Item 1A. Risk Factors
Risks Related to Our Business, Our Technology and Our Industry
We have incurred significant losses since inception, we expect
to incur losses in the future, and we may not be able to achieve or maintain profitability.
We are an early-stage water harvesting technology company with a history
of losses. We have incurred a net income (loss) of $215.7 million and $(11.4) million for the years ended December 31, 2024 and 2023,
respectively. Although our predecessor entity was established in 2018, we did not develop our first prototype of the AirJoule unit until
June 2021, and we have not yet begun commercializing our AirJoule units. We expect that we will continue to incur losses in future periods
as we:
● design, develop, market, commercialize and begin to sell AirJoule units;
● build up inventories of parts and components for AirJoule units;
● expand our design, development, installation and servicing capabilities;
● further develop our proprietary technology;
● develop our distribution network;
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Because we will incur the costs and expenses from these efforts before
we receive any incremental revenues with respect thereto, our losses in future periods could be significant. In addition, we may find
that these efforts are more expensive than we currently anticipate or that these efforts may not result in additional revenues, which
could further increase our losses.
Our ability to become profitable in the future will require us to complete
the design and development of our AirJoule units and to begin commercializing the product and related services to customers at prices
needed to achieve positive gross margins. We may need to sell our products at a loss or discounted prices in the short term to win initial
customer orders and gain the confidence of potential customers. If we are unable to efficiently design, produce, market, sell, distribute
and service our products, our margins, profitability, and long-term prospects will be materially and adversely affected.
We have not yet commenced commercial activities and have a limited
operating history, which may make it difficult to evaluate the prospects for our future viability. There is no assurance that we will
successfully execute our proposed strategy.
We are a pre-revenue and early-stage company. Our operations to date
have been limited to developing our technology and products. Our limited operating history may make it difficult to evaluate our
current business and future prospects as we continue to grow our business. Our ability to forecast future operating results is subject
to a number of uncertainties, including our ability to plan for and model future growth. We have encountered risks and uncertainties frequently
experienced by growing companies in rapidly evolving industries, and we will continue to encounter such risks and uncertainties as we
grow our business. If our assumptions regarding these uncertainties are incorrect, or if we do not address these risks successfully, our
operating and financial results could differ materially from our expectations, and our business could suffer. Consequently, any predictions
we make about our future success and our viability may not be as accurate as they could be if we had an operating history.
Demand for our products may not grow or may grow at a slower
rate than we anticipate.
To date, we have not had any sales of our products. Operating results
are difficult to forecast as they generally depend on our assessment of the demand for our products. Our business may be affected by reductions
in demand for our products and the price of competitors’ products as a result of a number of factors which may be difficult to predict.
Similarly, our assumptions and expectations with respect to margins and the pricing of our AirJoule units may not prove to be accurate.
We may be unable to adopt measures in a timely manner to compensate for any unexpected shortfall in demand, which could ultimately cause
our operating results to differ from expectations. If actual results differ from our estimates, analysts or investors may negatively react
and our share price could be materially adversely affected.
We depend on revenue generated from a single product and in the
foreseeable future will be significantly dependent on a limited number of products.
After we have successfully developed and commercialized our AirJoule
technology, we will initially depend on revenue generated from our AirJoule units and revenue from ancillary services for the foreseeable
future and will be significantly dependent on a single or limited number of products. Given that, for the foreseeable future, our business
will depend on a single or limited number of products, to the extent that a particular product is not well-received by the market, our
sales volume, prospects, business, results of operations and financial condition could be materially and adversely affected.
Our financial results depend on successful project execution
and may be adversely affected by cost overruns, failure to meet customer schedules, failure of our suppliers or partners to fulfill their
obligations to us or other execution issues.
Commercialization of our AirJoule units is subject to a number of significant
risks, including project delays, cost overruns, changes in scope, unanticipated site conditions, design and engineering issues, incorrect
cost assumptions, increases in the cost of materials and labor, health and safety hazards, third-party performance issues and changes
in laws or permitting requirements. If a third party or other subcontractor that we have contracted fails to fulfill its contractual obligations
to us, we could face significant delays, cost overruns and liabilities. Our continued growth will depend in part on executing a greater
volume of large projects, which will require us to expand and retain our project management and execution personnel and resources. If
we are unable to manage these risks, we may incur higher costs, liquidated damages and other liabilities, which may decrease our profitability
and harm our reputation.
We may lack sufficient funds to achieve our planned business
objectives. Our ability to continue as a going concern is dependent on (i) continued financial support from our shareholders and other
related parties, (ii) raising capital via external financing and/or (iii) attaining profitable operations. We may seek to raise further
funds through one or more financing transactions, and any inability to access the capital or financial markets may limit our ability to
fund our ongoing operations and execute our business plan to pursue investments that we may rely on for future growth.
We have limited capital resources and operations. From time to time,
we may seek additional financing to provide the capital required to expand production of our business operations, development initiatives
and/or working capital, as well as to repay outstanding loans if cash flow from operations is insufficient to do so. We cannot predict
with certainty the timing or amount of any such capital requirements.
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We may in the future require access to capital markets and debt financing
as a source of liquidity for investments and expenditures. If we do not raise sufficient capital to fund our ongoing development activities,
it is likely that we will be unable to carry out our business plans. We may not be able to obtain additional financing on terms acceptable,
or at all. Even if we obtain financing for near term operations, we may require additional capital beyond the near term. If we are unable
to raise capital when needed, or if our ability to access required capital were to become significantly constrained, we could incur material
borrowing costs and our business, financial condition and results of operations would be materially adversely affected, and it could force
us to reduce or discontinue our operations.
We face significant barriers in our attempts to deploy our technology
and may not be able to successfully develop our technology. If we cannot successfully overcome those barriers, it could adversely impact
our business and operations.
The technology behind our AirJoule unit is very complex. While we have
successfully produced prototype units within our test facilities, we are still in the process of optimizing the technology to deliver
water and dehumidified and cooled air at the energy efficiency that we are anticipating we can achieve. If we are unable to successfully
develop our technology, our operating and financial results could materially differ from our expectations and our business could suffer.
If we encounter difficulties in scaling our production and delivery
capabilities, if we fail to develop such technologies before our competitors or if such technologies fail to perform as expected, are
inferior to those of our competitors or are perceived as less safe than those of our competitors, our business, reputation and financial
condition could be materially and adversely impacted.
We are subject to risks associated with changing technology,
product innovation, manufacturing techniques, operational flexibility and business continuity, which could place us at a competitive disadvantage.
The industries in which we operate are subject to rapid technological
change, evolving industry standards and practices and changing customer needs and preferences. The success of our business will depend,
in part, on our ability to adapt and respond effectively to these changes on a timely basis. We may introduce significant changes to our
AirJoule units or develop and introduce new and unproven products, including using technologies with which we have little or no prior
development or operating experience. If we are unable to develop and sell new technology, features and functionality for our AirJoule
units that satisfy our customers and that keep pace with rapid technological and industry change, our revenue and operating results could
be adversely affected. If new technologies emerge that deliver competitive solutions at lower prices, more efficiently, more conveniently
or more securely, it could adversely impact our ability to compete and place us at a competitive disadvantage.
We expect to incur research and development costs and devote
resources to identifying and commercializing new products, which could reduce our profitability and may never result in revenue.
We will require significant capital to develop and grow our business
and we expect to incur significant expenses, including those relating to developing and commercializing our AirJoule units, research and
development, production, sales, maintenance and service and building the AirJoule brand. Our current estimates of the costs associated
with development and commercialization could prove inaccurate, and that could impact the cost of our technology and of our business overall.
If we are unable to efficiently design, develop, commercialize, license, market and deploy our technology in a cost-effective manner,
our margins, profitability and prospects would be materially and adversely affected.
Actual capital costs, operating costs, production and economic
returns may differ significantly from those we have anticipated and future development activities may not result in profitable operations.
The actual operating costs of manufacturing, commercializing and distributing
AirJoule units on a commercial scale will depend upon a variety of factors, such as changes in the availability of and price of materials
and changes in governmental regulation, including taxation, environmental, permitting and other regulations and other factors, many of
which are beyond our control. Due to any of these or other factors, our capital and operating costs may be significantly higher than those
initially estimated by management. As a result of higher capital and operating costs, our financing ability may be impacted, and this
may be further affected by lower commodity prices in the international markets that could impact production or economic returns, which
may differ significantly from management’s expectations and there can be no assurance that any of our development activities will
result in profitable operations.
We may face significant competition from established companies
with longer operating histories, customer incumbency advantages, access to and influence with governmental authorities and more capital
resources than we do.
The markets for generation of potable water and energy-efficient air
conditioning are evolving and highly competitive. We expect competition to increase in the future from established competitors and new
market entrants. This could negatively impact our ability to compete in these markets. We will face competition from other water generation
and comfort cooling companies that offer standalone water production and air conditioning solutions and services. In addition, we may
face competition from niche companies and new market entrants that offer point products that attempt to address the specific problems
that our AirJoule units attempt to solve.
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Many of our existing competitors have, and our potential competitors
could have, substantial competitive advantages such as greater name recognition, longer operating histories, larger sales and marketing
budgets and resources, greater customer support resources, lower labor and development costs, larger and more mature intellectual property
portfolios and substantially greater financial, technical and other resources.
Some of our larger competitors also have substantially broader product
lines and market focus and will therefore not be as susceptible to downturns in a particular market. Conditions in our market could change
rapidly and significantly as a result of technological advancements, partnering by our competitors, or continuing market consolidation.
New start-up companies that innovate and/or large companies that are making significant investments in research and development may invent
similar or superior products and technologies that compete with our AirJoule units. In addition, some of our competitors may enter into
new alliances with each other or may establish or strengthen cooperative relationships with agency partners, technology and application
providers in complementary categories or other parties. Any such consolidation, acquisition, alliance or cooperative relationship could
lead to pricing pressure, a loss of market share or a smaller addressable share of the market, all of which could harm our ability to
compete and may materially affect our results of operations and financial condition.
If we fail to retain our key personnel or if we fail to attract
additional qualified personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our success depends to a significant extent on our and our joint ventures’
ability to attract and retain talent, specifically in senior management and skilled technical, engineering, project management and other
key roles. Macroeconomic conditions, specifically labor shortages, increased competition for employees and wage inflation could have a
material impact on our ability to attract and retain talent, our turnover rate and the cost of operating our business. If we are unable
to attract and retain sufficient talent, minimize employee turnover or manage wage inflation, it could have a material adverse effect
on our business, financial condition, results of operations or prospects.
Any failure by our management to properly manage our growth could
have a material adverse effect on our business, operating results and financial condition.
We may experience rapid growth and organizational change, which may
place significant demands on our management and our operational and financial resources. Our success will depend in part on our ability
to manage this growth effectively. We will require significant capital expenditures and valuable management resources to grow without
undermining our culture of innovation and teamwork, which has been central to our growth so far. If we fail to manage our anticipated
growth and change in a manner that preserves our culture, it could negatively affect our reputation and ability to retain and attract
customers and employees. We also intend to expand our international operations in the future. Our expansion may place a significant strain
on our managerial, administrative, financial and other resources. If we are unable to manage our growth successfully, our business and
results of operations could suffer.
If the estimates and assumptions we use to determine the size
of our total addressable market are inaccurate, our future growth rate may be affected and the potential growth of our business may be
limited.
Our estimates for our total addressable market are based on several
internal and third-party estimates, including the number of potential customers who have expressed interest in licensing our technology,
assumed prices and production costs for our products, our ability to leverage our current logistical and operational processes and general
market conditions. However, our assumptions and the data underlying our estimates may not be correct and the conditions supporting our
assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, our
estimates of the annual total addressable market for our products, as well as the expected growth rate for the total addressable market
for our products, may prove to be incorrect, which could materially and adversely affect our business.
Damage to our reputation or brand image could adversely affect
our business.
Our reputation is one of our key assets. Our ability to attract and
retain customers will be highly dependent upon the external perceptions of our level of service, trustworthiness, business practices,
financial condition and other subjective qualities. Negative perceptions or publicity regarding these or other matters, including from
actual or alleged conduct by us or our employees, could damage our reputation. Any resulting erosion of trust and confidence among customers,
business partners, regulators and other parties important to the success of our business could make it difficult for us to attract customers
and business partners, which could have a material adverse effect on our business, financial condition and results of operations.
The occurrence of significant events for which we may not be
fully insured could have a material adverse effect on our business, financial condition and results of operations.
We may be subject, in the ordinary course of business, to losses resulting
from product liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. We cannot be
certain that any future insurance coverage we obtain will be sufficient to cover all future losses or claims against us. A loss that is
uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our business, financial
condition and results of operations.
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Cyber-attacks or a failure in our information technology and
data security infrastructure could adversely affect our business and operations.
We rely on information technology systems in connection with
various aspects of the operation of our business. Our business depends on the integrity of such information technology systems,
which are inherently susceptible to a number of threats, including, but not limited to, viruses, ransomware, malware, malicious
codes, hacking, phishing, denial of service actions, human error, network failures, electronic loss of data and other electronic
security breaches. A successful material cyber-attack may result in the loss or compromise of customer, financial or operational
data, theft of intellectual property, disruption of billing, collections or normal field service activities, disruption of data
analytics and electronic monitoring and control of operational systems, loss of revenue, ransomware payments, remediation costs
related to lost, stolen or compromised data, repairs to infrastructure, physical systems or data processing systems, increased
cybersecurity protection costs or violation of United States and international privacy laws, which may result in litigation. Any of
these occurrences could harm our reputation or have a material adverse effect on our business, financial condition, results of
operation and prospects. We have and intend to continue to adopt measures to mitigate potential risks associated with information
technology disruptions and cybersecurity threats; however, there is no assurance that these measures will prevent cyber-attacks or
security breaches. Although we intend to periodically assess these risks, implement controls and perform business continuity and
disaster recovery planning, we cannot be sure that interruptions with material adverse effects will not occur.
Increased scrutiny of ESG matters, including our completion of
certain ESG initiatives, could have an adverse effect on our business, financial condition and results of operations, result in reputational
harm and negatively impact the assessments made by ESG-focused investors when evaluating us.
We are increasingly facing more stringent ESG standards, policies and
expectations, and expect to continue to do so as a listed company with growing operations. Companies across all industries are facing
increasing scrutiny from a variety of stakeholders, including investor advocacy groups, proxy advisory firms, certain institutional investors
and lenders, investment funds and other influential investors and rating agencies, related to their ESG and sustainability practices.
We generally experience a strong ESG emphasis among our customers, partners and competitors. Some of these stakeholders maintain standards,
policies and expectations regarding environmental matters (e.g., climate change and sustainability), social matters (e.g., diversity and
human rights) and corporate governance matters (e.g., taking into account employee relations when making business and investment decisions,
ethical matters and the composition of the board of directors and various committees). There is no guarantee that we will be able to comply
with applicable ESG standards, policies and expectations, or that we will, from the perspective of other stakeholders and the public,
appear to be complying with such ESG standards, policies and expectations. If we do not adapt to or comply with investor or other stakeholder
standards, policies, or expectations on ESG matters as they continue to evolve, or if we are perceived to have not responded appropriately
or quickly enough to growing concern for ESG and sustainability issues, regardless of whether there is a regulatory or legal requirement
to do so, we may suffer from reputational damage and our business, financial condition and/or stock price could be materially and adversely
affected.
We also expect there will likely be increasing levels of regulation,
disclosure-related and otherwise, with respect to ESG matters. We may be subject to ESG or sustainability-related regulation in multiple
jurisdictions, including the U.S., and complying with these regulations in multiple jurisdictions may increase the complexity and cost
of our compliance efforts. Moreover, increased regulation and increased stakeholder expectations will likely lead to increased costs as
well as scrutiny that could heighten all of the risks identified in this risk factor. Additionally, many of our customers and suppliers
may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us.
Risks Related to Our Joint Ventures, Our Suppliers and Our Customers
We conduct a substantial amount of our operations through joint
ventures, which may lead to disagreements with joint venture partners and adversely affect our interest in the joint ventures.
We are currently conducting the majority of our development, operations
and commercialization activities through our joint venture with GE Vernova, of which we and GE Vernova each own a 50% interest. This AirJoule
JV was formed in March 2024 to incorporate GE Vernova’s proprietary sorbent materials into systems that utilize our water capture
technology and to manufacture and bring products incorporating the combined technologies to market in the Americas, Africa and Australia.
Additionally, we have entered into a joint venture agreement with an affiliate of CATL to manufacture and commercialize our AirJoule technology
in Asia and Europe, but this joint venture has not yet been funded by either party and has not yet commenced any operation’s. Our
heavy reliance on joint ventures could adversely affect our business and financial condition if any of our joint venture partners chooses
to terminate their relationship with us or make material changes to their businesses, products or services in a manner that is adverse to
us.
Under the A&R Joint Venture Agreement for the AirJoule JV, for
the first six years, GE Vernova has the right, but not the obligation, to make capital contributions to the AirJoule JV, and we are solely
responsible for funding the AirJoule JV if and until GE Vernova elects to participate in funding the AirJoule JV with its pro-rata share.
We can provide no assurance that GE Vernova will elect to participate in capital contributions to the AirJoule JV, and our ability to
continue fully funding the joint venture will likely depend on our ability to raise additional capital via external financing.
We may incur impairment charges related to the carrying
value of our equity method investment in the AirJoule JV, which could have a significant negative effect on our financial condition,
results of operations and the price of our securities.
We regularly evaluate the carrying value of our equity method investment
in the AirJoule JV, and we may incur an impairment charge if we determine that the carrying value of such investment exceeds the fair
value. For example, if the AirJoule JV recognizes a goodwill impairment charge in its separate financial statements, we would be required
to impair the value of our investment in the AirJoule JV.
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The AirJoule JV tests its goodwill for impairment annually
on October 1 and more frequently if events or changes in circumstances indicate that a potential goodwill impairment exists.
Asset impairment evaluations with respect to goodwill are, by nature, highly subjective. The use of different estimates and
assumptions could result in materially different carrying values of the AirJoule JV’s assets, which could impact the need to record
an impairment charge and the amount of any charge taken. If AirJoule JV’s assumptions, including timing of revenue generation
and forecasted EBITDA, are not achieved, then the AirJoule JV may be required to record goodwill impairment charges in future
periods.
Though any impairment we may be required to incur in the future would
be a non-cash charge and therefore not have an immediate impact on our liquidity, the fact that we report a charge of this nature
could contribute to negative market perceptions about our business or our securities. In addition, charges of this nature may hinder our
ability to obtain future financing on favorable terms or at all.
We may depend on sole-source and limited-source suppliers for
key components and products. If we are unable to source these components and products on a timely basis or at acceptable prices, we will
not be able to deliver our products to our customers and production time and production costs could increase, which may adversely affect
our business.
Our manufacturing processes rely on many materials. We purchase, and
will continue to purchase, a significant portion of our materials, components and finished goods used in our production facilities from
a few suppliers, some of which are single-source suppliers. For example, our proprietary MTMOF1, which is highly engineered to adsorb
water vapor molecules and is utilized in our AirJoule units, is currently being manufactured solely by BASF (an international chemical
company). As certain materials are highly specialized, the lead time needed to identify and qualify a new supplier is typically lengthy
and there is often no readily available alternative source. We do not generally have long-term contracts with our suppliers and substantially
all of our purchases are on a purchase order basis. Suppliers may extend lead times, limit supplies, place products on allocation or increase
prices due to commodity price increases, capacity constraints or other factors and could lead to interruption of supply or increased demand
in the industry.
Additionally, the supply of these materials may be negatively impacted
by increased trade tensions or additional or increased tariffs between the U.S. and its trading partners. In the event that we cannot
obtain sufficient quantities of materials in a timely manner, at reasonable prices or of sufficient quality, or if we are not able to
pass on higher materials costs to our customers, our business, financial condition and results of operations could be adversely impacted.
We may face supply chain competition, including competition from
businesses in other industries, which could result in insufficient inventory and negatively affect our results of operations.
Certain of our suppliers also supply systems and components to other
businesses. As a relatively low-volume purchaser of certain of these parts and materials, we may be unable to procure a sufficient supply
of the items we need in the event that our suppliers fail to produce sufficient quantities to satisfy the demands of all of their customers,
which could materially adversely affect our business, financial condition and results of operations.
Manufacturing issues not identified prior to design finalization,
long-lead procurement and/or fabrication could potentially be realized and may impact our deployment cost and schedule, which could adversely
impact our business.
It is possible that in the future we may experience delays and other
complications from our partners and third-party suppliers in the development and manufacturing of the components and other implementing
technology required for deploying our AirJoule units. Any disruption or delay in the development or supply of such components and technology
could result in the delay or other complication in the design, manufacture, production and delivery of our technology that could prevent
us from commercializing our AirJoule units according to our planned timeline and scale. If delays like this recur or if we experience
issues with planned manufacturing activities, supply of components from third parties or design and safety, we could experience issues
or delays in commencing or sustaining our commercial operations.
If we encounter difficulties in scaling our production and delivery
capabilities, if we fail to develop such technologies before our competitors or if such technologies fail to perform as expected, are
inferior to those of our competitors or are perceived as less safe than those of our competitors, our business, reputation and financial
condition could be materially and adversely impacted.
The Binding Term Sheets we and CAMT have entered into with Carrier
may not ultimately yield definitive agreements with Carrier consistent with the term sheets or at all.
On January 7, 2024, concurrently with the execution of the Common Unit
Subscription Agreement, we and CAMT entered into the Binding Term Sheets with Carrier, pursuant to which, among other things, the parties
agreed to negotiate in good faith to finalize and enter into, as promptly as reasonably practicable, definitive agreements relating to
the development of the Applicable Products and the viability of the commercialization of the Applicable Products. Despite entry into the
Binding Term Sheets, we and CAMT ultimately may not enter into definitive agreements with Carrier on terms consistent with the Binding
Term Sheets or at all.
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We expect to be dependent on a limited number of customers
and end markets. A decline in revenue from, or the loss of, any significant customer, could have a material adverse effect on our financial
condition and operating results.
We are in the process of developing our technology and do not yet
have any customers. We expect to initially depend upon a small number of customers for a substantial portion of our future revenue.
Accordingly, a decline in revenue from, or the loss of, any significant customer could have a material adverse effect on our
financial condition and operating results. We cannot assure you that prospective customers will ultimately utilize our products and
services or enter into contracts with us for such products and services on acceptable terms or at all.
There can also be no assurance that our efforts to secure new customers,
including through acquisitions, will succeed in reducing our customer concentration. Acquisitions are also subject to integration risk,
and revenues and margins could be lower than we anticipate. Failure to secure business from new customers in any of our end markets would
adversely impact our operating results.
Our long-term success depends, in part, on our ability to negotiate
and enter into sales agreements with, and deliver our products to, customers on commercially viable terms. There can be no assurance that
we will be successful in securing such agreements.
Our success depends, in part, on our ability to acquire and retain
new customers and to do so in a cost-effective manner. In order to obtain and expand our customer base, we must appeal to, acquire and
enter into sales agreements with third-party customers on commercially viable terms, either directly or through third-party distributors.
We expect to make significant investments related to customer acquisition in the future. If we fail to deliver and market a robust product
that appeals to customers, or if customers do not perceive AirJoule units to be of high value and quality, we may be unable to acquire
or retain customers. If we are unable to acquire or retain customers sufficient to grow our business, we may be unable to generate the
scale necessary to achieve operational efficiency. Consequently, our prices may increase or may not decrease to levels sufficient to
generate customer interest, and total revenue may decrease and margins and profitability may decline. As a result, our business, financial
condition and results of operations may be materially and adversely affected.
Our sales and profitability may be impacted by, and we may incur
liabilities as a result of, warranty claims, product defects, recalls, improper use of our products, or our failure to meet performance
guarantees or customer safety standards.
We anticipate that our customers will require product warranties as
to the proper operation and conformance to specifications of the products we manufacture or install. Failure of our products to operate
properly or to meet specifications of our customers or our failure to meet our performance guarantees may increase costs by requiring
additional engineering resources and services, replacement of parts and equipment or monetary reimbursement to a customer, or could otherwise
result in liability to our customers. There are significant uncertainties and judgments involved in estimating warranty and performance
guarantee obligations, including changing product designs, differences in customer installation processes and failure to identify or disclaim
certain variables. To the extent that we incur substantial warranty or performance guarantee claims in any period, our reputation, earnings
and ability to obtain future business could be materially adversely affected.
Risks Related to Legal, Compliance, Regulations and Geopolitical
Issues
There are risks associated with operating in foreign countries,
including those related to economic, social and/or political instability, and changes of law affecting foreign companies operating in
that country. In particular, we may suffer reputational harm due to our business dealings in certain countries that have previously been
associated, or perceived to have been associated, with human rights issues. Increased scrutiny and changing expectations from investors
regarding ESG considerations may result in a decrease of the trading price of our securities.
We are currently party to a joint venture with an affiliate of CATL,
a Chinese battery manufacturer and technology company, and a development agreement with BASF, an international chemical producer headquartered
in Germany. We may continue to pursue partnerships and operations outside of the United States, including with suppliers and partners
that are located or operate in other countries. Accordingly, we are subject to risks associated with operating in foreign countries, including:
● fluctuations in currency exchange rates;
● additional costs of compliance with local regulations;
● less robust protection of our intellectual property under foreign laws;
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● difficulty in obtaining distribution and support for our products.
In addition, our operations outside the United States are subject to
the risk of new and different legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing
local operations and potentially adverse tax consequences. The costs associated with operating our continuing international business could
adversely affect our results of operations, financial condition and cash flows in the future.
Our business may require numerous permits, licenses and other
approvals from various governmental agencies, and the failure to obtain or maintain any of them, or delays in obtaining them, could materially
adversely affect us.
Regulatory risks associated with our business include:
Any of these risk factors could have a material adverse effect on our
business.
Our business and current and future production facilities are
subject to liabilities and operating restrictions arising from environmental, health and safety laws, regulations, and permits. We are
and will be subject to environmental, health and safety laws and regulations in multiple jurisdictions, which impose substantial compliance
requirements on our operations. Our operating costs could be significantly increased in order to comply with new or more stringent regulatory
standards in the jurisdictions in which we operate.
Our business and our and our joint venture’s and partners’
current and future production facilities are and will be subject to various foreign, federal, state and local environmental, health and
safety (“EHS”) laws, regulations, guidelines, policies, directives, permits and other requirements. Pursuant to these
requirements, we may be required to obtain various permits from certain regulatory agencies for our operations. If our facilities and
operations do not comply with such laws, regulations, requirements or permits, each of which may vary across the jurisdictions in which
we operate, we may be required to pay significant administrative or civil penalties or fines, curtail or cease operation of the affected
facilities, make costly modifications to such facilities, be subject to civil litigation or seek new or amended permits for our operations.
Violations of environmental and other laws, regulations, and permit requirements, including certain violations of laws protecting wetlands,
migratory birds, and threatened or endangered species, may also result in criminal sanctions or injunctions. The global EHS regulatory
environment continues to change, and these laws and regulations, and the enforcement thereof, have tended to become more stringent over
time. It is possible that new standards could be imposed, or interpretation or enforcement of existing laws and regulations could change,
making the regulatory environment more stringent. Such changes could result in higher operating expenses, the obsolescence of our products
or an interruption or suspension of our operations and have an adverse effect on our business, financial condition and results of operations.
If it is not economical to make those expenditures, or if we violate any applicable EHS laws and regulation, it may be necessary to retire
or suspend operations of our facilities or restrict or modify our operations to obtain or maintain compliance, either of which could have
a material adverse effect on our business, financial condition, results of operations, cash flow and prospects.
Furthermore, foreign, federal, state, and local governments are increasingly
regulating and restricting the use of certain chemicals, substances, and materials. Some of these policy initiatives could impact our
business. For example, laws, regulations, or other policy initiatives might restrict substances found within component parts to our products,
in which event we would be required to comply with such requirements, which could in turn require changes to our products and increase
our production and operating costs.
Our business could be adversely affected by trade wars, trade
tariffs or other trade barriers.
The U.S. government has recently imposed tariffs on certain foreign
goods, including steel and aluminum and has indicated a willingness to impose tariffs on imports of other products. As an example, on
February 1, 2025, the U.S. government announced a 25% tariff on product imports from certain countries, including Mexico and Canada, and
10% tariffs on product imports from certain countries, including China. Some foreign governments, including China, have instituted retaliatory
tariffs on certain U.S. goods and have indicated a willingness to impose additional tariffs on U.S. products. Other countries have threatened
retaliatory tariffs on certain U.S. products. Global trade disruption, significant introductions of trade barriers and bilateral trade
frictions, together with any future downturns in the global economy resulting therefrom, may limit our ability to obtain key components
for our AirJoule units or significantly increase freight charges, raw material costs and other expenses associated with our business,
which could materially and adversely affect our business, financial condition, prospects and results of operations.
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Exchange rate fluctuations may materially affect our results
of operations and financial condition.
We anticipate that our partner and customer contracts will primarily
be denominated in U.S. dollars, and therefore substantially all of our revenue will not be subject to foreign currency risk. However,
a strengthening of the U.S. dollar could increase the real cost of AirJoule units to our customers outside of the United States, which
could adversely affect our operating results. In addition, a portion of our operating expenses are expected to be incurred and a portion
of our assets are expected to be held outside the United States. These operating expenses and assets would be denominated in foreign currencies
and are subject to fluctuations due to changes in foreign currency exchange rates. If we are not able to successfully hedge against the
risks associated with currency fluctuations, our operating results could be adversely affected.
Our failure to comply with applicable anti-corruption, anti-bribery,
anti-money laundering, antitrust, foreign investment and similar laws and regulations could negatively impact our reputation and results
of operations.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as
amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and other anti-bribery and anti-money
laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively
in recent years. These laws are interpreted broadly to prohibit companies and their employees and third-party intermediaries from authorizing,
promising, offering or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private
sector. As we increase our international sales and business and sales to the public sector, we may engage with partners and third-party
intermediaries to market our services and to obtain necessary permits, licenses and other regulatory approvals. In addition, we or our
third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state -owned
or affiliated entities. We can be held liable for corrupt or other illegal activities of these third- party intermediaries, our employees,
representatives, contractors, partners and agents, even if we do not explicitly authorize such activities.
While we have policies and procedures to address compliance with such
laws, our employees and agents could violate our policies and applicable law, for which we may be ultimately held responsible. As we increase
our international sales and business, our risks under these laws may increase.
Noncompliance with anti-corruption, anti-bribery or anti-money laundering
laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement
of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting
with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. If any
subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil
or criminal litigation, our business, results of operations and financial condition could be materially harmed. Responding to any action
will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and
other professional fees. Enforcement actions and sanctions could further harm our business, results of operations and financial condition.
Our past and potential future transactions with foreign-based
commercial partners and investors may be subject to review by the Committee on Foreign Investment in the United States (“CFIUS”).
CFIUS actions, including potentially imposing restrictions or conditions on these transactions, or forcing us to terminate these transactions,
could adversely impact our business and operations.
CFIUS has authority to review certain direct or indirect foreign investments
in U.S. businesses for national security considerations. Among other things, CFIUS is authorized to require mandatory filings for certain
foreign investments in the United States and to self-initiate national security reviews of certain foreign direct and indirect investments
in U.S. businesses if the parties to such investments choose not to file voluntarily. With respect to transactions that CFIUS determines
present unresolved national security concerns, CFIUS has the power to suspend transactions, impose mitigation measures or recommend that
the president of the United States block pending transactions or order divestitures of completed transactions when national security concerns
cannot be mitigated. Whether CFIUS has jurisdiction to review an acquisition or investment transaction depends on, among other factors:
the nature and structure of the transaction; whether the target entity or assets constitute a U.S. business; the level of beneficial ownership
and voting interests acquired by foreign persons; and the nature of any information, control, access or governance rights that the transaction
affords foreign persons. For example, any transaction that could result in foreign “control” (as such term is defined in the
CFIUS regulations) of a U.S. business is within CFIUS’s jurisdiction, including such a transaction carried out through a joint venture.
In addition, CFIUS has jurisdiction over certain investments that do not result in control of a U.S. business by a foreign person but
that afford a foreign person certain access, involvement or governance rights in a “TID U.S. business,” that is, a U.S. business
that:
We have in the past entered into, and may in the future enter into,
commercial arrangements with foreign persons including, for example, our development agreement with BASF and our joint venture with an
affiliate of CATL. In addition, foreign investors have invested in us in the past and may invest in us in the future, and we may continue
to pursue partnerships and operations outside of the United States.
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CFIUS has broad discretion to interpret its regulations, and
CFIUS policies and practices are evolving rapidly. As a result, we cannot predict whether CFIUS may seek to review our past or
potential future transactions involving a foreign person, even if such transactions did not or will not require a mandatory CFIUS
filing at the time of the transaction. Any review by CFIUS of one or more of our past or potential future transactions involving a
foreign person may have outsized impacts on, among other things, the certainty, timing, feasibility and cost of the transaction in
question, and there can be no assurance that we and the foreign person will be able to maintain (if the transaction has already been
completed) or proceed with (if the transaction is pending) the transaction on acceptable terms or at all.
Changes in laws or regulations, or a failure to comply with any
laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws, regulations and rules enacted by national,
regional and local governments and Nasdaq. In particular, we are required to comply with certain SEC, Nasdaq and other legal or regulatory
requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly.
Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have
a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws,
regulations and rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.
Changes to, or changes to interpretations of, the U.S. federal,
state, local or other jurisdictional tax laws could have a material adverse effect on our business, financial condition and results of
operations.
All statements contained herein concerning U.S. federal income tax
(or other tax) consequences are based on existing law and interpretations thereof. The tax regimes to which we are subject or under which
we operate, including income and non-income taxes, are unsettled and may be subject to significant change. While some of these changes
could be beneficial, others could negatively affect our after- tax returns. Accordingly, no assurance can be given that the currently
anticipated tax treatment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect. In
addition, no assurance can be given that any tax authority or court will agree with any particular interpretation of the relevant laws.
State, local or other jurisdictions could impose, levy or otherwise
enforce tax laws against us. Tax laws and regulations at the state and local levels frequently change, especially in relation to the interpretation
of existing tax laws for new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of
compliance with, current or future taxes, which could have a material adverse effect on our business, financial condition and results
of operations.
Our business may be adversely affected by force majeure events
outside of our control, including labor unrest, civil disorder, war, subversive activities or sabotage, extreme weather conditions, fires,
floods, explosions or other catastrophes or epidemics.
The occurrence of one or more natural disasters, including and not
limited to tornadoes, hurricanes, fires, floods and earthquakes, unusual weather conditions, pandemics and endemic outbreaks, terrorist
attacks or disruptive political events in certain regions where our facilities are located, or where our third-party contractors’
and suppliers’ facilities are located, could adversely affect our business. The continuing armed conflicts in the Middle East and
in Ukraine, or strategic competition and tensions between China, the United States, Taiwan or other countries have also contributed to
uncertainty in the geopolitical and regulatory landscape. Such conflicts and tensions could adversely impact macroeconomic conditions,
give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the United
States and the international community in a manner that adversely affect us, including to the extent that any such actions cause material
business interruptions or restrict our ability in these regions to conduct business with certain suppliers or vendors. Additionally, such
conflict or sanctions may significantly devalue various global currencies and have a negative impact on economies in geographies in which
we do business.
Similarly, other events such as labor force instability and strikes,
terrorist attacks, pandemic, actual or threatened acts of war or the escalation of current hostilities, or any other military or trade
disruptions impacting our domestic or foreign suppliers of components of our products, may impact our operations by, among other things,
causing supply chain disruptions and increases in commodity prices, which could adversely affect our raw materials or transportation costs.
These events also could cause or act to prolong an economic recession in the United States or abroad. Any future disaster recovery and
business continuity plans we may put in place may prove inadequate in the event of a serious disaster or similar event, and, more generally,
any of these events could cause consumer member confidence and spending to decrease, which could adversely impact our operations.
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Risks Related to Intellectual Property
Our patent applications may not result in issued patents, and
our issued patents may not provide adequate protection, which may have a material adverse effect on our ability to prevent others from
commercially exploiting products similar to ours.
Our patent applications may not result in issued patents, which
may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours. The
registration of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we
cannot be certain that our patent applications will result in patents being issued, or that our patents and any patents that may be
issued to us will afford protection against competitors with similar technology. Numerous patents and pending patent applications
owned by others exist in the fields in which we have developed and is and will be developing our technology. Many of these existing
patents and patent applications might have priority over our patent applications and could subject our patent applications to
rejection. Furthermore, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from
those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be
issued.
Many patent applications in the United States are maintained in secrecy
for a period of time after they are filed, and since publication of discoveries in the scientific or patent literature tends to lag behind
actual discoveries by several months, we cannot be certain that we will be the first creator of inventions covered by any patent application
we make or that we will be the first to file patent applications on such inventions. Because some patent applications are maintained in
secrecy for a period of time, there is also a risk that we could adopt a technology without knowledge of a pending patent application,
which technology would infringe a third-party patent once that patent is issued.
Even if our patent applications succeed and we are issued patents
in accordance with them, it is still uncertain whether these patents will be contested, circumvented, invalidated or limited in
scope in the future. In addition to those who may claim priority, any of our existing or pending patents may also be challenged by
others on the basis that they are otherwise invalid or unenforceable. The rights granted under any issued patents may not provide us
with meaningful protection or competitive advantages, and some foreign countries provide significantly less effective patent
enforcement than what the United States provides. In addition, the claims under any patents that are issued to us may not be broad
enough to prevent others from developing technologies that are similar or that achieve results similar to ours. The intellectual
property rights of others could also bar or limit us from licensing, exploiting or enforcing any patents issued to us. In addition,
patents issued to us may be infringed upon or designed around by others and others may obtain patents that it needs to license or
design around, either of which would increase costs and may adversely affect our business, financial condition, prospects and
results of operations.
Our failure or the inadequacy of our efforts to protect our intellectual
property rights may undermine our competitive position, and litigation associated with our intellectual property rights may be costly.
We seek to protect proprietary technologies primarily through patents
and trade secrets. Patent protection may not be available or appropriate for some of the products or technology we are developing. While
we own several patents and pending patent applications in the United States and in foreign jurisdictions, these applications do not ensure
the protection of our intellectual property for a number of reasons, including that there may be prior art of which we are not aware or
there may be other patents existing in the patent landscape that affect our freedom to operate. Our business and financial prospects may
be harmed to the extent we are required to spend significant resources prosecuting, protecting or enforcing our patents, designing around
patents held by others or licensing patents or other proprietary rights from third parties. Additionally, pending applications may not
be issued or may be issued with claims significantly narrower than we currently seek. Similarly, patents for which claims have been allowed
may be successfully challenged and invalidated. Unless and until our pending applications issue, their protective scope is impossible
to determine and, even after issuance, their protective scope may be limited. Also, litigation may be necessary to enforce our intellectual
property rights or determine the validity and scope of the proprietary rights of others. Such litigation may result in our intellectual
property rights being challenged, limited in scope or declared invalid or unenforceable. We cannot be certain that the outcome of any
litigation will be in our favor, and an adverse determination in any such litigation could impair our intellectual property rights and
may harm our business, prospects and reputation.
In addition, our success depends in large part on our proprietary information,
including certain processes, formulations and other know-how developed over years of research and development. We rely heavily on trade
secrets, especially in cases where we believe patents or other forms of registered intellectual property protection may not be appropriate
or obtainable. However, trade secrets are difficult to protect. We employ various methods to protect such intellectual property, such
as entering into confidentiality agreements with certain third parties and our employees, and controlling access to, and distribution
of, our proprietary information. We cannot guarantee that we have entered into such agreements with each party that may have or has had
access to our trade secrets or proprietary technology and processes. We cannot assure you that these agreements will provide effective
or meaningful protection against the unauthorized use, misappropriation, or disclosure of our trade secrets, know-how, or other proprietary
information. Enforcing a claim that a party disclosed proprietary information in an unauthorized manner or misappropriated a trade secret
is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts are less willing or unwilling to
protect trade secrets, and agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be
enforceable in certain cases. Furthermore, competitors may independently develop products or technologies that are substantially equivalent
or superior to our own, regardless of our efforts to maintain the confidentiality of our trade secrets and other proprietary information.
If we are unable to effectively protect our technologies, intellectual
property, trade secrets and other proprietary information, our competitive position, business, financial condition, and results of operations
could be harmed.
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A number of foreign countries do not protect intellectual
property rights to the same extent as the United States. Therefore, our intellectual property rights may not be as strong or as easily
enforced outside of the United States and efforts to protect against the infringement, misappropriation or unauthorized use of our intellectual
property rights, technology and other proprietary rights may be difficult and costly outside of the United States. Furthermore, legal
standards relating to the intellectual property rights are uncertain and any changes in, or unexpected interpretations of, intellectual
property laws may compromise our ability to enforce our patent rights, trade secrets and other intellectual property rights.
Patent, trademark, trade secret and other intellectual property
laws are geographical in scope and vary throughout the world. Some foreign countries do not protect intellectual property rights to
the same extent as do the laws of the United States. In addition, trade secrets and know-how can be difficult to protect and some
courts inside and outside the United States are less willing or unwilling to protect trade secrets and know-how. If any of our trade
secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to
prevent them from using that technology or information to compete with us, and our competitive position would be materially and
adversely harmed. Further, even if we engaged local counsel in key foreign jurisdictions, policing the unauthorized use of our
intellectual property in foreign jurisdictions may be difficult or impossible. Therefore, our intellectual property rights may not
be as strong or as easily enforced outside of the United States, and efforts to protect against the infringement, misappropriation
or unauthorized use of our intellectual property rights, technology and other proprietary rights may be difficult and costly outside
of the United States. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual
property rights are uncertain, and any changes in, or unexpected interpretations of, intellectual property laws may compromise our
ability to enforce our patent rights, trade secrets and other intellectual property rights.
We may need to defend ourselves against claims that we infringe,
have misappropriated or otherwise violate the intellectual property rights of others, which may be time-consuming and would cause us to
incur substantial costs. Third- party claims that we are infringing on intellectual property, whether successful or not, could subject
us to costly and time-consuming litigation or expensive licenses, and our business could be adversely affected.
Companies, organizations, or individuals, including our competitors,