ITEM 1A. RISK FACTORS
Investing in our securities involves a high
degree of risk. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together
with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto
included elsewhere in this Annual Report on Form 10-K. Our business, financial condition, results of operations or prospects could also
be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks
actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the
market price of our securities could decline, and you could lose part or all of your investment.
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Risks Related to Solidion’s Business and Operations
Risks Related to Development and Commercialization
If our batteries fail to perform as expected,
our ability to develop, market and sell our batteries would be adversely affected.
Our batteries may contain defects in design and
manufacture that may cause them to not perform as expected or that may require repairs, recalls and design changes. Our batteries are
inherently complex and incorporate technology and components that have not been used for certain applications and that may contain defects
and errors, particularly when first introduced to such applications. Although our batteries undergo quality control testing prior to
release for shipment, there can be no assurance that we will be able to detect and fix all defects prior to shipment, and nonconformances,
defects or errors could occur or be present in batteries that we release for shipment to customers. If our batteries fail to perform
as expected, our customers may delay deliveries, our customer may terminate orders or we may initiate product recalls, each of which
could adversely affect our sales and brand and could adversely affect our business, financial condition, prospects and results of operations.
Our battery architecture is different from our
peers’ and may behave differently in customer use applications, certain applications of which we have not yet evaluated. This could
limit our ability to deliver to certain applications. In addition, our historical data on the performance and reliability of our batteries
is limited, and therefore our batteries could fail unexpectedly in the field resulting in significant warranty costs or brand damage
in the market. Further, the structure of our battery is different from traditional lithium-ion batteries and therefore our batteries
could be susceptible to different and unknown failure modes leading our batteries to fail and cause a safety event in the field. Such
an event could result in the failure of our end customers’ product as well as the loss of life or property, resulting in severe
financial penalties for us, including the loss of revenue, cancelation of supply contracts and the inability to win new business due
to reputational damage in the market. In addition, consistent with industry norms, we would anticipate that when we enter into agreements
to supply our battery products to end product manufacturers, that the terms of these agreements may require us to bear certain costs
relating to recalls and replacements of end products when such recalls and replacements are due to defects of our battery products that
are incorporated in such end products.
OEMs may elect to pursue other battery
cell technologies, which likely would impair our revenue generating ability.
OEMs are motivated to develop and commercialize
improved battery cell technologies. To that end, OEMs partners have invested, and are likely to continue to invest in the future, in
their own development efforts and, in certain cases, in joint development agreements with our current and future competitors. If other
technology is developed more rapidly than our high-capacity anode and high-energy solid-state battery technology, or if such competing
technologies are determined to be more efficient or effective than our high-capacity anode and high-energy solid-state battery technology,
our partners may elect to adopt and install a competitor’s technology or products over ours, which could materially impact our
business, financial results, and prospects.
We have only conducted preliminary safety
testing on our high-capacity anode and high-energy solid-state battery technology, and our technology will require additional and extensive
safety testing prior to being installed in electric vehicles.
To achieve acceptance by automotive OEMs, our
anticipated commercial-sized our high-capacity anode and high-energy solid-state battery technology will have to undergo
extensive safety testing. We cannot assure you such tests will be successful, and we may identify different or new safety issues in our
development or the commercial cells that have not been present in our prototype cells. If we have to make design changes to address any
safety issues, we may have to delay or suspend commercialization, which could materially damage our business, prospects, financial condition,
operating results and brand.
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We rely on complex equipment for our operations,
and production involves a significant degree of risk and uncertainty in terms of operational performance and costs.
We rely heavily on complex equipment for our
operations and the production of our high-capacity anode and high-energy solid-state battery technology. The work required to integrate
this equipment into the production of our high-capacity anode and high-energy solid-state battery technology is time intensive and
requires us to work closely with the equipment providers to ensure that it works properly with our proprietary technology. This integration
involves a degree of uncertainty and risk and may result in the delay in the scaling up of production or result in additional cost to
our high-capacity anode and high-energy solid-state battery technology.
Our current manufacturing facilities require,
and we expect our future manufacturing facilities will require, large-scale machinery and equipment. Such machinery and equipment may
unexpectedly malfunction and require repairs and spare parts to resume operations, which may not be available when needed. In addition,
because this equipment has historically not been used to build our high-capacity anode and high-energy solid-state batteries,
the operational performance and costs associated with this equipment is difficult to predict and may be influenced by factors outside
of our control, such as, but not limited to, failures by suppliers to deliver necessary components of our products in a timely manner
and at prices and volumes acceptable to us, environmental hazards and associated costs of remediation, difficulty or delays in obtaining
governmental permits, damages or defects in systems, industrial accidents, fires, seismic activity and other natural disasters.
Problems with our manufacturing equipment could
result in the personal injury to or death of workers, the loss of production equipment, damage to manufacturing facilities, monetary
losses, delays and unanticipated fluctuations in production. In addition, in some cases operational problems may result in environmental
damage, administrative fines, increased insurance costs and potential legal liabilities. Any of these operational problems, or a combination
of them could have a material adverse effect on our business, results of operations, cash flows, financial condition or prospects.
We may obtain licenses on technology that
has not been commercialized or has been commercialized only to a limited extent, and the success of our business may be adversely affected
if such technology does not perform as expected.
From time to time, we may license from third
parties technologies that have not been commercialized or which have been commercialized only to a limited extent. These technologies
may not perform as expected within our high-capacity anode and high-energy solid-state batteries and related products. If the cost,
performance characteristics, manufacturing process or other specifications of these licensed technologies fall short of our targets,
our projected sales, costs, time to market, competitive advantage, future product pricing and potential operating margins may be adversely
affected.
Substantial increases in the prices for
our raw materials and components, some of which are obtained from a limited number of sources where demand may exceed supply, could materially
and adversely affect our business.
We rely on third-party suppliers for components
and equipment necessary to develop our high-capacity anode and high-energy solid-state battery technology. We face risks relating
to the availability of these materials and components, including that we will be subject to demand shortages and supply chain challenges
and generally may not have sufficient purchasing power to eliminate the risk of price increases for the raw materials and tools we need.
To the extent that we are unable to enter into commercial agreements with our current suppliers or our replacement suppliers on favorable
terms, or these suppliers experience difficulties meeting our requirements, the development and commercial progression of our high-capacity
anode and high-energy solid-state battery technology and related technologies may be delayed.
Separately, we may become subject to various
supply chain requirements regarding, among other things, conflict minerals and labor practices. We may be required to incur substantial
costs to comply with these requirements, which may include locating new suppliers if certain issues are discovered. We may not be able
to find any new suppliers for certain raw materials or components required for our operations, or such suppliers may be unwilling or
unable to provide us with products.
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Any disruption in the supply of components, equipment
or materials could temporarily disrupt research and development activities or production of our high-capacity anode and high-energy
solid-state battery technology until an alternative supplier is able to supply the required material. Changes in business conditions,
unforeseen circumstances, governmental changes, and other factors beyond our control or which we do not presently anticipate, could also
affect our suppliers’ ability to deliver components or equipment to us on a timely basis. Any of the foregoing could materially
and adversely affect our results of operations, financial condition and prospects.
Currency fluctuations, trade barriers, tariffs
or shortages and other general economic or political conditions may limit our ability to obtain key components or equipment for our high-capacity
anode and high-energy solid-state battery technology or significantly increase freight charges, raw material costs and other expenses
associated with our business, which could further materially and adversely affect our results of operations, financial condition and
prospects.
We may be unable to adequately control
the costs associated with our operations and the components necessary to build our high-capacity anode and high-energy solid-state batteries,
and, if we are unable to control these costs and achieve cost advantages in our production of our high-capacity anode and high-energy
solid-state batteries at scale, our business will be adversely affected.
We require significant capital to develop our high-capacity
anode and high-energy solid-state battery technology and expect to incur significant expenses, including those relating to research and
development, raw material procurement, leases, sales and distribution as we build our brand and market our technologies, and general
and administrative costs as we scale our operations. Our ability to become profitable in the future will not only depend on our ability
to successfully develop and market our high-capacity anode and high-energy solid-state battery technology, but also to control our
costs. If we are unable to efficiently design, appropriately price, sell and distribute our high-capacity anode and high-energy
solid-state battery technology, our anticipated margins, profitability and prospects would be materially and adversely affected.
If we are unable to attract and retain
key employees and qualified personnel, our ability to compete could be harmed.
Our success depends on our ability to attract
and retain our executive officers, key employees and other qualified personnel, and our operations may be severely disrupted if we lost
their services. As we build our brand and become more well known, there is increased risk that competitors or other companies will seek
to hire our personnel. Our success also depends on our continuing ability to identify, hire, attract, train and develop other highly
qualified personnel. Competition for these employees can be intense, and our ability to hire, attract and retain them depends on our
ability to provide competitive compensation. We may not be able to attract, assimilate, develop or retain qualified personnel in the
future, and our failure to do so could seriously harm our business and prospects.
In addition, we are highly dependent on the services
of our senior technical and management personnel, including our executive officers, who would be difficult to replace. Further, our Executive
Chairman and Chief Science Officer will continue to be employed by G3 following the closing of the business combination, and his time
and attention may be diverted from Solidion’s business, which may have an impact on our business. If we do not succeed in attracting,
hiring, and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively and
our business, financial condition, results of operations and prospects could be adversely affected.
Our insurance coverage may not be adequate
to protect us from all business risks.
We may be subject, in the ordinary course of
business, to losses resulting from products liability, accidents, acts of God, and other claims against us, for which we may have no
insurance coverage. As a general matter, the policies that we do have may include significant deductibles, and we cannot be certain that
our insurance coverage 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 financial condition and operating results.
Furthermore, although we plan to obtain and maintain insurance for damage to our property and the disruption of our business, this insurance
may be challenging to obtain and maintain on terms acceptable to us and may not be sufficient to cover all of our potential losses.
Our facilities or operations could be damaged
or adversely affected as a result of natural disasters and other catastrophic events, including fire and explosions.
We currently conduct our operations in two facilities
in Dayton, Ohio. Our current and future development and manufacturing facilities or operations could be adversely affected by events
outside of our control, such as natural disasters, wars, health pandemics and epidemics such as the ongoing COVID-19 pandemic,
and other calamities. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire,
explosions, floods, cyber-attacks (including ransomware attacks), typhoons, earthquakes, power loss, telecommunications failures, break-ins, war,
riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures,
technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware
as well as adversely affect our ability to conduct our research and development activities as and on the timeline currently contemplated.
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Risks Related to Industry and Market Trends
The battery cell market continues to evolve
and is highly competitive, and we may not be successful in competing in this market or establishing and maintaining confidence in our
long-term business prospects among current and future partners and customers.
The battery cell market in which we compete continues
to evolve and is highly competitive. To date, we have focused our efforts on our high-capacity anode and high-energy solid-state
battery technology, a promising alternative to conventional lithium-ion battery cell technology. However, lithium-ion battery
cell technology has been widely adopted and our current competitors have, and future competitors may have, greater resources than we
do and may also be able to devote greater resources to the development of their current and future technologies. These competitors also
may have greater access to customers and may be able to establish cooperative or strategic relationships amongst themselves or with third
parties that may further enhance their resources and competitive positioning. In addition, traditional lithium-ion battery
cell manufacturers may continue to reduce cost and expand supply of conventional batteries and, therefore, reduce the prospects for our
business or negatively impact the ability for us to sell our products at a market-competitive price and yet at sufficient margins.
Many automotive OEMs are researching and investing
in solid-state battery cell efforts and, in some cases, in battery cell development and production. We do not have exclusive relationships
with any OEM to provide their future battery cell technologies, and it is possible that the investments made by these OEMs might result
in technological advances earlier than, or superior in certain respect to, the high-capacity anode and high-energy solid-state battery
technology we are developing. There are a number of companies seeking to develop alternative approaches to high-capacity anodes and solid-state
battery cells. We expect competition in battery cell technology and electric vehicles to intensify due to increased demand for these
vehicles and a regulatory push for electric vehicles, continuing globalization, and consolidation in the worldwide automotive industry.
As new companies and larger, existing vehicle and battery cell manufacturers enter the high-capacity anode and solid-state battery cell
space, we may lose any perceived or actual technological advantage we may have in the marketplace and suffer a decline in our position
in the market.
Furthermore, the battery cell industry also competes
with other emerging or evolving technologies, such as natural gas, advanced diesel and hydrogen-based fuel cell powered vehicles. Developments
in alternative technologies or improvements in batteries technology made by competitors may materially adversely affect the sales, pricing
and gross margins of our products. As technologies change, we will attempt to upgrade or adapt our products to continue to provide products
with the latest technology. However, our products may become obsolete, or our research and development efforts may not be sufficient
to adapt to changes in or to create the necessary technology to effectively compete. If we are unable to keep up with competitive developments,
including if such technologies achieve lower prices or enjoy greater policy support than the lithium-ion battery cell industry,
our competitive position and growth prospects may be harmed. Similarly, if we fail to accurately predict and ensure that our high-capacity
anode and high-energy solid-state battery technology can address customers’ changing needs or emerging technological trends, or
if our customers fail to achieve the benefits expected from our high-capacity anode and high-energy solid-state battery technology,
our business will be harmed.
We must continue to commit significant resources
to develop our high-capacity anode and high-energy solid-state battery technology in order to establish a competitive position,
and these commitments must be made without knowing whether our investments will result in products potential customers will accept. There
is no assurance we will successfully identify new customer requirements, develop and bring our high-capacity anode and high-energy
solid-state battery technology to market on a timely basis, or that products and technologies developed by others will not render our high-capacity
anode and high-energy solid-state battery technology obsolete or noncompetitive, any of which would adversely affect our business and
operating results.
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We expect that automotive OEMs and top tier battery
cell suppliers will be less likely to license our high-capacity anode and high-energy solid-state battery technology if they are not
convinced that our business will succeed in the long term. Similarly, suppliers and other third parties will be less likely to invest
time and resources in developing business relationships with us if they are not convinced that our business will succeed in the long
term. Accordingly, in order to build and maintain our business, we must instill and maintain confidence among current and future partners,
customers, suppliers, analysts, ratings agencies and other parties in our long-term financial viability and business prospects. Maintaining
such confidence may be particularly complicated by certain factors including those that are largely outside of our control, such as:
● our limited operating history;
● market unfamiliarity with our products;
● competition and uncertainty regarding the future of electric vehicles;
Our future growth and success are dependent upon consumers’
willingness to adopt electric vehicles.
Our growth and future demand for our products
is highly dependent upon the adoption by consumers of alternative fuel vehicles in general and electric vehicles in particular. The market
for new energy vehicles is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and factors, evolving
government regulation and industry standards, and changing consumer demands and behaviors. If the market for electric vehicles in general
does not develop as expected, or develops more slowly than expected, our business, prospects, financial condition and operating results
could be harmed.
We may not succeed in attracting customers
during the development stage or for high volume commercial production, and our future growth and success depend on our ability to attract
customers.
We may not succeed in attracting customers during
our development stage or for high volume commercial production. Customers may be wary of unproven products or not be inclined to work
with less established businesses. In addition, if we are unable to attract new customers in need of high-volume commercial production
of our products, our business will be harmed.
Automotive OEMs are often large enterprises.
Therefore, our future success will depend on our or our partners’ ability to effectively sell our products to such large customers.
Sales to these end-customers involve risks that may not be present (or that are present to a lesser extent) with sales to smaller
customers. These risks include, but are not limited to, (i) increased purchasing power and leverage held by large customers in negotiating
contractual arrangements with us and (ii) longer sales cycles and the associated risk that substantial time and resources may be
spent on a potential end-customer that elects not to purchase our products.
Automotive OEMs that are large organizations
often undertake a significant evaluation process that results in a lengthy sales cycle. In addition, product purchases by large organizations
are frequently subject to budget constraints, multiple approvals and unanticipated administrative, processing and other delays. Finally,
large organizations typically have longer implementation cycles, require greater product functionality and scalability, require a broader
range of services, demand that vendors take on a larger share of risks, require acceptance provisions that can lead to a delay in revenue
recognition and expect greater payment flexibility. All of these factors can add further risk to business conducted with these potential
customers.
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We may not be able to accurately estimate
the future supply and demand for our high-capacity anode and high-energy solid-state battery technology, which could result in a
variety of inefficiencies in our business and hinder our ability to generate revenue. If we fail to accurately predict our manufacturing
requirements, we could incur additional costs or experience delays.
It is difficult to predict our future revenues
and appropriately budget for our expenses, and we may have limited insight into trends that may emerge and affect our business. We anticipate
being required to provide forecasts of our demand to our current and future suppliers prior to the scheduled delivery of products to
potential customers. Currently, there is no historical basis for making judgments on the demand for our high-capacity anode and
high-energy solid-state battery technology or our ability to develop, manufacture, and deliver such products, or our profitability in
the future. If we overestimate our requirements, our suppliers may have excess inventory, which indirectly would increase our costs.
If we underestimate our requirements, our suppliers may have inadequate inventory, which could interrupt manufacturing of our products
and result in delays in shipments and revenues. In addition, lead times for materials and components that our suppliers order may vary
significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. If we
fail to order sufficient quantities of product components in a timely manner, the delivery of our high-capacity anode and high-energy
solid-state battery technology to our potential customers could be delayed, which would harm our business, financial condition and operating
results.
Risks Related to Limited Operating History
Our business model has yet to be tested
and any failure to commercialize our strategic plans would have an adverse effect on our operating results and business, harm our reputation
and could result in substantial liabilities that exceed our resources.
Investors should be aware of the difficulties
normally encountered by a new enterprise, many of which are beyond our control, including substantial risks and expenses in the course
of establishing or entering new markets, organizing operations and undertaking marketing activities. The likelihood of our success must
be considered in light of these risks, expenses, complications, delays and the competitive environment in which we operate. There is,
therefore, nothing at this time upon which to base an assumption that our business plan will prove successful, and we may not be able
to generate significant revenue, raise additional capital or operate profitably. We will continue to encounter risks and difficulties
frequently experienced by early commercial stage companies, including scaling up our infrastructure and headcount, and may encounter
unforeseen expenses, difficulties or delays in connection with our growth. In addition, as a result of the capital requirements of our
business, we can be expected to continue to sustain substantial operating expenses without generating sufficient revenue to cover expenditures.
Any investment in our company is therefore highly speculative and could result in the loss of your entire investment.
It is difficult to predict our future revenues
and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event
that actual results differ from our estimates or we adjust our estimates in future periods, our operating results, prospects and financial
position could be materially affected. The projected financial information appearing elsewhere in these materials was prepared by management
and reflects current estimates of future performance. The projected results depend on the successful implementation of management’s
growth strategies and are based on assumptions and events over which we have only partial or no control. The assumptions underlying such
projected information require the exercise of judgment and may not occur, and the projections are subject to uncertainty due to the effects
of economic, business, competitive, regulatory, legislative, and political or other changes.
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We are an early-stage company with a history
of financial losses and expect to incur significant expenses and continuing losses for the foreseeable future.
We incurred a net loss of approximately $3.9 million
for the year ended December 31, 2022, and approximately $5.3 million for the year ended December 31, 2023. We believe that
we will continue to incur operating and net losses each quarter until the time significant production of our high-capacity anode
and high-energy solid-state battery technology begins.
We expect the rate at which we will incur losses
to be significantly higher in future periods as we, among other things, continue to incur significant expenses in connection with the
design, development and manufacturing of our high-capacity anode and high-energy solid-state battery technology; expand our research
and development activities; invest in additional research and development and manufacturing capabilities; build up inventories of raw
materials and other components; commence sales and marketing activities; develop our distribution infrastructure; and increase our general
and administrative functions to support our growing operations. We may find that these efforts are more expensive than we currently anticipate
or that these efforts may not result in revenues, which would further increase our losses.
Our history of recurring losses and anticipated
expenditures raise substantial doubts about our ability to continue as a going concern. Our ability to continue as a going concern requires
that we obtain sufficient funding to finance our operations.
We have incurred operating losses to-date and
it is possible we will never generate profit. Our ability to continue as a going concern depends on generating cash from operations,
and the potential of obtaining additional debt or equity financing. There can be no assurance that we will be successful in these efforts.
The financial statements include in this Annual Report do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties
related to our ability to operate on a going concern basis.
If we are unable to raise sufficient capital
when needed, our business, financial condition and results of operations will be materially and adversely affected, and we will need
to significantly modify our operational plans to continue as a going concern. If we are unable to continue as a going concern, we might
have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than
the values reflected in our financial statements. Our lack of cash resources and our potential inability to continue as a going concern
may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations
with third parties due to concerns about our ability to meet our contractual obligations.
We may require additional capital to support
business growth, and this capital might not be available on commercially reasonable terms or at all. There is substantial doubt as to
our ability to continue as a going concern.
We may need additional capital
before we commence generating revenues, and it may not be available on acceptable terms, if at all. For example, our capital budget assumes,
among other things, that our development timeline progresses as planned and our corresponding expenditures are consistent with current
expectations, both of which are subject to various risks and uncertainties, including those described herein.
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In addition, as discussed above, we have experienced
recurring losses from operations and negative cash flows from operations that raise substantial doubt about our ability to continue as
a going concern, which has also been cited in our independent auditors’ reports. Our ability to continue as a going concern depends
on generating cash from operations, and the potential of obtaining additional debt or equity financing; however, there can be no assurance
we will be successful in these efforts.
More specifically, we expect our capital expenditures
and working capital requirements to increase materially in the near future, as we accelerate our research and development efforts and
scale up production operations with our partners. As we approach commercialization, we expect our operating expenses will increase substantially
on account of increased headcount and other general and administrative expenses necessary to support a rapidly growing company.
As a result, we may need to access the debt and
equity capital markets to obtain additional financing in the future. However, these sources of financing may not be available on acceptable
terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including:
● market conditions;
● our operating performance;
● investor sentiment; and
These factors may make the timing, amount, terms
or conditions of additional financings unattractive to us. If we raise additional funds by issuing equity, equity-linked or debt securities,
those securities may have rights, references or privileges senior to the rights of our currently issued and outstanding equity or debt,
and our existing stockholders may experience dilution. If we are unable to generate sufficient funds from operations or raise additional
capital, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition
opportunities, eliminating redundancies, or reducing or delaying our production facility expansions, which may adversely affect our business,
operating results, financial condition and prospects.
We may have potential business conflicts
of interest with G3 with respect to our past and ongoing relationships. We may not be able to resolve any potential conflicts, and, even
if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.
Conflicts of interest may arise with G3 in a
number of areas relating to our past and ongoing relationships, including labor, tax, employee benefit, indemnification and other matters
arising from the Restructuring; intellectual property matters, including the Patent Assignment (as defined above); and employee recruiting
and retention, including matters related to the dual employment arrangement of our Executive Chairman and Chief Science Officer with
Solidion and G3. In addition, certain of our directors and employees may have actual or potential conflicts of interest because of their
financial interests in G3. Because of their current or former positions with G3, certain of our executive officers and directors, including
our Executive Chairman and Chief Science Officer, own equity interests in G3. Continuing ownership of equity interests in G3 could create,
or appear to create, potential conflicts of interest if Solidion and G3 face decisions that could have implications for both Solidion
and G3.
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If we fail to effectively manage our future
growth, we may not be able to market and license the technology and know-how to manufacture or sell our high-capacity
anode and high-energy solid-state battery technology successfully.
We intend to expand our operations significantly,
with a view toward accelerating our research and development activities and positioning our company for potential commercialization of
our technologies. In connection with these efforts, we anticipate hiring, retaining and training personnel, acquiring and installing
equipment to support the commercialization process of our products, and implementing administrative infrastructure, systems and processes.
That said, our management team will have considerable discretion in the application of the funds available to us following completion
of the business combination. We may use these funds for purposes that do not yield a significant return or any return at all for our
stockholders. In addition, pending their use, we may invest the cash held at closing of the business combination in a manner that does
not produce income or that loses value. If we cannot manage our growth effectively, including by controlling our expenditures for these
initiatives to the greatest extent possible, our business could be harmed.
Most of our management does not have experience in operating
a public company.
Most of our executive officers do not have experience
in the management of a publicly traded company. Our management team may not successfully or effectively manage our transition to a public
company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. We may not
have adequate personnel with the appropriate level of knowledge, experience, and training in the policies, practices or internal controls
over financial reporting required of public companies in the United States. As a result, we may be required to pay higher outside
legal, accounting or consulting costs than our competitors, and our management team members may have to devote a higher proportion of
their time to issues relating to compliance with the laws applicable to public companies, both of which might put us at a disadvantage
relative to competitors.
We may not succeed in establishing, maintaining
and strengthening our brand, which would materially and adversely affect customer acceptance of our technologies and our business, revenues
and prospects.
Our business and prospects depend on our ability
to develop, maintain and strengthen our brand. If we are not able to establish, maintain and strengthen our brand, we may lose the opportunity
to build a critical mass of customers. The automobile industry is intensely competitive, and we may not be successful in building, maintaining
and strengthening our brand. Our current and potential competitors, including many battery cell manufacturers and automotive OEMs around
the world, have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If
we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially
and adversely impacted.
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Risks Related to Intellectual Property
We rely heavily on owned intellectual property,
which includes patent rights, trade secrets, copyright, trademarks, and know-how. If we are unable to protect and maintain
access to these intellectual property rights, our business and competitive position would be harmed.
We may not be able to prevent unauthorized use
of our owned intellectual property, which could harm our business and competitive position. We rely on a combination of the intellectual
property protections afforded by patent, copyright, trademark and trade secret laws in the United States and other jurisdictions,
as well as contractual protections, to establish, maintain and enforce rights and competitive advantage in our proprietary technologies.
Despite our efforts to protect our proprietary rights, third parties, including our business partners, may attempt to copy or otherwise
obtain and use our intellectual property without our consent or may decline to license necessary intellectual property rights from us
on terms favorable to our business. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we
have taken or will take to prevent misappropriation may not be sufficient. Any enforcement efforts we undertake, including litigation,
could require involvement of the licensor, be time-consuming and expensive, and could divert management’s attention, all of which
could harm our business, results of operations and financial condition. In addition, existing intellectual property laws and contractual
remedies may afford less protection than needed to safeguard our proprietary technologies.
Patent, copyright, trademark and trade secret
laws vary significantly throughout the world. 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 unauthorized use of our intellectual property rights, technology and other proprietary rights may
be impossible outside of the United States. Failure to adequately protect our owned intellectual property rights could result in
our competitors using our intellectual property to offer products, potentially resulting in the loss of some of our competitive advantage,
a decrease in our revenue and reputational harm caused by inferior products offered by third parties, which would adversely affect our
business, prospects, financial condition and operating results.
Our patent applications may not result
in issued patents, which would result in the disclosures in those applications being available to the public. Also, our patent rights
may be contested, circumvented, invalidated or limited in scope, any of which could have a material adverse effect on our ability to
prevent others from interfering with commercialization of our products.
Our patent portfolio includes many patent applications.
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 our products to our disadvantage. The status of patents involves complex legal and factual
questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file
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 are developing our technology, any number of which could be considered prior art and prevent us from obtaining a patent. Any of our
future or existing patents or pending patent applications may also be challenged by others on the basis that they are otherwise invalid
or unenforceable. Furthermore, patent applications filed in foreign countries may be 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.
We have not performed exhaustive searches
or analyses of the intellectual property landscape of the battery industry; therefore, we are unable to guarantee that our technology,
or its ultimate integration into electric vehicle battery packs, does not infringe intellectual property rights of third parties. We
may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur
substantial costs.
Companies, organizations or individuals, including
our current and future competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere
with our ability to make, use, develop, sell, license, lease or market our products or technologies, which could make it more difficult
for us to operate our business. From time to time, we may receive inquiries from third parties relating to whether we are infringing
their intellectual property rights and/or seek court declarations that they do not infringe upon our intellectual property rights. Companies
holding patents or other intellectual property rights relating to batteries may bring suits alleging infringement of such rights or otherwise
asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third party’s intellectual
property rights, we may be required to do one or more of the following:
● pay substantial damages;
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● redesign our battery cells at significant expense.
In the event of a successful claim of infringement
against us and our failure or inability to obtain a license to continue to use the technology on reasonable terms, our business, prospects,
operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not
well-founded, could result in substantial costs, negative publicity, reputational harm and diversion of resources and management’s
attention.
Risks Related to Finance and Accounting
Our expectations and targets regarding
the times when we will achieve various technical, pre-production and production-level performance objectives depend in large
part upon assumptions, estimates, measurements, testing, analyses and data developed and performed by us, which if incorrect or flawed,
could have a material adverse effect on our actual operating results and performance.
Our expectations and targets regarding the times
when we will achieve various technical, pre-production and production objectives reflect our current expectations and estimates.
Whether we will achieve these objectives when we expect depends on a number of factors, many of which are outside our control, including,
but not limited to:
● unanticipated technical or manufacturing challenges or delays;
● our ability to manage our growth;
● the overall strength and stability of domestic and international economies.
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Unfavorable changes in any of these or other
factors, most of which are beyond our control, could materially and adversely affect our ability to achieve our objectives when planned
and our business, results of operations and financial results.
Incorrect estimates or assumptions by management
in connection with the preparation of our financial statements could adversely affect our reported assets, liabilities, income, revenue
or expenses.
The preparation of our consolidated financial
statements requires management to make critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities,
income, revenue or expenses during the reporting periods. Incorrect estimates and assumptions by management could adversely affect our
reported amounts of assets, liabilities, income, revenue and expenses during the reporting periods. If we make incorrect assumptions
or estimates, our reported financial results may be over or understated, which could materially and adversely affect our business, financial
condition and results of operations.
Our disclosure controls and procedures may not prevent or detect
all errors or acts of fraud.
We are subject to certain reporting requirements
of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed
by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures
or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the
inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
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We will incur significant increased expenses
and administrative burdens as a public company, which could have an adverse effect on our business, financial condition and results of
operations.
We will face increased legal, accounting, administrative
and other costs and expenses as a public company that we did not incur as a private company prior to our merger with Nubia. The Sarbanes-Oxley
Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder,
the Public Company Accounting Oversight Board (United States) (“PCAOB”) and the securities exchanges, impose additional reporting
and other obligations on public companies. The development and implementation of the standards and controls necessary for us to achieve
the level of accounting standards required of a public company in the United States may require costs greater than expected. It
is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public
company, which will increase our operating costs in future periods.
Compliance with public company requirements will
increase costs and make certain activities more time-consuming. A number of those requirements will require us to carry out activities
we have not done previously. For example, we have created, or will create, new Board committees and adopted, or will adopt, new internal
controls and disclosure controls and procedures. In addition, we will incur expenses associated with SEC reporting requirements. Furthermore,
if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or significant
deficiency in the internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence
of those issues could adversely affect our reputation or investor perceptions of it. It will also be more expensive to obtain director
and officer liability insurance. The additional reporting and other obligations imposed by these rules and regulations will increase
legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs
will require us to spend money that could otherwise be used on our research and development programs and to achieve strategic objectives.
Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which
could further increase costs.
The unavailability, reduction or elimination of government and
economic incentives could have a material adverse effect on our business, prospects, financial condition and operating results.
We currently, and expect to continue to, benefit
from certain government subsidies and economic incentives including tax credits, rebates and other incentives that support the development
and adoption of clean energy technology. We cannot assure you that these subsidies and incentive programs will be available to us at
the same or comparable levels in the future. Any reduction, elimination or discriminatory application of government subsidies and economic
incentives because of policy changes, or the reduced need for such subsidies and incentives due to the perceived success of clean and
renewable energy products or other reasons, may require us to seek additional financing, which may not be obtainable on commercially
attractive terms or at all, and may result in the diminished competitiveness of the battery cell industry generally or our high-capacity
anode and high-energy solid-state battery technology in particular. Any change in the level of subsidies and incentives from which we
benefit could materially and adversely affect our business, prospects, financial condition and operating results.
Risks Related to Legal and Regulatory Compliance
We are subject to regulations regarding
the storage and handling of various products. We may become subject to product liability claims, which could harm our financial condition
and liquidity if we are not able to successfully defend or insure against such claims.
We may become subject to product liability claims
which could harm our business, prospects, operating results, and financial condition. We face inherent risk of exposure to claims in
the event our high-capacity anode and high-energy solid-state battery technology does not perform as expected or malfunction resulting
in personal injury or death. Our risks in this area are particularly pronounced given our high-capacity anode and high-energy solid-state
battery technology is still in the development stage and have not yet been commercially tested or mass produced. A successful product
liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial
negative publicity about our technology and business and inhibit or prevent commercialization of our high-capacity anode and high-energy
solid-state battery technology and future product candidates, which would have a material adverse effect on our brand, business, prospects
and operating results. Any insurance coverage might not be sufficient to cover all potential product liability claims. Any lawsuit seeking
significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our
reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially
acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim
under then-existing policies.
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From time to time, we may be involved in
litigation, regulatory actions or government investigations and inquiries, which could have an adverse impact on our profitability and
consolidated financial position.
We may be involved in a variety of litigation,
other claims, suits, regulatory actions or government investigations and inquiries and commercial or contractual disputes that, from
time to time, are significant. In addition, from time to time, we may also be involved in legal proceedings and investigations arising
in the normal course of business including, without limitation, commercial or contractual disputes, including warranty claims and other
disputes with potential customers, former employees and suppliers, intellectual property matters, personal injury claims, environmental
issues, tax matters, and employment matters. It is difficult to predict the outcome or ultimate financial exposure, if any, represented
by these matters, and there can be no assurance that any such exposure will not be material. Such claims may also negatively affect our
reputation.
We are subject to substantial regulation,
and unfavorable changes to, or failure by us to comply with, these regulations could substantially harm our business and operating results.
The sale of electric vehicles, and motor vehicles
in general, is subject to substantial regulation under international, federal, state and local laws, including export control laws and
other international trade regulations, which are continuously evolving as technology develops and becomes more widely adopted. We anticipate
that our high-capacity anode and high-energy solid-state battery technology also would be subject to these regulations, and we expect
to incur significant costs in complying with these regulations.
The U.S. government has made and continues
to make significant changes in U.S. trade policy and has taken certain actions that could negatively impact U.S. trade, including
imposing tariffs on certain goods imported into the United States, increasing scrutiny on foreign direct investment, and modifying
export control laws applicable to certain technologies. In retaliation, other countries have implemented, and continue to evaluate, imposing
additional trade controls on a wide range of American products and companies. The U.S. or foreign governments may take additional
administrative, legislative, or regulatory action that could materially interfere with our ability to source and procure the raw materials
we need for our research and development activities and, in the future, to sell products in certain countries. Sustained uncertainty
about, or worsening of, current global economic conditions and further escalation of trade tensions between the United States and
its trading partners could result in a global economic slowdown and long-term changes to global trade. Any alterations to our business
strategy or operations made in order to adapt to or comply with any such changes could be time-consuming and expensive, and certain of
our competitors may be better suited to withstand or react to these changes.
To the extent the laws change, our products may
not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance
with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive,
our business, prospects, financial condition and operating results would be adversely affected.
Internationally, there may be laws in jurisdictions
we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our sales or other business practices.
The laws in this area can be complex, difficult to interpret and may change over time. Continued regulatory limitations and other obstacles
that may interfere with our ability to commercialize our products could have a negative and material impact on our business, prospects,
financial condition and results of operations.
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Our technology and our website, systems,
and data we maintain may be subject to intentional disruption, security breaches and other security incidents, or alleged violations
of laws, regulations, or other obligations relating to data handling that could result in liability and adversely impact our reputation
and future sales. We may be required to expend significant resources to continue to modify or enhance our protective measures to detect,
investigate and remediate vulnerabilities to security breaches and incidents. Any actual or alleged failure to comply with applicable
cybersecurity or data privacy legislation or regulation could have a material adverse effect on our business, reputation, results of
operations or financial condition.
We expect to face significant challenges with
respect to information security and maintaining the security and integrity of our systems and other systems used in our business, as
well as with respect to the data stored on or processed by these systems. We also anticipate receiving and storing confidential business
information of our partners and customers. Advances in technology, an increased level of sophistication and expertise of hackers, and
new discoveries in the field of cryptography can result in a compromise or breach of the systems used in our business or of security
measures used in our business to protect confidential information, personal information, and other data. We may be a target for attacks
designed to disrupt our operations or to attempt to gain access to our systems or to data that we possess, including proprietary information
that we obtain from our partners pursuant to our agreements with them. We also are at risk for interruptions, outages and breaches of
our and our outsourced service providers’ operational systems and security systems, our integrated software and technology, and
data that we or our third-party service providers process or possess. These may be caused by, among other causes, physical theft, viruses,
or other malicious code, denial or degradation of service attacks, ransomware, social engineering schemes, and insider theft or misuse.
The security risks we and our outsourced service providers face could also be elevated in connection with the Russian invasion of Ukraine,
as we and our outsourced service providers are vulnerable to a heightened risk of cyberattacks from or affiliated with nation-state actors,
including retaliatory attacks from Chinese or Russian actors against U.S.-based companies.
The availability and effectiveness of our technology
and our ability to conduct our business and operations depend on the continued operation of information technology and communications
systems, some of which we have yet to develop or otherwise obtain the ability to use. Systems we currently use or may use in the future
in conducting our business, including data centers and other information technology systems, will be vulnerable to damage or interruption.
Such systems could also be subject to break-ins, sabotage and intentional acts of vandalism, as well as disruptions and security
breaches and security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions
by employees, service providers, or others. We currently use, and may use in the future, outsourced service providers to help provide
certain services, and any such outsourced service providers face similar security and system disruption risks as us. Our ability to monitor
our outsourced service providers’ security measures is limited, and, in any event, third parties may be able to circumvent those
security measures, resulting in the unauthorized access to, misuse, acquisition, disclosure, loss, alteration, or destruction of personal,