What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-01 · 77 added, 128 removed, 118 unchanged (63% of the section changed)

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The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs, and expected performance.

For additional discussion, see “Special Note Regarding Forward-Looking Statements” above.

For additional discussion, see “Cautionary Note Regarding Forward-Looking Statements” above.

The forward-looking statements are dependent upon events, risks, and uncertainties that may be outside of our control.

Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Report, particularly in “Risk Factors.” We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law.

We are developing solid state battery technologies to enable the next generation of rechargeable batteries for the fast-growing EV and other markets.

Our core technology is our proprietary sulfide-based solid electrolyte material, which replaces the liquid or gel electrolyte used in conventional lithium-ion batteries.

We believe that our electrolyte material can enable extended driving range, longer battery life, improved safety, and lower costs compared to conventional lithium-ion.

We also are designing and developing solid state cells that utilize our electrolyte in the cathode, anode, and separator layers.

We currently produce 0.2 Ah, 2 Ah, 20 Ah, and EV cells on two pilot lines using established manufacturing processes.

In 2022, we installed our EV line, which allows us to produce EV cells between 60 Ah and 100 Ah.

The EV line is designed to produce cells as part of the automotive qualification process and for vehicle integration demonstration purposes.

We have partnered with industry leaders, including Ford, BMW, and SK On.

We are working closely with each of these partners to refine and validate our cell designs and electrolyte material with the ultimate goal to commercialize our technologies.

Our business model – selling our electrolyte to cell manufacturers and licensing our cell designs and manufacturing processes – distinguishes us from many of our competitors who plan to be commercial battery manufacturers.

Ultimately, we endeavor to be a leading producer and distributor of sulfide-based solid electrolyte material for powering both EVs and other applications.

Since we do not intend to commercially produce battery cells, we expect to invest less than other development-stage battery companies that plan to commercially manufacture their own cell designs and construct battery production facilities.

The products we currently make are in the development stage and require continued development and validation before we can commercialize either our electrolyte or cell technology.

The Business Combination

The business combination was accounted for as a reverse recapitalization, in accordance with GAAP.

Under this method of accounting, DCRC was treated as the “acquired” company for financial reporting purposes.

Accordingly, the business combination was treated as the equivalent of Legacy Solid Power issuing stock for the net assets of DCRC, accompanied by a recapitalization, whereby no goodwill or other intangible assets was recorded.

Operations prior to the business combination are those of Legacy Solid Power.

While DCRC was the legal acquirer, because Legacy Solid Power was deemed the accounting acquirer, the historical financial statements of Legacy Solid Power became the historical financial statements of the combined company upon the consummation of the business combination.

As a result of the business combination, we became a Nasdaq-listed company, which will require that we continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, additional internal and external accounting, legal, administrative resources, and increased audit, compliance, and legal fees.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Report under “Part I, Item 1A.

Risk Factors,” as such descriptions may be updated or amended in future filings we make with the SEC.

Unless indicated otherwise, the following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated statements and notes thereto in this Report.

We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law.

Solid Power is developing solid-state battery technology for EV and additional markets served by battery manufacturers.

Our core technology is our proprietary solid electrolyte material, which replaces the liquid or gel electrolyte used in traditional lithium-ion batteries.

We believe that our electrolyte material can improve driving range, battery life, safety performance, and battery costs.

We are also developing solid-state cells with our electrolyte, with the aim of commercializing our technology by selling our electrolyte material and licensing our cell designs.

This approach is capital light, unlike other battery manufacturers who require significant production facilities and equipment.

This strategy allows us to focus on our core strengths of electrolyte production and solid-state technology development.

We currently produce our electrolyte on a pilot manufacturing line, which is used in our cell development and for customer sampling.

We currently develop our cells on our two pilot lines, producing multiple cell sizes to both support our partners and refine cell designs.

Longer-term, we expect our pilot lines to focus on research and development.

Solid Power, Inc.

| 2023 Form 10-K | 37

Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of the business combination.

We have partnered with industry leaders BMW, Ford, and SK On and will continue to work closely with our partners to improve cell designs, produce electrolyte material, and commercialize our technology.

Our products are currently in the development stage and require further research and improvement before we can commercialize our technology.

For more information, see “Risk Factors – Risks Related to Development and Commercialization.”

Key Factors Affecting Operating Results

We are a research and development-stage company and have not generated significant revenue through the sale of our electrolyte or licensing of our cell designs.

Our ability to commercialize our products depends on several factors that present significant opportunities for us but also pose material risks and challenges, including those discussed in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” appearing in this Report, which are incorporated by reference.

Prior to reaching commercialization, we must test and validate our products to ensure they meet the performance and safety requirements of our customers.

We also will have to negotiate licensing and supply contracts with our customers on terms and conditions that are mutually acceptable.

Our ability to commercialize our products depends on several factors that present significant opportunities for us but also pose material risks and challenges, including those discussed in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” sections of this Report, which are incorporated by reference.

Prior to reaching commercialization, we must improve our products to ensure they meet the performance and safety requirements of our customers.

We also will have to continue to negotiate licensing and supply contracts with our customers on terms and conditions that are mutually acceptable.

We will need to scale production of our electrolyte material to satisfy anticipated demand.

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Since many factors are difficult to quantify, our actual operating results may be different than we currently anticipate.

Our revenue generated to date has primarily come from research and development performance on government contracts and research and development licensing activities.

We have and are deploying substantial capital to expand our production capabilities and engage in research and development programs.

We also expect to incur significantly more administrative expenses as a publicly traded company than we did previously.

In addition to meeting our development goals, commercialization, and future growth and demand for our products is highly dependent upon consumers adopting EVs.

Our revenue generated to date has primarily come from performance on research and development licensing activities and government contracts.

We continue to deploy substantial capital to expand our production capabilities and engage in research and development programs.

We also expect to continue to incur significant administrative expenses as a publicly traded company.

In addition to meeting our development goals, commercialization and future growth and demand for our products are highly dependent upon consumers adopting EVs.

The market for new energy vehicles is still rapidly evolving due to emerging technologies, competitive pricing, government regulation and industry standards, and changing consumer demands and behaviors.

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Our historical results are reported under GAAP and in U.S.

Solid Power, Inc.

| 2022 Form 10-K | 45

Results of Operations

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Research and development

Marketing and sales

General and administrative

Selling, general and administrative

Total operating expenses

Operating Loss

Nonoperating Income (Expense)

Nonoperating Income and Expense

Interest income

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Interest expense

Other income (expense)

Loss from change in fair value of embedded derivative liability

Total nonoperating income

Pretax Income (Loss)

Total nonoperating income and expense

Income tax benefit

Net Income (Loss)

Premium paid on repurchase of redeemable convertible preferred stock

Net Income (Loss) attributable to Common Stockholders

Other Comprehensive Loss

Unrealized loss on marketable securities

Net Loss Attributable to Common Stockholders

Other Comprehensive Income (Loss)

Comprehensive Loss Attributable to Common Stockholders

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The key factors driving our 2022 increase in operating loss were as follows:

● Revenue and direct costs – our overall revenue and related direct costs increased as a result of additional performance under our JDAs and government contracts, as well as additional product sales.

● Research and development – our research and development costs increased primarily as a result of increased labor costs and material consumption as we expanded the development efforts of our battery cells and electrolyte material.

We expect our development costs to continue to increase as we continue to accelerate both the pace and scope of our development efforts.

● General and administrative – our general and administrative costs increased primarily as a result of increased headcount to support our operational and organizational capabilities, professional service fees, insurance costs, and labor resources as a result of our public company status and to support our growth.

We continue to expect our general and administrative costs to increase as a result of additional planned hiring and increased public company compliance costs.

● Non-cash stock compensation costs increased across Direct costs, Research and development, and General and administrative expenses related to increased labor costs.

● Nonoperating income – our nonoperating income increased primarily due to increased interest income following strategic cash investments, and the absence of other expense related to the buyout and termination of a manufacturing rights agreement, offset by a decrease in the gain on fair value adjustment of warrant liabilities.

Solid Power, Inc.

| 2023 Form 10-K | 38

Year Ended December 31,

(in thousands)

Operating Expenses

Research and development

Marketing and sales

General and administrative

Total operating expenses

Operating Loss

Nonoperating Income (Expense)

Interest income

Change in fair value of warrant liabilities

Interest expense

Other expense

Loss from change in fair value of debt

Loss from change in fair value of embedded derivative liability

Gain on loan extinguishment

Total nonoperating income (expense)

Pretax Income (Loss)

Income tax (benefit) expense

Net Income (Loss)

Premium paid on repurchase of redeemable convertible preferred stock

Net Income (Loss) attributable to Common Stockholders

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The key factors driving our 2023 increase in operating loss were as follows:

● Revenue and direct costs – our overall revenue and related direct costs increased, however we saw an increase in revenue from governmental contracts and corresponding decrease to commercial revenues driven by the timing of program execution.

● Marketing and sales – our marketing and sales costs increased as a result of increased labor costs and an expansion of our sales and marketing efforts.

● General and administrative – our general and administrative costs increased primarily as a result of professional service fees and labor costs as a result of our public company status.

We expect our general and administrative costs to increase as a result of increased public company costs and requirements.

● Nonoperating income – our nonoperating income increased as a result of the gain on fair value adjustment of warrant liabilities, loss from change in fair value of embedded derivative liability, and other expense related to the buyout and termination of a manufacturing rights agreement.

● Revenue and direct costs – our overall revenue and related direct costs increased for the period as a result of additional performance under our JDAs and government contracts.

● Research and development – our research and development costs increased for the period primarily as a result of increased labor costs and material consumption as we expanded the development efforts of our battery cells and electrolyte material.

We expect our development costs to continue to increase as we continue to accelerate both the pace and scope of our development efforts.

● Selling, general, and administrative – our selling, general and administrative expenses increased for the period primarily due to additional use of outside professional services, additional planned hiring and workforce development associated with increasing our headcount to over 270 people, and enterprise resource planning system costs and implementation efforts .

● Operating expenses – non-cash stock-based compensation costs increased for the period across direct costs, research and development costs, and selling, general and administrative expenses related to our increased headcount.

● Nonoperating income – our nonoperating income decreased for the period primarily due to a lesser gain on fair value adjustment of warrant liabilities, partially offset by increased interest income related to strategic cash investment yields.

Liquidity and Capital Resources

Sources of Liquidity

Our sources of cash have historically been primarily derived from the sale of equity and the business combination, with a small portion coming from performance on government contracts and commercial revenues.

Solid Power, Inc.

| 2022 Form 10-K | 47

Our primary sources of cash have historically derived from the sale of equity, with a small portion coming from performance on commercial revenues and government contracts.

As of December 31, 2023 and 2022, we had $415.6, and $496.1 million of total liquidity, respectively, as set forth below:

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Total liquidity

Total current liabilities

Short-Term Liquidity Requirements

We anticipate that our most significant capital expenditures in 2023 will relate to finishing construction of our electrolyte facility, and enhancing production capabilities at this facility and our cell manufacturing lines.

In addition, our short-term liquidity requirements include operating and capital expenses needed to further our development programs and to optimize our pilot production lines and electrolyte manufacturing capabilities.

We expect to fund our short-term liquidity requirements through our cash on hand and other liquid assets.

Our short-term liquidity requirements include operating and capital expenses needed to further our research and development programs and to further optimize our pilot production lines and electrolyte manufacturing capabilities.

We anticipate that our most significant capital expenditures in 2024 will relate to finishing construction of our advanced electrolyte research facility and enhancing the capabilities of our electrolyte production facility.

We anticipate our total combined capital and operational expenditures for 2024 will be between $100 million and $120 million, which includes approximately $1.60 million for the payment of contractual cash obligations as of December 31, 2023, primarily related to payments for operating leases.

We expect to fund our short-term liquidity requirements through our cash on hand and other liquid assets.

Solid Power, Inc.

| 2023 Form 10-K | 39

Long-Term Liquidity Requirements

We believe that our cash on hand is sufficient to meet our operating cash needs (including expenditures for the increased pace and scope of development as well as increased public company costs), working capital and capital expenditure requirements for a period of at least the next 12 months and longer term until we generate adequate cash flows from licensing activities and/or electrolyte sales.

We may, however, need additional cash if there are material changes to our business conditions or other developments, including changes to our operating plan, development progress, delays in negotiations with OEMs, cell manufacturers or other suppliers, market adoption of EVs, supply chain challenges, competitive pressures, inflation, and regulatory developments.

We believe that our cash on hand is sufficient to meet our operating cash needs and working capital and capital expenditure requirements for a period of at least the next 12 months and longer term until we generate adequate cash flows from licensing activities and/or electrolyte sales.

We also believe that we have adequate cash on hand for our $50 million stock repurchase program, which our Board approved in light of our strong cash position.

We may need additional cash if there are material changes to our business conditions or other developments, including changes to our operating plan, development progress, negotiations with OEMs, cell manufacturers, or other suppliers, market adoption of EVs, supply chain challenges, competitive pressures, inflation, and regulatory developments.

To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing.

We also may opportunistically seek to enhance our liquidity through equity or debt financing, if such financing becomes available to us on terms that we consider favorable.

If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, which may adversely affect our development, business, operating results, financial condition and prospects.

Our cash investment policy is designed to provide flexibility in investment options.

Our investment policy is designed primarily to maintain adequate liquidity to fund future operations, research and development, and anticipated capital expenditures, with a secondary goal to maximize yield on cash not required to be liquid for near term operations.

The following tables summarize our cash flows from operating, investing, and financing activities for the periods presented.

If financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, which may adversely affect our development, business, operating results, financial condition and prospects.

Stock Repurchase Program

On January 23, 2024, we announced that our Board approved a stock repurchase program authorizing us to purchase up to $50 million of our outstanding common stock.

Under the stock repurchase program, we may purchase shares of our common stock from time to time until the repurchase program expires on December 31, 2025.

The shares of common stock may be purchased at management’s discretion on the open market, in unsolicited negotiated transactions, or in any manner that complies with the provisions of Rule 10b-18 of the Exchange Act.

Management’s decision to repurchase shares will depend on a number of factors, such as the price of our common stock, economic and market conditions, and corporate and regulatory requirements.

The following table summarizes our cash flows from operating, investing, and financing activities for the periods presented.

Year Ended December 31,

(in thousands)

Net cash used in operating activities

Investing activities

Net purchases and proceeds of marketable securities and long-term investments

Purchases of property, plant and equipment

Purchases of intangible assets

Net cash used in investing activities

Net cash provided by financing activities

Net cash and cash equivalents used in operating activities

Net cash and cash equivalents provided by (used in) investing activities

Net cash and cash equivalents provided by financing activities

Cash used in operating activities:

Cash used in operating activities increased from 2022 to 2023 primarily attributable to our operating loss, which was driven by continued increase in direct, research and development, and selling, general, and administrative expenses.

We expect cash flows used in operating activities to remain at these increased levels as we continue the pace and scope of our development efforts and work to achieve commercialization of our products.

Solid Power, Inc.

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Cash flows used in operating activities:

Cash used in operating activities increased from 2021 to 2022 primarily attributable to our operating loss, which was driven by continued increase in research and development costs and general and administrative expenses.

We continue to expect cash flows used in operating activities to increase as we accelerate both the pace and scope of our development efforts, and work to achieve commercialization of our products.

We continue to anticipate increased expenditures for general and administrative functions in connection with our status as a public company and to support growth of our development efforts.

Cash used in operating activities increased from 2020 to 2021.

This increase in cash use was primarily attributable to our operating loss related to similar increases in research and development costs and general and administrative expenses.

Cash flows used in investing activities:

Cash used in investing activities increased from 2021 to 2022 primarily due to capital expenditures, investments in patents, and the net effect of the purchase and sales of marketable securities.

Capital expenditures were primarily for custom manufacturing equipment in connection with our expansion of electrolyte production capabilities and installation of our EV line.

We continue to expect cash used in investing activities to increase as we finalize the build out of our electrolyte production facility and increase its production capabilities, and as we increase our electrolyte production scale.

Each of our locations will continue to require investment in specialized equipment to facilitate the manufacturing process of our electrolyte material and battery cells.

As our production processes are scaled in the future, especially with respect to our electrolyte material, we expect capital expenditures to increase.

Cash used in investing activities increased from 2020 to 2021 due to increases in capital expenditures and purchases of marketable securities in 2021.

Capital expenditures were primarily for custom manufacturing equipment in connection with our expansion of electrolyte production.

Cash flows provided by financing activities:

Net cash provided by financing activities for the year ended December 31, 2022 was primarily from the cash exercise of stock options.

Net cash provided by financing activities for the year ended December 31, 2021 were primarily the proceeds from the business combination and the Series B Financing.

Net cash provided by financing activities for the year ended December 31, 2020 were primarily from the sale of convertible notes and proceeds from a bank term loan, which was retired in December of 2021.

Cash provided by (used in) investing activities:

Cash provided by investing activities increased from 2022 to 2023 primarily due to the net effect of increased purchase and sales of marketable securities, in addition to decreased capital expenditures for property, plant and equipment.

Capital expenditures were primarily for custom manufacturing equipment in connection with our expansion of electrolyte production capabilities.

As our production processes are scaled in the future for commercialization, especially with respect to our electrolyte material, we expect capital expenditures to increase.

Cash provided by financing activities:

Cash provided by financing activities for 2022 and 2023 were primarily related to the exercise of stock options and the sale of shares of common stock under the ESPP, partially offset by leased equipment payments.

Off-Balance Sheet Arrangements

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We believe that the critical accounting estimates listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.

Solid Power, Inc.

| 2022 Form 10-K | 49

Valuation of Private Placement Warrant Liability

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We record stock-based compensation expense according to the provisions of ASC Topic 718 – Stock Compensation.

ASC Topic 718 requires all share-based awards to employees, including grants of employee stock options, restricted stock units, and shares purchased through the Company’s ESPP Plan to be recognized in the financial statements based on their fair values.

The grant date fair value of Legacy Solid Power’s common stock was historically determined by its board of directors with the assistance of management and an independent valuation.

As of December 9, 2021, our common stock is publicly traded, and the fair value is based on the closing market price on the date grants are made.

ASC Topic 718 requires all share-based awards to employees, including grants of employee stock options, restricted stock units, and shares purchased through the

Under the provisions of ASC Topic 718, we determine the appropriate fair value model to be used for valuing share-based issuances and the amortization method for recording compensation cost, which can be impacted by the following assumptions:

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| 2023 Form 10-K | 41

ESPP to be recognized in the financial statements based on their fair values.

The grant date fair value of Legacy Solid Power’s common stock was historically determined by its board of directors with the assistance of management and an independent valuation.

Collaborative Revenue

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The discount rate we use is generally our estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable.

We calculate discount rates periodically to estimate the rate we would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security.

We calculate discount rates periodically to estimate the rate we would pay to borrow the funds necessary

Judgments made by management for our lease obligations include the determination of our incremental borrowing rate and the length of the lease term, which includes the determination of renewal options that are reasonably assured.

We use our estimated incremental borrowing rate in determining the present value of lease payments for purposes of determining lease classification and recording lease liabilities and lease assets on our consolidated balance sheets.

Our incremental borrowing rate is determined based on a synthetic credit rating, determined using a valuation model, adjusted to reflect a secured credit rating and a developed spread curve, if applicable, applied to a risk-free rate yield curve.

The lease term can affect the classification of a lease as finance or operating for accounting purposes, the amount of the lease liability and corresponding right-of-use lease asset recognized, the term over which related leasehold improvements for each facility are amortized and any

Our incremental borrowing rate is determined based on a synthetic credit rating, determined using a valuation model, adjusted to reflect a secured

These judgments may produce materially different amounts of depreciation, amortization and rent expense, right-of-use assets, and lease liabilities than would be reported if different assumed lease terms were used.

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Effect if Results Differ From Assumptions

rent holidays and/or changes in rental amounts for recognizing rent expense over the term of the lease.

to obtain an asset of similar value, over a similar term, with a similar security.

credit rating and a developed spread curve, if applicable, applied to a risk-free rate yield curve.

Research and Development

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If we were to change our judgment regarding research and development costs or our progress toward commercialization, it could cause a material change in cost treatment.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act.

As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.

Solid Power, Inc.

| 2023 Form 10-K | 43

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis