Solidion Technology Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Special Note Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K. Overview Solidion Technology, Inc, previously known as “Honeycomb Battery Company”, formerly the energy solutions division of Global Graphene Group, Inc., is a Dallas, TX, USA-based advanced battery technology company focused on the development and commercialization of battery materials, components, cells, and selected module/pack technologies. Solidion is recognized as a global leader in intellectual property in both the high-capacity anode and the high-energy solid-state battery, as recognized by KnowMade, a French company that specializes in research and analysis of scientific and patent information. Solidion is uniquely positioned to offer advanced anode materials (delivering a specific capacity from 300 to 3,500+ milliampere-hours per gram mass (“mAh/g”)) as well as silicon-rich all-solid-state lithium-ion cells, anodeless lithium metal cells, and lithium-sulfur cells, each featuring an advanced polymer or hybrid solid electrolyte that is most process-friendly. 40 Recent Developments Business Combination On February 2, 2024, Nubia Brand International Corp., a Delaware corporation (“Nubia” and after the Transactions described herein, the “Solidion” or “Solidion Technology, Inc.”), consummated the previously announced business combination (the “Closing”) pursuant to a Merger Agreement, dated February 16, 2023 (as amended on August 25, 2023, the “Merger Agreement”), by and among Nubia, Honeycomb Battery Company, an Ohio corporation (“HBC”), and Nubia Merger Sub, Inc., an Ohio corporation and wholly-owned subsidiary of Nubia (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into HBC (the “Merger,” and the transactions contemplated by the Merger Agreement, the “Transactions”), with HBC surviving such merger as a wholly owned subsidiary of Nubia, which was renamed “Solidion Technology, Inc.” upon Closing. We received net proceeds from the Business Combination totaling $1.6 million, prior to deducting transaction and issuance costs. The cash resulting from the Business Combination is expected to be used toward our corporate growth strategy related to the commercialization of our battery technology and the scaling of our manufacturing operations. Equity Financing On March 13, 2024, Solidion entered into a private placement transaction (the “Private Placement”), pursuant to a Securities Purchase Agreement (the “Subscription Agreement”) with certain institutional investors (the “Purchasers”) for aggregate gross proceeds of approximately $3.85 million, before deducting fees to the placement agent and other expenses payable by the Company in connection with the Private Placement. The Company intends to use the net proceeds from the Private Placement for working capital and general corporate purposes. The Private Placement closed on March 15, 2024. As part of the Private Placement, the Company issued an aggregate of 5,133,332 units and pre-funded units (collectively, the “Units”) at a purchase price of $0.75 per unit (less $0.0001 per pre-funded unit). Each Unit consists of (i) one share of Solidion Common Stock (or one pre-funded warrant to purchase one share of Common Stock), (ii) two Series A warrants each to purchase one share of Common Stock, and (iii) one Series B warrant to purchase such number of shares of Common Stock as determined on the reset date (as defined in the Subscription Agreement), and in accordance with the terms therein. Results of Operations As the closing of the Business Combination did not occur until after the year ended December 31, 2023, the results of operations below are based on the fact that we have neither engaged in any operations nor generated any revenues to the date of the financial statements. Our only activities from June 14, 2021 (inception) through December 31, 2023 were organizational activities, those necessary to prepare for our IPO, described below, searching for a business combination target and the Business Combination. We did not expect to generate any operating revenues until after the completion of our Business Combination. We generated non-operating income in the form of interest income on marketable securities held in the trust account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the year ended December 31, 2023, we had a net loss of $19,775,602 which consisted of operating expenses of $3,509,621 and change in fair value of derivative asset/liabilities of $18,483,096, partially offset by interest income earned in the amount of $3,788,143 on cash and funds held in the Trust Account and interest income of $8,580 earned on cash held the operating bank account. In addition, the Company recorded an income tax provision of $1,579,608. For the year ended December 31, 2022, we had a net income of $593,905 which consisted of interest income earned in the amount of $1,812,882 on cash and funds held in the Trust Account, interest income of $5,683 earned on cash held the operating bank account, a gain on the over-allotment liability of $19,432, partially offset by operating expenses totaling $904,193. In addition, the Company recorded an income tax provision of $339,899. Going Concern Considerations, Liquidity and Capital Resources On March 15, 2022, we consummated the Initial Public Offering of 11,000,000 Units at a price of $10.00 per Unit, which includes the exercise by the underwriters of the over-allotment option to purchase an additional 1,350,000 Units, generating gross proceeds of $123,500,000. Simultaneously with the closing of the Initial Public Offering and exercise of the over-allotment option, we consummated the sale of 5,405,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement to our Sponsor, generating gross proceeds of $5,405,000. Following the Initial Public Offering, the exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants, a total of $125,970,000 was placed in the Trust Account and as of December 31, 2022, we had $545,655 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. Transaction costs amounted to $6,951,081 consisting of $1,235,000 of underwriting fees, $4,322,500 of deferred underwriting fees payable and $597,334 of other offering costs. In addition, the Company recorded the fair value of $776,815 for representative shares issued upon close of the Public Offering as well as the fair value of the remaining over-allotment option of $19,432 as offering costs. For the year ended December 31, 2023, cash used in operating activities was $2,661,093 which consisted of a net loss of $19,775,602, interest earned on marketable securities held in the Trust Account of $3,788,143, and changes in operating assets and liabilities provided $20,902,653 of cash from operating activities. 41 For the year ended December 31, 2022, cash used in operating activities was $725,102 which consisted of net income of $593,905, interest earned on marketable securities held in the Trust Account of $1,812,882, the gain on the change in fair value of the over-allotment liability of $19,432 and changes in operating assets and liabilities provided $513,307 of cash from operating activities. For the year ended December 31, 2023, the Company generated cash of $88,576,752 in investing activities primarily from the withdrawal of investments in the Trust Account for redemptions. For the year ended December 31, 2022, the Company used cash of $125,970,000 in investing activities for the purchase of investments in the Trust Account following the Initial Public Offering, the exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants. For the year ended December 31, 2023, cash used in financing activities was $86,441,335, primarily for repayment of redemptions. For the year ended December 31, 2022, cash from financing activities provided $127,240,757. The Company received gross proceeds of $128,905,000 from the Initial Public Offering, the exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants. These increases were offset by payment of the underwriting fees and offering costs of $1,235,000 and $429,243, respectively. As of December 31, 2023, we had cash held in the Trust Account of $42,994,274. Interest income on the balance in the Trust Account may be used by us to pay taxes, and to pay up to $100,000 of any dissolution expenses. In 2023, $1,523,258 was withdrawn from the Trust to pay taxes. The amount of cash withdrawn from the Trust and remaining payable for taxes at the year-end totaled $170,387. At December 31, 2023, the Company had cash outside of trust of $19,979 and working capital deficit of $6,544,950. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”), which contemplate continuation of the Company as a going concern. Prior to the consummation of the Business Combination, the Company used the funds not held in the Trust Account for identifying and evaluating target businesses, performing due diligence on prospective target businesses, traveling to and from the offices, plants or similar location of prospective target businesses or their representatives or owners, reviewing corporate documents and material agreements of prospective target businesses and structuring, negotiating and completing a Business Combination, which was the Business Combination with Honeycomb Battery Company, which was completed on January 31, 2023. On February 2, 2024 (the “Closing Date”), the Company consummated the business combination (the “Closing”) pursuant to a Merger Agreement, dated February 16, 2023 (as amended on August 25, 2023, the “Merger Agreement”) with HBC surviving such merger as a wholly owned subsidiary of Nubia, which was renamed “Solidion Technology, Inc.” upon Closing. Since Solidion’s inception, the Company has experienced recurring net losses and has generated minimal sales. For the year ended December 31, 2023, Solidion recorded net losses of approximately $5,300,000, net cash used in operating activities of approximately $4,100,000 and, as of December 31, 2023, had cash and cash equivalents on hand of approximately $1,000, which factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company plans to finance its operations with proceeds from the sale of equity securities or debt; however, there is no assurance that management’s plans to obtain additional debt or equity financing will be successfully implemented or implemented on terms favorable to the Company. On July 27, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $300,000. The Promissory Note is non-interest bearing and payable on the earlier of (i) March 31, 2022 or (ii) the consummation of the Initial Public Offering (the “Original Maturity Date”). On May 20, 2022, the Company and the Sponsor amended and restated the Promissory Note (the “Amended Note”) (i) to extend the Original Maturity Date to a new maturity date which shall be upon the earlier of the closing of the Company’s initial business combination or the Company’s liquidation, and (ii) to permit the holder of the Amended Note, in its sole discretion, to convert any or all of the unpaid principal under the Amended Note into warrants, at a price of $1.00 per warrant, upon consummation of the Company’s initial business combination. On May 17, 2023, the Sponsor issued an unsecured promissory note to the Company (the “Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $1,000,000. The Promissory Note is non-interest bearing and payable on the earlier of the closing of the Company’s initial business combination or the Company’s liquidation, and to permits the holder of the Note, in its sole discretion, to convert any or all of the unpaid principal under the Amended Note into warrants, at a price of $1.00 per warrant, upon consummation of the Company’s initial business combination. 42 As of December 31, 2023 and December 31, 2022, there was $1,297,500, and $125,341, respectively, outstanding under the Promissory Note. On January 29, 2024, the Promissory Notes with the Sponsor was amended such that any or all of the unpaid principal upon consummation of the Company’s initial business combination was convertible into common shares at a conversion price of $1.00 per share. At various dates in the third and fourth quarters of 2023, the Company issued Convertible Notes to related parties of $905,000 to meet our working capital requirements. As of December 31, 2023 and December 31, 2022, there was $905,000 and $0 in Convertible Notes from Related Parties outstanding. At various dates in the second and third quarters of 2023, the Target advanced funds of $187,500 to extend the period of time to complete an initial business combination. As of December 31, 2023 and December 31, 2022, there was $187,500 and $0 in Advances from Target outstanding. At various dates in the third and fourth quarters of 2023, related parties provided advances totaling $332,000 to meet our working capital requirements. As of December 31, 2023, and December 31, 2022, outstanding balances due to related parties amounted to $332,500 and $0, respectively. Preceding the consummation of the initial business combination, we issued Convertible Notes corresponding to advances made by related parties throughout 2023. On December 9, 2023, we instructed Continental Stock & Trust to liquidate the investments held in the Trust Account and deposit the proceeds into a cash deposit account with Continental serving as trustee. These funds remained in the cash deposit account until the consummation of our initial Business Combination on February 2, 2024. As a result, following the liquidation of investments in the Trust Account, the remaining proceeds from the Initial Public Offering and Private Placement are no longer invested in money market funds but held as cash deposits with Continental. Off-Balance Sheet Arrangements We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or entered into any non-financial agreements involving assets. Contractual Obligations At December 31, 2023, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. In connection with the Public Offering, we entered into an administrative support agreement pursuant to which we agreed to pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and secretarial, and administrative support services. We began incurring these fees on March 14, 2022 and continued to incur these fees monthly until the completion of our Business Combination. The Underwriter in the initial public offering was entitled to a deferred fee of 3.5% of the gross proceeds of the Public Offering (exclusive of any applicable finders’ fees which might become payable) or $4,322,500 in the aggregate. The deferred fee was paid in connection with the closing of the Business Combination. At a special meeting of Nubia Brand stockholders held on December 14, 2023, Nubia Brand’s stockholders approved the proposed business combination with HBC. In addition, in a special meeting on December 15, 2023, Nubia Brand stockholders approved an amendment to the certificate of incorporation that changed the date by which Nubia Brand must consummate an initial business combination to March 15, 2024. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis. 43 We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our financial statement that require estimation but are not deemed critical, as defined above. We have identified the following as our critical accounting estimate for the year ended December 31, 2023: Forward Purchase Agreement and Non Redemption Agreement The Company accounts for the forward purchase agreement and non-redemption agreement as either equity-classified or liability-classified instruments based on an assessment of the FPA and NRA specific terms and applicable authoritative guidance in ASC 480, and FASB ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the FPA and NRA are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the FPA and NRA meet all of the requirements for equity classification under ASC 815, including whether the FPA and NRA are indexed to the Company’s own common shares and whether the FPA and NRA holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment is conducted at the time of FPA and NRA issuance and as of each subsequent quarterly period end date while the FPA and NRA are outstanding. For issued or modified FPA and NRAs that meet all of the criteria for equity classification, the FPA and NRA are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified FPA and NRAs that do not meet all of the criteria for equity classification, the FPA and NRAs are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company accounts for outstanding FPA and NRA as liability-classified instruments. The fair value of the FPA and NRA is Level 3. The determination of the fair value requires significant estimates and judgments. Please see Note 9 – Fair Value Measurements to the financial statements for the significant assumptions and estimates. Changes in the significant assumptions and estimates could materially impact the valuation and the amounts recorded in the financial statements. Recent Accounting Standards In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosures of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for the fiscal year beginning after December 15, 2024. Early adoption is permitted. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and disclosures. Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. 44 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to make disclosures under this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our financial statements and the notes thereto begin on page F-1 of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.