation for Employee Protection Against Artificial Optical Radiation Risks (Verordnung zum Schutz der Beschäftigten vor Gefährdungen durch künstliche optische Strahlung) and the Regulation on Preventive Occupational Medicine (Verordnung zur arbeitsmedizinischen Vorsorge). Among other things, these regulations provide for technical rules related to the assessment of laser radiation risks for employees, measurements and calculations related to laser radiation exposure, and risk protection measures that include the appointment of a laser safety officer (Laserschutzbeauftragter) and the use of laser protective glasses and screens.

In addition, the U.S. Food and Drug Administration (“FDA”) has issued performance standards (see 21 CFR 1040) regulating light-emitting electronic products, including all types of laser products. Laser products are defined as any manufactured product or assemblage of components which constitutes, incorporates, or is intended to incorporate a laser or laser system. A laser or laser system that is intended for use as a component of an electronic product shall itself be considered a laser product (see 21 CFR 1040.10(b)(21)). Prior to introducing a product in the United States, we provide notice to the FDA, in the form of a safety report, which provides identification information and operating characteristics of the product to demonstrate compliance with the respective U.S. safety level. Our CONDOR and HAWK laser terminals are both categorized as laser class IV. If the FDA finds that the report is complete, it provides us approval in the form of what is known as an accession number. We may not market a product until we have received an accession number. In addition, we submit an annual report to the FDA that includes, among other things, the radiation safety history of all products we sell in the United States. We have provided the FDA with all relevant documentation and obtained the necessary accession number for both of our laser terminals.

 

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Regulation of Production Facilities and Storage Sites

Emissions

Specific laws and regulations govern the emission of air pollutants, such as noise, odors, and vibrations. Typically, the operation of industrial facilities is subject to governmental approval and operators of such facilities are required to prevent any form of impermissible emissions. Operators of facilities are required to maintain all installations in compliance with the respective governmental approval in terms of the reduction of certain emissions and the implementation of safety measures. In some cases, continuous improvement or retrofitting of installations to maintain facilities at state-of-the art safety level standards may be required. Compliance with these requirements is monitored by local authorities, and operators may be required to submit emission reports on a regular basis. Noncompliance with maximum emission levels or other requirements imposed by the relevant authority may result in administrative fines, subsequent orders or, in severe cases, the withdrawal of the approval by the relevant authority.

Regulation of Hazardous Incidents

Operators of facilities storing large quantities of hazardous goods, which include, among other things, certain glues, lubricants, varnishes, and nitrogen, are required to comply with safety standards set forth in Directive 2012/18/EU of the European Parliament and of the Council of 4 July 2012 on the control of major-accident hazards involving dangerous substances (the “Seveso III Directive”) and the respective national implementing laws. As the former Council Directive 96/82/EC of 9 December 1996 on the control of major-accident hazards involving dangerous substances, the provisions of the Seveso III Directive are designed to prevent major accidents involving dangerous substances, such as emissions, fires, and larger explosions and to limit detrimental consequences in the event of an accident. The degree of additional safety requirements depends on various categories as well as the amount of hazardous substances stored in the relevant facility.

In Germany, the Seveso III Directive was implemented on December 7, 2016, with the Seveso III Transposition Act (Seveso III Umsetzungsgesetz) which includes, among others, the amendment of certain provisions of the German Federal Immission Control Act (Bundesimmissionsschutzgesetz), the Environmental Impact Assessment Act (Umweltvertäglichkeitsprüfungsgesetz), and the Environmental Legal Remedies Act (Umweltrechtsbehelfgesetz). Additional legislative changes came into force on January 14, 2017 with the amendment of the twelfth ordinance under the German Federal Emissions Control Act (the so-called German Hazardous Incidents Ordinance, Störfall-Verordnung).

Production, Possession, and Handling of Waste

During our manufacturing process we generate different kinds of waste, including industrial waste. Applicable waste laws generally require us to reduce and/or avoid waste and to dispose of the different types of waste in a manner consistent with its properties so it does not endanger human health or harm the environment. In the European Union, Directive 2008/98/EC of the European Parliament and of the Council of November 19, 2008 on waste (as amended) (“Waste Framework Directive”) requires EU member states to take appropriate measures in this regard. In Germany, the Waste Management Act (Kreislaufwirtschaftsgesetz) transports these EU requirements into national law. Under the Waste Management Act, generators, owners, collectors, and transporters of waste have to demonstrate to the competent authority and to other parties that they have properly disposed of hazardous waste (gefährliche Abfälle) by waste disposal (Entsorgungsnachweis). Besides, the Waste Management Act contains regulations on, among other factors, permissible methods of, and responsibility for, the generation, handling, possession, and discharge as well as recycling methods of waste depending on the danger posed by the waste.

German Act on Environmental Liability

If damage is caused to persons or property by one of our facilities, we may be held strictly liable under the German Environmental Liability Act (Umwelthaftungsgesetz). Liability under the Environmental Liability Act

 

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may arise for damages caused by substances or gases that spread through soil, air, or water. Under the statute, there is a presumption that any damage has been caused by a facility if the facility is generally capable of causing such damage. Should any of our facilities be subject to the German Hazardous Incidents Ordinance (Störfallverordnung) in the future, we may be required to provide financial security (Deckungsvorsorge) for environmental damages.

German Occupational Health and Safety Requirements

In Germany, general health and safety requirements for employees are laid down by the Working Conditions Act (Arbeitsschutzgesetz), the Occupational Safety Act (Arbeitssicherheitsgesetz) and the Ordinance on Industrial Safety (Betriebssicherheitsverordnung). For the provision and use of working equipment, the Product Safety Act (Produktsicherheitsgesetz) applies, along with the Ordinance on Health and Safety at Work (Arbeitsstättenverordnung). As regards exposure to hazardous substances, the Ordinance on Hazardous Substances (Gefahrstoffverordnung) and the Technical Rules for Hazardous Substances 900 (Technische Regel für Gefahrstoffe 900) set out limits for workplaces. All these requirements are further specified by German trade associations (Berufsgenossenschaften) in their accident prevention regulations (Unfallverhütungsvorschriften), which also address specific health and safety risks of our business.

Compliance with employment safety regulations is subject to regulatory supervision. The law enforcement authorities are provided with wide-ranging enforcement powers including the right to enter a company’s premises, to search for documents, and to examine work and personal health equipment. They are also authorized to impose fines.

Export Control Regime

EU, German and U.S. export control laws restrict the export of products, services, and technologies designed for non-military purposes, but which are utilized in military applications or can contribute to the proliferation of weapons of mass destruction (“Dual-Use Items”). Some of our products qualify as Dual-Use Items.

EU and German Dual-Use Export Control Regime

In the European Union, the export of dual-use items from EU member states is harmonized and mainly governed by European law, in particular by Council Regulation (EC) No 428/2009 of 5 May 2009, as amended by Commission Delegated Regulation (EU) 2020/1749 of 7 October 2020, which established a community regime for the control of exports and the transfer, brokering and transit of Dual-Use Items (the “Dual-Use Regulation”). The scope of the Dual-Use Regulation is defined in an annex to the Dual-Use Regulation (“Annex I”), which contains a detailed list of goods divided into different categories. For all listed Dual-Use Items, an export authorization is required (Art. 3 Dual-Use Regulation). Our spaceborne CONDOR laser communication terminal qualifies as a dual-use item under the Dual-Use Regulation. In May 2021, the European Parliament and the Council of the EU adopted an amendment to the Dual-Use Regulation, which came into effect on September 9, 2021. The amendment includes an export authorization requirement for the export of certain non-listed surveillance technology should the competent Member States’ authorities consider that the items are or may be used in whole or in part in connection with internal repression and human rights and international humanitarian law violations.

The Dual-Use Regulation provides for four types of export authorizations: (i) EU general export authorizations (EU-Allgemeingenehmigungen; “EUGEAs”), which allow exports of dual-use items to certain destinations under certain conditions (see Annex II of the Regulation), (ii) national general export authorizations, which may be issued by EU member states if they are consistent with existing EUGEAs and do not refer to items listed in Annex IIg of the Dual-Use Regulation, (iii) individual export authorizations, which can be granted to one exporter and cover exports of one or more dual-use items to one end-user or consignee in a third country, and

 

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(iv) maximum amount authorizations, which can be granted to one exporter and may cover multiple items to multiple countries of destination or end users. Under the Dual-Use Regulation, the competent authorities of each member state are responsible for establishing their own administrative procedures for applying and obtaining such export authorizations.

General export authorizations have the advantage that no authorization application needs to be filed; exports and intra-EU transfers that satisfy the requirements of a general export authorization are automatically authorized. Exporters or transferors wishing to make use of a general export authorization are, however, required to file a notification and registration with the competent authority of the respective member state, which can also be filed after the exportation. The scope of application of the general export authorization is primarily determined by the authorized group of items and the authorized destinations. For example, exports to Australia, Canada, Japan, New Zealand, Norway, Switzerland (including Liechtenstein), the United Kingdom, and the United States of America are covered by GEA EU001. The other five GEAs cover more specific circumstances such as exports of items according to the Wassenaar Agreement (EU002), exports after repair or replacement (EU003), temporary exports for exhibitions or fairs (EU004), exports of specific telecommunication goods (EU005), and exports of specific chemicals (EU006).

In Germany, the administrative procedure to obtain an export authorization is governed by the AWV, which also defines the German Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle; “BAFA”) as the competent authority for issuing such authorization. In addition to control lists set out under the Dual-Use Regulation, EU member states may also set out their own lists of controlled dual-use items. Germany, for instance, has done so by including additional dual-use items on its national export list (Ausfuhrliste) that are not already covered by the Dual-Use Regulation (e.g., spaceborne laser communication terminals under no. 9A904), if they are to be exported to certain countries. Goods listed on Germany’s national export list are subject to the same license requirements as described above. Exports of our CONDOR terminals require a license from BAFA if the exportation is not covered by the EU’s general exportation authorization.

U.S. Export Regulations

The U.S. Export Administration Regulations (“EAR”) provide for specific rules governing exportations from the U.S., re-exportations from a foreign country to another foreign country, and transfers within a foreign country or to a foreign national if the respective item is located within U.S. territory, originate from the U.S., contains more than de minimis amounts of controlled U.S.-origin items or is the direct product of certain U.S.-origin technology or software. The EAR applies to physical goods as well as technology and software. The Commerce Control List (“CCL”) is an annex to the EAR and contains a list of Dual-Use Items and any controls associated with those items. Since the regulatory intention of the EAR is similar to that of the Dual-Use Regulation, the CCL and Annex I of the Dual-Use Regulation are congruent. Our CONDOR laser terminal and HAWK laser terminal are subject to the EAR and identified on the CCL. Items listed on the CCL may require an export license depending on the item, its reason for control, its end destination (both end user and end country) and end use. In some cases, a license exception may apply. The EAR’s rules regarding license requirements are subject to frequent change. Items that do not currently require a license for exportation, re-exportation or transfer may require such license in the future. Obtaining a license from the U.S. Department of Commerce may be time-consuming and may result in the delay or loss of sales opportunities. We cannot ensure that any such license applications will be granted. Violations of the EAR may result in criminal or civil penalties, the denial of export privileges and/or debarment from participation in U.S. government contracts.

U.S. International Traffic in Arms Regulations

The International Traffic in Arms Regulations (the “ITAR”) is a U.S. regulatory regime to restrict and control the export of defense- and military-related technologies, to safeguard U.S. national security, and further U.S. foreign policy objectives. Defense-related goods and services that are listed on the United States Munitions List (the “USML”) are covered by the regulations. The U.S. Department of State’s Directorate of Defense Trade

 

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Controls (“DDTC”) interprets and enforces the ITAR. Nearly every item subject to the ITAR requires a license from DDTC for exportation, re-exportation or transfer, unless an ITAR exemption applies.

Currently, our largest potential customer base is located in the United States. We believe that further potential markets may develop in Asia (except China) and a number of European countries. Therefore, our products could be subject to international trade restrictions in these markets in the future. To the best of our knowledge, none of the components currently used in our products is subject to arms regulations in the U.S., such as the ITAR; but, this may occur in the future. The related approval process could have a detrimental effect on our potential customers’ demand and could also limit our potential customer base to those entities that are allowed to import and purchase arms products under the relevant regulations.

For practical purposes, ITAR regulations dictate that information and material pertaining to defense- and military-related technologies (items listed on the USML) may not be shared with non-U.S. persons unless authorization from the U.S. Department of State is received or a special exemption is used. U.S. persons may face heavy fines if they, without authorization or the use of an exemption, provide foreign persons with access to ITAR-protected defense goods, services, or technical data.

Trade Sanctions

When selling and/or delivering our products to customers around the globe we must observe economic sanctions and embargoes. Such measures can be based on national legislation (like in Germany or the U.S.), but also on acts of international or supranational organizations like the United Nations and the European Union. They can take the form of comprehensive embargoes (total embargoes), partial embargoes, such as arms, sectoral or financial embargoes, and may be directed at countries, governments, organizations, groups, non-state entities and individuals. Sanctions against individuals or entities usually prohibit placing assets of any kind at the disposal of sanctioned parties or providing them with any economic resources. We are also subject to sourcing regulations such as the requirements under the Dodd-Frank Act and the EU Conflict Minerals Regulation that require us to carefully monitor our supply chain.

We may be required to comply with embargoes, trade sanctions and sourcing regulations for various reasons, including due to the location of our factories, the seat of our respective entity, the nationality of our responsible employees or the components we use.

U.S. Embargoes and Trade Sanctions

In the U.S., the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) is the primary agency responsible for implementing and enforcing embargoes and trade sanctions. Through the implementation of trade sanctions, the U.S. seeks to restrict certain business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities, in order to further U.S. national security and foreign policy objectives. The U.S.’s complex sanctions regime also encourages companies to implement compliance programs that address sanctions risks, which may increase compliance costs. Violations of U.S. sanctions may subject us to criminal or civil fines, penalties or other sanctions.

U.S. sanctions may take the form of country- or territory-based sanctions or list-based sanctions. Currently, country- or territory-based sanctions target, inter alia, the Crimea region of Ukraine, Cuba, Iran, North Korea and Syria. OFAC maintains several sanctions lists that identify sanctions targets, and the scope of the sanctions restrictions vary depending on the sanctions list. OFAC’s primary sanctions list is the List of Specially Designated Nationals and Blocked Persons, which identifies persons and entities subject to asset blocking restrictions. Certain other OFAC sanctions lists impose non-asset blocking sanctions, such as restrictions on the listed entity’s ability to raise debt or equity in the U.S. in the case of OFAC’s Sectoral Sanctions Identification List that targets certain sectors of the Russian economy.

 

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U.S. sanctions apply primarily to U.S. persons, which include all companies and other legal entities organized under U.S. law and their foreign branches, as well as U.S. citizens and permanent residents. In the case of U.S. sanctions against Cuba and Iran, sanctions also apply to non-U.S. entities owned or controlled by U.S. persons. Our operations in the U.S. and any activities we have with U.S. persons must therefore comply with U.S. sanctions. In addition, we may also be subject to sanctions-related obligations through contracts with suppliers, credit facilities or loan agreements that require compliance with U.S. sanctions or screening against U.S. sanctions lists.

U.S. sanctions may also have an extraterritorial effect and impact the conduct of non-U.S. persons through so-called “secondary sanctions.” Under secondary sanctions, the United States may impose sanctions against non-U.S. persons for engaging in certain transactions or activities, depending on the sanctions program, even absent a U.S. nexus to the activity. For example, as a result of the Countering America’s Adversaries Through Sanctions Act of 2017, non-U.S. persons must comply with certain secondary sanctions against Russia, even if such activities have no connection to the United States. Among other things, non-U.S. persons may face penalties and/or asset-blocking sanctions for knowingly facilitating significant transactions or significant financial transactions for or on behalf of a party subject to the United States sanctions against Russia.

Further, non-U.S. persons and entities that cause a U.S. person to violate U.S. sanctions may violate OFAC’s prohibition on causing another person to violate sanctions, which may result in civil and criminal penalties under applicable U.S. law. Accordingly, transacting with customers in countries such as Cuba may be allowed under EU law but still violate U.S. sanctions. In case of such conflicts between EU law and U.S. sanctions, the Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom (as amended) prohibits EU companies from complying with certain listed U.S. sanctions and shields these entities from the effects of U.S. sanctions in the EU. Such anti-boycott rules apply, for example, to the 2018 U.S. sanctions targeting Iran. EU companies are, nonetheless, free to conduct their business as they see fit, i.e., not trade with countries sanctioned by the U.S.

EU Embargoes and Trade Sanctions

EU trade sanctions have a broad scope, applying (i) within the territory of the member states, (ii) to any person inside or outside the territory of the European Union who is a national of a member state, (iii) to any legal person, entity or body which is incorporated or constituted under the law of a member state whether acting inside or outside the European Union, and (iv) to any legal person, entity, or body in respect of any business done in whole or in part within the European Union.

Our commitments in terms of sanctions and embargoes mainly (but not exclusively) derive from Council Regulation (EC) No 2580/2001 of 27 December 2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism. It aims to prevent and prohibit the financing of terrorist acts by prohibiting that funds, other financial assets, and economic resources are made available, directly or indirectly, to, or for the benefit of, a natural or legal person, group, or entity included in the list of restricted parties, or by prohibiting financial or other related services from being rendered for the benefit of restricted parties.

German Foreign Investment Regime

German foreign trade law may require foreign investors to obtain government approval for the acquisition of our shares if the acquirer directly or indirectly holds 20% or more of our voting rights following the acquisition. Pursuant to the cross-sectoral examination in Section 55 et seq. AWV, the BMWi may prohibit or restrict the acquisition of our shares by a foreign investor that is resident or based outside the European Union (Unionsfremder) if it endangers the public order or the security of Germany.

 

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According to an amendment to the AWV, which came into force on May 1, 2021, statutory notification requirements apply, inter alia, to acquisitions by a foreign acquirer of 20% or more of the voting rights of a company that develops or manufactures, among other things, goods intended for use in space or for use in space infrastructure systems (Section 55a para. 1 no. 18 third alternative AWV) as well as goods specifically required for the operation of laser communication networks (Section 55a para. 1 no. 22 AWV), including the Company. Accordingly, any such acquisition must be notified to the BMWi upon signing of a binding agreement if the relevant acquisition has likely effects to public security and order. However, only the signing of the binding agreement is subject to the notification requirement, not the subsequent acquisition itself. Nonetheless, clearance by the BMWi qualifies as a statutory closing condition for all transactions that are subject to the cross-sectoral investment control proceeding and to the mandatory notification requirement. Furthermore, prior to clearance by the BMWi, the regime prohibits the acquirer, among other things, from exercising any voting rights in the target, from receiving claims for profit distributions associated with the acquisition, and from receiving company related information (provided that such information relates to company divisions or corporate assets that are subject to the investment control proceeding).

In addition, the BMWi may initiate investigations within two months after becoming aware of the conclusion of a binding agreement, but not later than five years after the conclusion of the respective agreement (Section 55 para. 1 AWV in conjunction with Section 14a para. 3 AWG). If grounds for objections exist, the BMWi may prohibit the direct acquirer from making an acquisition within the meaning of Section 55 AWV within four months of the receipt of the complete application or issue instructions in order to ensure the public order or the security of Germany (Section 59 para. 1 AWV in conjunction with Section 14a para. 1 No. 2 AWG).

In each case, a foreign acquirer of a domestic target company applying for foreign investment control clearance under the cross-sectoral investment control regime is required to disclose its identity. For such purposes, not only the direct acquirer, but also the indirect acquirers (i.e., any entity upstream of a direct acquirer which holds at least 20% of the voting rights in the respective downstream investment vehicle) needs to be disclosed.

Anti-Bribery, Anti-Corruption, Antitrust and Competition

We are subject to various anti-corruption, anti-bribery, anti-money laundering, antitrust and competition laws. Any violation of these laws in any jurisdiction in which we operate may have serious consequences for entities and/or individuals participating in such misconduct. For example, under German criminal law we must comply with the rules against corruption and bribery of public officials (Sections 332, 334 of the German Criminal Code (Strafgesetzbuch)) or private sector employees or business representatives (Section 299 of the German Criminal Code) as well as rules against the taking and giving of bribes meant as an incentive to violating one’s official duties (Sections 331, 333 of the German Criminal Code). These provisions may under certain conditions also apply to circumstances that occur solely or partly on foreign territory. In the United States, the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”) prohibits payments to foreign government officials in order to assist in obtaining or retaining business. The anti-bribery provisions of the FCPA also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.

We are also subject to various antitrust and competition laws. In a broader sense these laws include all legal provisions that concern the protection of a diverse and free competition. National and supranational authorities that monitor compliance with antitrust and competition laws may initiate investigations and proceedings into alleged infringements, such as abuse of a dominant market position, anti-competitive agreements between

 

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undertakings or similar agreements with restrictive effects on competition, in particular in terms of Article 101 para. 1 of the Treaty on the Functioning of the European Union and Section 1 of the German Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen), and unless covered by so-called block exemptions or individual exemptions. Violations of antitrust and competition laws can have various consequences including criminal sanctions, administrative fines, disgorgement of profits, exclusion from public tenders, nullity of agreements and civil claims for damages. Antitrust and competition laws in individual jurisdictions may also include rules requiring the approval by antitrust authorities regarding mergers and acquisitions or joint ventures and enable the authorities to impose certain conditions or obligations in these cases.

 

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MANAGEMENT

Board Structure

We are a German stock corporation (Aktiengesellschaft or AG) with our registered seat in Germany. We are subject to German legislation on stock corporations, most importantly the German Stock Corporation Act (Aktiengesetz). In accordance with the German Stock Corporation Act, our corporate bodies are the management board (Vorstand), the supervisory board (Aufsichtsrat) and the shareholders’ meeting (Hauptversammlung). Our management board and supervisory board are entirely separate and, as a rule, no individual may simultaneously be a member of both the management board and the supervisory board.

Our management board is responsible for the day-to-day management of our business in accordance with applicable laws, our articles of association (Satzung) and the management board’s internal rules of procedure (Geschäftsordnung). Our management board represents us in our dealings with third parties and is responsible for implementing an internal monitoring system for risk management purposes.

The principal function of our supervisory board is to supervise our management board. The supervisory board is also responsible for appointing and removing the members of our management board, representing us in connection with transactions between a current or former member of the management board and us, and granting approvals for certain significant matters.

Under German law, the management board and the supervisory board are solely responsible for and manage their own areas of competency (Kompetenztrennung); therefore, neither board may make decisions that, pursuant to applicable law, our articles of association or our internal rules of procedure, are the responsibility of the other board. Members of both boards owe a duty of loyalty and care to us. In carrying out their duties, management board and supervisory board members are required to exercise the standard of care of a prudent and diligent businessperson or supervisory board member, as the case may be. If they fail to observe the appropriate standard of care, they may become liable to the company.

In carrying out their duties, members of the management board and the supervisory board may take into account a broad range of considerations when making decisions. These considerations include the company’s interests and the interests of our shareholders, employees, creditors and, to a limited extent, the general public, while respecting the rights of our shareholders to be treated equally.

Our supervisory board has comprehensive monitoring responsibilities. To ensure that our supervisory board is in a position to carry out these functions properly, our management board must, among other duties, regularly report to our supervisory board regarding our current business operations and future business planning (including financial, investment and personnel planning). In addition, our supervisory board is entitled to request special reports from the management board at any time.

Under German law, our shareholders have no direct recourse against the members of our management board or supervisory board if they have breached their duty of loyalty or care to us. Apart from insolvency or other special circumstances, only we have the ability to claim damages from the management board and supervisory board members. We may only waive these claims to damages or settle these claims if at least three years have passed since the violation of a duty occurred, and our shareholders approve the waiver or settlement at a shareholders’ meeting with a simple majority of the votes cast at such meeting. However, a waiver or settlement is not permitted if shareholders who in the aggregate hold one-tenth or more of our share capital object to the waiver or settlement and have their objection formally recorded in the minutes of the shareholder meeting by a German civil law notary.

The following description, as far as it relates to our articles of association, is based on our articles of association, as adopted by our general shareholders’ meeting on May 14, 2021.

 

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Management Board

Overview

Under our articles of association, the management board must consist of one or several members. The supervisory board determines the exact number of members of our management board and appoints the chairperson and the deputy chairperson of the management board, if any. If only one member has been appointed, he or she represents our Company alone. If several management board members are appointed, we are represented by two management board members jointly or by one management board member together with an authorized representative (Prokurist). Currently, the management board consists of the following three members: Bulent Altan (Chief Executive Officer), Stefan Berndt-von Bülow (Chief Financial Officer), and Joachim Horwath (Chief Technology Officer).

The members of our management board conduct the day-to-day business of our company in accordance with applicable laws, our articles of association and the rules of procedure for the management board adopted by our supervisory board. The management board is generally responsible for the management of our company and for handling our day-to-day business with third parties, the internal organization of our business and communications with our shareholders. In addition, the management board is responsible for:

 

   

preparing our annual financial statements;

 

   

making a proposal to be submitted to our shareholders’ meeting on how our profits (if any) should be allocated (such proposal to be submitted simultaneously to the supervisory board); and

 

   

regular reporting to the supervisory board on our current operating and financial performance, our budgeting and planning processes and our performance in relation thereto, and on future business planning (including strategic, financial, investment and personnel planning).

The members of our management board are appointed by our supervisory board for a maximum term of five years. According to the recommendations of the German Corporate Governance Code, the first-time appointment of management board members shall be for a period not more than three years. Reappointment or extension, including a repeated reappointment or extension, of the term for up to five years is permissible. The supervisory board may only revoke the appointment of a management board member prior to the expiration of his or her term for good cause, such as for gross breach of fiduciary duties or if the shareholders’ meeting passes a vote of no-confidence with respect to such member, unless the supervisory board deems the no-confidence vote to be clearly unreasonable. The supervisory board is also responsible for entering into, amending and terminating service agreements with the management board members and, in general, for representing us in disputes involving the management board irrespective of whether in or out of the court. Our supervisory board may delegate any of these tasks to one of its committees, subject to certain exceptions where resolutions must be taken by the supervisory board as a whole.

In addition to matters for which a resolution adopted by all members of the management board is required by law or our articles of association, the rules of procedure for our management board provide that certain matters require a resolution adopted by all members of the management board (Gesamtzuständigkeit). Such matters include the following:

 

   

preparation of the annual financial statements, the management report, the consolidated financial statements and the group management report;

 

   

convocation of the annual shareholders’ meeting as well as motions and proposals of the management board on the adoption of resolutions by the shareholders’ meeting;

 

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matters of profound significance or economic risk for a business area (i.e., a business area that has been allocated by means of a business responsibilities plan among the members of the management board), for example with respect to such business area’s organizational structure, business policy, or investment and financial planning;

 

   

determination of fundamental objectives of the Company;

 

   

disputes among the members of the management board (in particular with regard to such matters that affect several business areas (i.e., business areas that have been allocated by means of a business responsibilities plan among the members of the management board) or due to unclear responsibilities according to the schedule of responsibilities);

 

   

matters affecting all business areas (i.e., business areas that have been allocated by means of a business responsibilities plan among the members of the management board);

 

   

matters within the area of responsibility of a member of the management board, which the member submits for decision by the whole management board;

 

   

matters outside the scope of responsibility of a member of the management board, but for which that member of the management board has doubts as to their legality and/or significant concerns as to their appropriateness;

 

   

matters requiring the approval by the supervisory board;

 

   

coordination of reporting to the supervisory board;

 

   

conclusion and termination of employee contracts with a total annual compensation (base salary and variable compensation components, but excluding fringe benefits and long-term incentives) of €100,000 or more, including in the case of replacement hires; and

 

   

entering into consulting agreements (fee-based and other freelance contracts) that are of material financial or strategic importance, i.e., that obligate the Company to pay a consideration of at least €200,000 per financial year.

Members of our Management Board

The following table sets forth the names of the current members of our management board, their ages, the year of expiration of their term as management board members and position:

 

Name

  

Age

  

Year in which
Term Expires

  

Position

Bulent Altan

   44    2022    Chief Executive Officer

Stefan Berndt-von Bülow

   46    2023    Chief Financial Officer

Joachim Horwath

   48    2024    Chief Technology Officer

Unless otherwise indicated, the current business address for each management board member is the same as our business address: Dornierstraße 19, 82205 Gilching, Germany.

The following is a brief summary of the business experience of the members of our management board:

Bulent Altan has been our Chief Executive Officer (CEO) since March 2019. Mr. Altan has been active in the aerospace industry since 2004, when he started his professional career at Space Exploration Technologies Corp. (SpaceX), a private U.S. aerospace manufacturer and space transportation services company headquartered

 

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in Hawthorne, California. He remained with SpaceX until 2014, first serving as an avionics engineer and then as a senior director of avionics from 2004 to 2010, where he was responsible for growing the company’s avionics department, and from 2010 to 2014, as vice president of avionics, where he was responsible for the avionics, software and guidance, navigation and control of the Falcon rockets as well as the Dragon capsules. From 2015 to 2016, Mr. Altan held positions as partner and mentor at the Munich-area industrial start-up accelerator TechFounders, as well as taking on the role of head of innovation and digital transformation at Airbus Defence and Space. In 2016, he returned to SpaceX, where he served as the vice president of Satellite Mission Assurance for SpaceX’s Starlink satellite mega-constellation. He is also the sole proprietor of Altan International LLC, a consulting firm he founded in 2015, and through which he currently advises a venture capital fund with respect to start-up investments. Since November 2020, he is also an investment partner (together with the founder of Apeiron Investment Group Ltd., one of our shareholders) with, and serves as a member of the recommendation committee of, Alpine Space Ventures Management GmbH, a venture capital and private equity firm investing in space-related businesses. He has also served as chairman of the advisory board of Isar Aerospace Technologies GmbH and is a member of the advisory board of C-Star Isar Ltd. and C-Star Isar Co-Invest Fund LP. Mr. Altan is also a limited partner of Alpine Space Ventures Fund I FLP GmbH & Co. KG. Mr. Altan holds a Master of Science degree (Dipl.-Inf.) in computer science from the Technical University of Munich and a Master of Science degree in aeronautics and astronautics from Stanford University.

Stefan Berndt-von Bülow has been our Chief Financial Officer (CFO) since September 2020. He began his professional career in 2002 at LKC Kemper, Czarske, v. Gronau, Berz auditors, lawyers, tax consultants. Mr. Berndt-von Bülow’s main task at LKC was the independent preparation and examination of end-of-year accounts, preparation of tax returns and supervision of company audits. In 2008, he joined SHS VIVEON AG as head of accounting and investor relations and was the director of the subsidiary SHS VIVEON GmbH until 2017. He was mainly responsible for the implementation of capital measures and the supervision of merger and acquisitions. In 2017, he joined G&D Currency Technology as head of finance and accounting, where he was responsible for the balance sheet preparation for the G&D Currency Technology group and arranging a multi-million-dollar financing for a major project until the end of 2018. He joined us at the end of 2018 as head of finance before being appointed as our CFO in September 2020. Mr. Berndt-von Bülow graduated from the University of Munich and holds a degree in Business Administration (Dipl.-Kaufmann).

Joachim Horwath has been our Chief Technology Officer (CTO) since 2009. Following a research stay at Siemens optical networks for his thesis “Simulation of Optical Fiber Amplifiers” in 2000 and studying atmospheric impacts on optical-free-space communications with the research group OptiKom at the Technical University of Graz, he joined the German Aerospace Center (DLR), Institute of Communications in 2002 as a scientist. During his time at the DLR, he focused on numerical simulations of atmospheric index-of refraction turbulence effects and helped to overcome limitations of wireless laser communication. As a project manager, he led many national and international projects on space to ground optical communications and space system verification. He started optical terminal development at DLR and successfully demonstrated optical communications for the first time on a stratospheric balloon in 2005 (project STROPEX) and on aircrafts in 2008 (project ARGOS). He was awarded the Erwin Schrödinger Preis in 2015 for his contributions to Quantum Cryptography. In 2009, Mr. Horwath co-founded Mynaric Lasercom GmbH and has been serving as managing director and chief technical officer since then. He also served as member of the management board of our Company from 2017 to 2019 and was re-appointed as a member of the management board in 2021. Mr. Horwath graduated from the Technical University of Graz, Austria, and holds a degree in electrical engineering (Dipl.-Elektroingenieur).

Supervisory Board

Overview

German law requires that the supervisory board consists of at least three members, whereby the articles of association may stipulate a higher number. Pursuant to our articles of association, our supervisory board shall

 

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consist of five (5) members. As we grow, our supervisory board may be required to include employee representatives subject to the provisions of the German One-Third Employee Participation Act (Drittelbeteiligungsgesetz), which applies to companies that on a regular basis employ more than 500 employees in Germany (on a headcount basis), or the German Co-Determination Act (Mitbestimmungsgesetz), which applies to companies that on a regular basis employ more than 2,000 employees in Germany (on a headcount basis). Based on the size of our workforce, none of these provisions currently apply to us and we are not required to include employee representatives as members of our supervisory board.

Under German law, the members of a supervisory board may be elected for a maximum term of approximately five years, depending on the date of the annual general shareholders’ meeting at which the members of the supervisory board are elected. This time period may not extend past the end of the shareholders’ meeting ratifying the acts of the supervisory board for the fourth full financial year following the commencement of their respective terms of office. For example, if a potential supervisory board member is elected in May 2022, his or her term of office may not extend past the shareholders’ meeting ratifying the acts of the supervisory board in the financial year 2026.

Re-election, including repeated re-election, is permissible. The shareholders’ meeting may specify a term of office for individual members or all of the members of our supervisory board that is shorter than the maximum term of office and, subject to statutory limits, may set different start and end dates for the term of office of individual supervisory board members.

Members of our supervisory board may be dismissed at any time during their term of office by a resolution of the shareholders’ meeting adopted by a simple majority of the votes cast at such meeting. In addition, any member of our supervisory board may resign at any time by giving three month’s written notice of his or her resignation to the chairperson of our supervisory board or, in case the chairperson resigns, to the deputy chairperson. Our supervisory board may agree upon a shorter notice period.

The shareholders’ meeting may, at the time when it elects the members of the supervisory board, also elect one or more substitute members. Should the term of office of a member of our supervisory board end prematurely the substitute member will replace such supervisory board member for the remainder of his or her original term of office. Currently, no substitute members have been elected or have been proposed to be elected.

Our supervisory board elects a chairperson and a deputy chairperson from among its members. The deputy chairperson assumes the chairperson’s responsibilities and duties whenever the chairperson is unable to discharge his or her duties. Manfred Krischke, Peter Müller-Brühl, Steve Geskos, Hans Königsmann and Vincent Wobbe are the current members of our supervisory board. The members of our supervisory board have elected Manfred Krischke as chairperson of the supervisory board and Peter Müller-Brühl as deputy chairperson of the supervisory board, each for his respective term of office.

German law does not require the majority of our supervisory board members to be independent. However, pursuant to recommendations contained in the German Corporate Governance Code (as in force as of the date of this prospectus), the supervisory board shall include such number of independent members that are independent from the company, its management board and any controlling shareholder as it considers appropriate, taking into account the shareholder structure, and the majority of the supervisory board members shall be independent from the company and its management board. A member of the supervisory board is deemed independent from the company and its management board if such member has no personal or business relationship with the company or the management board that may cause a substantial, and not merely temporary, conflict of interest.

Pursuant to the German Corporate Governance Code, in case the supervisory board is composed of no more than six (6) members, at least one (1) member of the supervisory board shall be independent from the controlling shareholder. In case the supervisory board comprises more than six (6) members, at least two (2) members of the supervisory board shall be independent from the controlling shareholder. A member of the supervisory board is

 

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considered independent from a controlling shareholder if neither such supervisory board member nor its close family members are a controlling shareholder or part of the executive board of a controlling shareholder and no personal or business relationship with the controlling shareholder exists that may cause a substantial, and not merely temporary, conflict of interest.

The supervisory board meets at least four times per year, twice during each of the first and the second half of each financial year. Our articles of association and the supervisory board’s rules of procedure provide that a quorum of the supervisory board members is achieved if at least three of its members participate in the vote. Abstention is regarded as participation in the vote, but is not included in the calculation of the votes cast. Members of our supervisory board are deemed to be participating in a vote if they participate via telephone or video conference, as long as no other member of the supervisory board objects to such form of participation. Any absent member may also participate in the vote by submitting his or her written vote through another member.

Resolutions of our supervisory board are passed with a simple majority of the votes cast, unless otherwise required by law, our articles of association or the rules of procedure of our supervisory board. In the event of a tied vote, the chairperson has the tie-breaking vote.

Under the German Stock Corporation Act, our supervisory board is not permitted to make management decisions. However, in accordance with German law, our supervisory board determined that certain matters require its prior consent, including:

 

   

the formation, acquisition, sale and dissolution of companies, business units, fixed and current assets related to operations and participations, silent partnerships as well as related transactions;

 

   

establishment and discontinuation of branches of the Company; changes to material strategic objectives of the existing business;

 

   

entry into and termination of lease agreements with a fixed term exceeding one year, provided that the annual rent exceeds €250,000;

 

   

adoption of measures or entry into agreements or making investments related to property, plant and equipment, and financial assets, exceeding the approved budget, with a value of over €50,000;

 

   

entry into credit agreements exceeding an amount of €500,000;

 

   

changes to human resources policy principles, including the introduction, modification and termination of generally applicable polices related to employee compensation, the introduction of occupational pensions or retirement plans or employee profit participation plans as well as economically comparable arrangements (such as trusts, shareholder loans and option agreements);

 

   

entry into and termination of agreements with employees with total annual compensation (base salary and including variable compensation components, but excluding fringe benefits and long-term incentive plans) exceeding a gross annual amount of €350,000, including in the context of the recruitment of replacement staff;

 

   

termination of employment or other restructuring measures affecting more than 10% of the Company’s total head count;

 

   

commencement and termination of legal action having a material effect or a financial risk exceeding €200,000, both by and against the Company;

 

   

acquisition, sale or encumbrance of real estate, sections of land and comparable rights as well as their development;

 

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granting shareholder loans and credit to non-affiliates, provided these do not concern the granting of mere terms of credit related to ordinary course supply and services, and the portion not covered by related credit insurance exceeds €200,000;

 

   

entry into speculative financial transactions (particularly investment in currencies, derivatives or securities);

 

   

granting security interests to third parties (excluding affiliates), particularly the assumption of suretyships and other guarantees;

 

   

entry into agreements with members of the Management Board or related persons within the meaning of Section 15 of the German Tax Code or corporations, with the exception of agreements with consolidated companies;

 

   

whole or partial sales of material portions of the Company’s assets or mergers of the Company;

 

   

establishment or modification of administrative headquarters, branches or permanent establishments for tax purposes;

 

   

grants and revocations of general powers of representation (Prokura) and general powers of attorney in accordance with applicable German laws;

 

   

adoption of the annual consolidated budget (investment, finance, revenue, profit and staffing plans) as well as the implementation of related measures in affiliated companies that are not included in the consolidated budget;

 

   

disposal of tangible and intangible assets (including trademarks, domains and patents) related to the Company’s operations outside the ordinary course of business;

 

   

entry into, modification or termination of intercompany agreements within the meaning of Sections 291 et seq. of the German Stock Corporation Act;

 

   

entry into, modification or termination of joint venture agreements or consortium contracts and other partnership agreements outside the ordinary course of business; and

 

   

changes to material accounting policies.

In addition to the matters that our supervisory board has determined from time to time to require its prior consent, as a matter of German law, certain transactions or other matters may only be carried out or implemented subject to our supervisory board’s prior consent.

Members of our Supervisory Board

Pursuant to our articles of association, our supervisory board shall consist of five (5) members. On October 5, Mr. Gerd Gruppe, deputy chairperson of our supervisory board, resigned with immediate effect from his position for personal reasons. The remaining members of the supervisory board elected Mr. Peter Müller-Brühl to serve as deputy chairperson of our supervisory board. To fill the vacant position, the supervisory board has nominated Mr. Hans Königsmann to serve as substitute member on our supervisory board until the next general meeting held in 2022. Vacant positions on the supervisory board can only be filled with an individual either elected by the general meeting or appointed by