Solidion Technology Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS References in this report (the “Annual Report”) to “we,” “us” or the “Company” refer to Solidion Technology, Inc. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Annual Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Cautionary Note Regarding Forward-Looking Statements This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings. Overview Solidion Technology, 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 holds a portfolio of over 550 patents, covering innovations such as high-capacity, non-silane gas and graphene-enabled silicon anodes, biomass-based graphite, advanced lithium-sulfur and lithium-metal technologies. Solidion offers two lines of battery products: (i) advanced anode materials (ready for production expansion); and (ii) three classes of solid-state batteries, including Silicon-rich all-solid-state lithium-ion cells (Gen 1), anode less lithium metal cells (Gen 2), and lithium-sulfur cells (Gen 3), all featuring an advanced polymer- or polymer/inorganic composite-based solid electrolyte that is process-friendly. 31 Business Combination On February 2, 2024, Nubia Brand International Corp., a Delaware corporation (“Nubia” and after the Transactions described herein, “Solidion” or “Solidion Technology, Inc.”), consummated a merger (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 Merger totaling $17,555. The Company is applying the proceeds from the Merger toward its corporate growth strategy related to the commercialization of our battery technology and the scaling of its manufacturing operations. Recent Developments Memorandum of Understanding On February 10, 2026, we entered into a non-binding memorandum of understanding (“MOU”) with an entity that manufactures and distributes energy storage systems for the Company to supply pouch cells for use in energy storage systems. While the MOU is non-binding in nature and may result in no actual sales, a definitive agreement could potentially add an estimated $4 to $6 million in revenue over the next 12 months. Grants from the U.S. Government During the fourth quarter of 2025 and the first quarter of 2026, the Company was notified that it had received three grants from various departments of the U.S. government. The U.S. Department of Energy (“DOE”) provided the first grant (the “First Grant”), which was to advance research and development of Electrochemical Manufacturing of High-Performance Graphite based on Biomass-Derived Carbon. The Company had received the prestigious 2025 R&D 100 Award in partnership with Oak Ridge National Laboratory for innovation in Electrochemical Graphitization in Molten Salts, and the First Grant was for research to be conducted jointly with Oak Ridge National Laboratory to reduce imports of critical energy materials from foreign sources, improve American energy independence, and ensure that the U.S. maintains a technological lead in developing and deploying advanced energy technologies. The DOE provided the second grant (the “Second Grant”) to scale up the synthesis of a carbon-nanosphere material that will be used as an anti-corrosive additive in molten-salts-based heat transfer fluids for advanced molten salt nuclear reactors. The Second Grant was also for research to be conducted jointly with Oak Ridge National Laboratory, this time to develop a nanofluids-based energy material, engineered colloidal suspension of hollow carbon nanoparticles in conventional molten salts, to enhance heat transfer and reduce corrosion in nuclear reactors, which is critical for reducing costs, increasing safety, and accelerating the commercialization of small modular nuclear reactors such as advanced molten salt reactors. The U.S. Army provided the third grant (the “Third Grant”) to develop an advanced fiber-based electronic battery system built on a coaxial carbon nanotube (“CNT”) yarn architecture. The Third Grant was for research to be conducted jointly with The University of Texas at Dallas to develop a flexible, rechargeable lithium-ion battery in fiber form: a CNT yarn serves as both the structural core and current collector of the anode, integrated with Solidion’s silicon (Si) as the high-capacity anode material. Reverse Stock Split On May 12, 2025, the Company effected a 1-for-50 reverse stock split of its common stock (the “Reverse Stock Split”). As a result, each 50 shares of common stock issued and outstanding immediately prior to the reverse split were converted into one share of common stock. Additionally, this transaction resulted in a reclassification of $13,311 from common stock to additional paid-in capital during the period ended March 31, 2025. The reverse stock split did not change the total number of authorized shares or the par value of the common stock. During the three-month period ended June 30, 2025, the Company paid cash of approximately $460 to shareholders in lieu of issuing fractional shares. Warrant Conversion On October 8, 2025 (the “Purchase Date”), Madison Bond LLC and Bayside Project LLC (together, the “Purchasers”) announced the purchase of all of the outstanding Series C and Series D Warrants (together, the “Warrants”) previously issued by the Company pursuant to the Securities Purchase Agreement, dated as of August 30, 2024 (the “Original Purchase Agreement”). Immediately thereafter, the Company determined to invoke certain provisions in the Warrants and the Original Purchase Agreement in order to convert (the “Conversion”) all remaining unexercised portions of the Series C and Series D Warrants into shares of the Company’s common stock, at a ratio of 1 to 1, such that each outstanding Series C and Series D warrant was converted into one share of common stock. The Purchasers received 3,447,957 shares (the “Conversion Shares”) of the Company’s common stock in the Conversion and the Company cancelled all outstanding Series C and Series D Warrants. 32 Purchase Agreement Amendment In connection with the Conversion, the Purchasers and the Company amended the Original Purchase Agreement to remove or modify certain financing restrictions, including limitations on future equity issuances and participation rights, subject to agreed-upon dilution protections. Lock-up In connection with the Conversion, the Purchasers have agreed, subject to certain customary exceptions, not to (i) sell, offer to sell, agree to offer or sell, solicit offers to purchase, convert, contract or agree to sell, pledge, encumber, assign, borrow, or otherwise dispose of, directly or indirectly, any shares of common stock held by them (such shares, together with any securities convertible into or exchangeable for or representing the rights to receive shares of common stock if any, acquired during the Lock-Up Period (as defined below), the “Lock-Up Shares”), (ii) enter into a transaction that would have the same effect, (iii) enter into any swap, hedge or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Shares or otherwise, or engage in any short sales or other arrangement with respect to the Lock-Up Shares or (iv) publicly announce any intention to effect any transaction specified in clause (i) or (ii) until the date that is 12 months after the October 21, 2025 (the “Lock-up Date,” and the period from the Lock-up Date until such date, the “Lock-Up Period”). The exceptions also generally include transfers (A) of no more than five percent (5%) of the total Lock-Up Shares in the aggregate taking into account all transfers during the Lock-Up Period (provided that total transfers during any period of five consecutive trading days shall not exceed five percent (5%) of the daily average trading volume of the common stock over the immediately preceding five trading days and (B) in connection with the pledge, hypothecation or other grant of a security interest in any Lock-Up Shares to one or more lending institutions as collateral or security for any loan, advance or extension of credit and any transfer upon foreclosure upon such Lock-Up Shares. Unregistered Sales of Equity Securities On the Purchase Date, the Company issued the Conversion Shares pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to such sales. On October 9, 2025, the Company issued 40,000 bonus shares of common stock to each of its non-executive directors, John Davis and Karin-Joyce Tjon, and its former non-executive director Cynthia Ekberg Tsai. The issuances were in consideration of their prior board service from the closing of the Company’s business combination on February 2, 2024 until one year thereafter. The issuances were pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to such issuances. On October 9, 2025, the Company issued 120,000 bonus shares of common stock to certain of its employees that are not executive officers. The issuances were in consideration of their prior service to the Company from the closing of the Company’s business combination on February 2, 2024 until one year thereafter. The issuances were pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to such issuances. On October 9, 2025, the Company issued 450,000 shares of common stock to G3, pursuant to an “earn-out” provision in the Merger Agreement following the approval by the board of directors of the Company to deem the earn-out conditions satisfied in full in light of, among other things, the Company’s capital structure and the ongoing Shared Services Agreement, dated as of February 2, 2024 (the “SSA”), between the Company and G3. Dr. Bor Jang is the Chairman of the Board of Directors and Chief Science Officer of the Company, as well as the Chairman of the Board of Directors and Chief Executive Officer of G3. The issuance was pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to such issuance. On October 29, 2025, the Company entered into a Promissory Note with Great Point Capital, LLC in the principal amount of $1,000,000. The Note bears interest at 8.0% per annum, payable quarterly, and matures on October 25, 2026. The proceeds will be used for general corporate purposes, including working capital needs. See Note 10 to the consolidated and combined financial statements for more details. In addition, the Company entered in to the Investor Agreement, which provided for the issuance of 345,000 shares of common stock to Great Point Capital, LLC. The issuances were pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to such issuances. On December 8, 2025, the Company entered into an agreement with Anson Investments Master Fund LP (“Anson”), pursuant to which it issued 240,400 shares of common stock to Anson in exchange for the termination of all warrants and other obligations of the Company under the Securities Purchase Agreement, dated as of August 30, 2024. Further, Anson agreed to limit sales of common stock to no more than 10% of the daily trading volume on the Nasdaq Stock Market of all of the Company’s common stock. On February 5, 2026, the Company issued the 240,400 shares of its common stock to Anson pursuant to this agreement. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to the issuance. See Note 14 – Subsequent Events for additional information. Change of Control As of the Purchase Date, the Conversion was effected, which resulted in a change in control of the Company by virtue of the Purchasers holding approximately 47.5% of the Company’s issued and outstanding common stock and being the largest stockholder of the Company. 33 To the Company’s knowledge, there are no arrangements or understandings among members of both the former and new control persons and their respective associates with respect to the election of directors or other matters. Additionally, there are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. See “Beneficial Ownership of Securities.” Change to Board of Directors On September 3, 2025 (the “Resignation Date”), Cynthia Ekberg Tsai notified the Board of Directors (the “Board”) of the Company of her resignation as a member of the Board, including all committees on which she serves, effective as of the Resignation Date. Ms. Ekberg Tsai’s resignation did not result from any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. As a result of Ms. Ekberg Tsai’s resignation, the Company’s Audit Committee is composed of two members. On September 8, 2025, the Company notified The Nasdaq Stock Market, LLC of its non-compliance with Nasdaq Rule 5605(c)(2)(A), which requires that the Audit Committee be composed of three directors. Pursuant to Nasdaq Listing Rule 5605(c)(4), the Company has a cure period to regain compliance by appointing a new independent director to the Audit Committee. The cure period extends until the earlier of the Company’s next annual shareholders’ meeting or September 3, 2026; provided, however, that if the annual shareholders’ meeting occurs no later than March 2, 2026, the Company has until March 2, 2026, to regain compliance. The Company intends to appoint a new independent director to the Audit Committee as soon as practicable within the cure period. On March 24, 2026, the company announced an annual meeting scheduled for June 11, 2026. As a result, the Company’s cure period to regain compliance with Nasdaq Listing Rule 5605(c)(2)(A) extends until the date of the annual meeting. The Company is actively evaluating potential candidates to fill the vacancy on its Audit Committee and intends to regain compliance within the applicable cure period. Components of Results of Operations Revenue The Company is focused on commercializing and manufacturing battery materials and next-generation battery cells. Historically, and during the periods presented, we have generated minimal revenue from product samples. We do not expect to begin generating significant revenue until we complete the commercialization process and build out manufacturing capacity. Future capacity may come from joint ventures with strategic partners, sourcing third-party manufacturing from our network, or pursuing mergers and acquisitions. Operating Expenses Research and Development Research and development expenses consist primarily of personnel expenses, including salaries, benefits, third party technology validation testing, equipment, engineering, maintenance of facilities, data analysis, and materials. Selling, general and administrative Selling, general and administrative expenses primarily consist of personnel expenses, including salaries, benefits, and stock-based compensation related to executive management, finance, legal, and human resource functions. Other costs include business development, contractor and professional services fees, audit and compliance expenses, insurance costs and general corporate expenses, such rent, office supplies and information technology costs. Other Income (Expense) Change in fair value of Derivative Liabilities Change in fair value of derivative liabilities consists of fluctuations in the fair value of the Company’s Forward Purchase Agreement and warrant liabilities. The fair value of these instruments is estimated using valuation models, including Monte Carlo simulation for the Forward Purchase Agreement and certain warrant liabilities, and the Black-Scholes option pricing model for other warrant liabilities. Interest Income Interest income is derived from the Company’s operating cash account, which is periodically invested in short-term money market funds. Interest Expense Interest expense consists primarily of the interest on the Company’s short-term notes and D&O insurance premium financing arrangement. Results of Operations This data should be read in conjunction with Solidion’s financial statements and accompanying notes. These results of operations are not necessarily indicative of future performance. 34 Summary of Statements of Operations for the Years Ended December 31, 2025 and 2024 Years Ended December 31, 2025 2024 (Restated) Net sales $ 13,350 $ - Cost of goods sold 6,648 - Operating expenses 12,927,608 13,299,537 Total other income (expense) (28,083,094 ) (19,117,496 ) Net loss $ (41,004,000 ) $ (32,417,033 ) Operating Expenses Operating expenses decreased by $371,929 for the year ended December 31, 2025. This decrease was primarily driven by lower general and administrative costs, including reduced personnel and professional services expenses. The decrease was partially offset by higher research and development costs, including increased personnel expenses associated with the commercialization of our battery cell products and third-party validation testing of our proprietary silicon anode. Other Income (Expense) Other expense increased by $8,965,598 for the year ended December 31, 2025. This increase was largely driven by a non-cash loss of $28,250,727 due to a change in the fair value of derivative liabilities related to the Forward Purchase Agreement, and warrants related to the March and August private placement financing. Additionally, during 2025, the Company significantly reduced its derivative liabilities, primarily through the conversion and cancellation of the Series C and Series D warrants in connection with the Madison Bond and Bayside Project transaction. As a result of this transaction, all remaining unexercised warrants were converted into shares of the Company’s common stock, eliminating the associated derivative liabilities. The reduction of these liabilities, together with the required fair value remeasurement prior to settlement, contributed to the non-cash loss recognized during the period. Summary of Cash Flows for the Years Ended December 31, 2025 and 2024 Years Ended December 31, 2025 2024 (Restated) Net cash provided by (used in): Operating Activities $ (4,536,702 ) $ (7,377,807 ) Investing Activities (240,742 ) (246,074 ) Financing Activities 1,628,437 10,976,833 Net increase (decrease) in cash $ (3,149,007 ) $ 3,352,952 Net Cash used in Operating Activities For the year ended December 31, 2025, cash used in operating activities was $4,536,702. This primarily resulted from a net loss of $41,004,000, driven by a non-cash loss of $28,250,727 due to a change in the fair value of derivative liabilities related to the Forward Purchase Agreement and private placement warrants. These non-cash losses were added back to reconcile net loss to net cash used in operating activities, as part non-cash adjustments that also included depreciation and amortization, stock-based compensation and equity compensation expense for services, totaling $35,058,699. Additionally, changes in operating assets and liabilities provided $1,408,599 of cash from operating activities, driven primarily by a $1,404,127 increase in accounts payable and accrued expenses. The increase in accounts payable and accrued expenses was mainly due to higher accrued expenses. For the year ended December 31, 2024, cash used in operating activities was $7,377,807. This primarily resulted from a net loss of $32,417,033, which included non-cash gains and losses, driven by a gain of $12,275,217 due to a change in the fair value of derivative liabilities related to the Forward Purchase Agreement and private placement warrants, and a loss of $31,033,622 from the issuance of common stock and warrants related to the convertible note and private placement financing activity. These non-cash losses were added back to reconcile net loss to net cash used in operating activities, as part non-cash adjustments that also included depreciation and amortization, stock-based compensation and equity compensation expense for services, totaling $23,754,989. Additionally, changes in operating assets and liabilities provided $1,284,237 of cash from operating activities, driven primarily by a $1,344,669 increase in accounts payable and accrued expenses. The increase in accounts payable and accrued expenses was mainly due to higher accrual expense associated with the Company operating as a public entity as of February 2, 2024. Net Cash used in Investing Activities For the year ended December 31, 2025, the Company used cash of $240,742 in investing activities consisting of purchases of Silicon Oxide (SiOx) manufacturing equipment and capitalized patent costs. For the year ended December 31, 2024, the Company used cash of $246,074 in investing activities consisting of capitalized patent costs. 35 Net Cash provided by Financing Activities For the year ended December 31, 2025, the Company generated cash of $1,628,437 from financing activities. The Company received proceeds from short term notes of $1,000,000. These increases were offset by repayment of short-term notes of $42,671. In addition, during the year ended December 31, 2025, the Company converted $527,500 of convertible notes into shares of its common stock. This transaction was a non-cash financing activity and is reflected in the supplemental schedule of non-cash financing activities in the consolidated and combined statements of cash flows. For the year ended December 31, 2024, the Company generated cash of $10,976,833 from financing activities. This primarily resulted from proceeds from private placement financing, and warrant exercises of $7,850,000 and $4,259,241, respectively. These increases were offset by repayment of short-term notes and related party advances of $1,389,146 and $1,026,091, respectively. Going Concern Considerations, Liquidity and Capital Resources Since Solidion’s inception, the Company has experienced recurring net losses and has generated minimal sales. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s ability to fund our operations and capital expenditures depends on our ability to raise additional external capital. This is subject to our future operating performance and general economic, financial, competitive, legislative, regulatory, and other conditions, some of which are beyond our control. We are currently engaged in discussions with various financing counterparties to secure sufficient capital to meet our business needs for the foreseeable future. The Company plans to finance its operations with proceeds from the sale of equity securities, government grants and loans, or debt; however, there is no assurance that management’s plans to obtain additional debt, grants or equity financing will be successfully implemented or implemented on terms favorable to the Company. As of December 31, 2025, we had an accumulated deficit of $163,372,539. Additionally, $1,114,594 in NUBI transaction costs incurred at the Closing Date in connection with the Merger remain outstanding and are due within the next twelve months. For the year ended December 31, 2025, we incurred losses from operations totaling $41,004,000 and net cash used in operating activities of $4,536,702. During 2025, the Company significantly reduced its derivative liabilities, primarily through the conversion and cancellation of the Series C and Series D warrants associated with the Madison Bond and Bayside Project warrant conversion transaction. As part of this transaction, all remaining unexercised warrants were converted into shares of the Company’s common stock, eliminating the related derivative liabilities. Management does not currently expect to utilize financing arrangements that would require derivative accounting, which is expected to reduce non-cash volatility in future results. However, these improvements do not eliminate the need for additional capital to fund operations. Off-Balance Sheet Arrangements At December 31, 2025 and 2024, 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. Critical Accounting Estimates We prepare our 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. 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. There were no changes to the Company’s critical accounting estimates from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024. Forward Purchase Agreement The Company accounts for the forward purchase agreement as either equity-classified or liability-classified instruments based on an assessment of the Forward Purchase Agreement (“FPA”) specific terms and applicable authoritative guidance under FASB ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the FPA meets all of the requirements for equity classification under ASC 815, including whether the FPA is indexed to the Company’s own common shares and whether the FPA 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 issuance and as of each subsequent quarterly period end date while the FPA is outstanding. The Company has determined that the FPA does not meet all of the criteria for equity classification under ASC 815, as the FPA fails the fixed-for-fixed test under ASC 815-40 due to the bi-weekly Reset Price mechanism, the Dilutive Offering Reset provision, and the VWAP Trigger Event, each of which creates variability in the settlement amount that is not purely a function of the Company’s own stock price. Accordingly, the FPA is classified as a liability-classified derivative instrument, recorded at fair value on the date of issuance and remeasured at fair value at each balance sheet date thereafter. The Company utilizes a Monte Carlo simulation model to determine the fair value of the FPA. The resulting fair value is recorded as a derivative liability on the consolidated and combined balance sheets. The Company records changes in the fair value of the FPA as a non-cash other income (expense) within change in fair value of derivative liabilities account on the Company’s consolidated and combined statements of operations. 36 Upon the issuance of shares in connection with the FPA, the Company recognizes (i) an increase to APIC measured at the fair value of the FPA at the time of share issuance, (ii) a corresponding stock subscription receivable of equal amount as a contra-equity component within stockholders’ equity (deficit), representing the present value of the consideration receivable for the shares issued, and (iii) a loss on issuance of common stock within Other Income (Expense) representing the difference between the face value of the stock subscription receivable and its present value at the issuance date. The discount between the face value and present value of the stock subscription receivable is accreted using the effective interest method over the remaining term of the FPA, with each period’s accretion recorded as an increase to both the stock subscription receivable and APIC within stockholders’ equity (deficit). The stock subscription receivable is presented as a reduction to total stockholders’ equity (deficit) and is relieved as Optional Early Termination proceeds are received from the Forward Purchase Investor. For issued or modified FPA that meet all of the criteria for equity classification, the FPA is required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified FPAs that do not meet all of the criteria for equity classification, the FPA 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 as liability-classified instrument. The fair value of the FPA is Level 3. The determination of the fair value requires significant estimates and judgments. See Note 13 – 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. Warrants The Company evaluates warrants issued in connection with financing transactions to determine whether the instruments should be classified as equity or liabilities in accordance with the applicable guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. This assessment considers whether the warrants meet the criteria for equity classification, including whether the warrants are indexed to the Company’s own common stock and whether the settlement provisions could require net cash settlement or contain adjustment features that would preclude equity classification. This assessment is performed at the time of issuance and reassessed at each reporting date while the warrants remain outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are recorded as a component of additional paid-in capital at the time of issuance. For warrants that do not meet the criteria for equity classification, the warrants are recorded at fair value as derivative liabilities on the consolidated and combined balance sheets at the date of issuance and remeasured at fair value at each subsequent reporting date. The Company accounts for the outstanding Series A, Series B, Series C, and Series D warrants issued in connection with the March and August 2024 private placement financings (the “PIPE Warrants”) as liability-classified instruments. The fair value of the Series A and Series B warrants is determined using the Black-Scholes option pricing model, while the fair value of the Series C and Series D warrants is determined using a Monte Carlo simulation model due to their more complex features. These valuation models require significant estimates and judgments, including assumptions related to the Company’s stock price volatility, expected term, risk-free interest rates, and other market-based inputs. As these warrants are classified as derivative liabilities, changes in their fair value are recognized as non-cash gains or losses within change in fair value of derivative liabilities in the consolidated and combined statements of operations. The fair value of the PIPE Warrants is classified as Level 3 within the fair value hierarchy. The determination of the fair value requires significant estimates and judgments. See Note 13 – Fair Value Measurements to the financial statements for the significant assumptions and estimates used in the valuation. Changes in these assumptions could materially impact the valuation and the amounts recorded in the Company’s financial statements. Because the valuation of these instruments requires significant estimates and assumptions, changes in these assumptions could materially affect the reported fair value of the derivative liabilities and the resulting non-cash gains or losses recorded in the Company’s results of operations. Recently Adopted Accounting Standards In November 2023, the FASB issued Accounting Standards Update (ASU) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” to enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. The standard did not change the definition of a segment, the method for determining segments or the criteria for aggregating operating segments into reportable segments. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption is required for all prior periods presented in the financial statements. The Company adopted the amendment effective January 1, 2024 for annual reporting purposes. The adoption did not have a material impact to the Company’s financial statements or disclosures. 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. Effective January 1, 2025, the Company adopted ASU 2023-09. The adoption of ASU 2023-09 did not have a material impact on the Company’s consolidated and combined financial statements. The adoption affected disclosures, such as expanded income tax disclosures, and did not impact the Company’s financial position, results of operations, or cash flows. See Note 11 – Income Taxes to the consolidated and combined financial statements for additional information. Recently Issued Accounting Standards In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” to improve disclosures by providing more detailed information about the types of expenses in commonly presented expense captions. The guidance is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements and related disclosures. 37 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to make disclosures under this Item.