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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-40284

Graphic

SOLID POWER, INC.

(Exact name of registrant as specified in its charter)

Delaware

   

86-1888095

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

486 S. Pierce Ave., Suite E

Louisville, Colorado

80027

(Address of principal executive offices)

(Zip Code)

(303) 219-0720

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading symbol(s)

   

Name of each exchange on which registered

Common stock, par value $0.0001 per share

SLDP

The Nasdaq Stock Market LLC

Warrants, each whole warrant exercisable for one share of common stock at an exercise price of $11.50

SLDPW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

174,545,062 shares of common stock were issued and outstanding as of August 5, 2022.

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SOLID POWER, INC.

FORM 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 6.

Exhibits

30

Signatures

31

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) of Solid Power, Inc. (f/k/a Decarbonization Plus Acquisition Corporation III, “Solid Power,” the “Company,” “we,” “us,” or “our”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of present or historical fact included in this Report, regarding our future financial performance and our strategy, expansion plans, market opportunity, future operations, future operating results, estimated revenues, losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “will,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “continue,” “project” or the negative of such terms or other similar expressions. 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. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Report. We caution you that the forward-looking statements contained herein are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control.

In addition, we caution you that the forward-looking statements regarding the Company contained in this Report are subject to the following factors:

risks relating to the uncertainty of the success of our research and development efforts, including our ability to achieve the technological objectives or results that our partners require, and to commercialize our technology in advance of competing technologies;
risks relating to the non-exclusive nature of our original equipment manufacturers and joint development agreement relationships;
our ability to negotiate and execute supply agreements with our partners on commercially reasonable terms;
our ability to protect our intellectual property, including in jurisdictions outside of the United States;
broad market adoption of electric vehicles and other technologies where we are able to deploy our all-solid-state batteries, if developed successfully;
our success in retaining or recruiting, or changes required in, our officers, key employees, including technicians and engineers, or directors;
changes in applicable laws or regulations;
risks related to technology systems and security breaches;
the possibility that COVID-19 or a future pandemic may adversely affect our results of operations, financial position and cash flows;
the possibility that we may be adversely affected by other economic, business or competitive factors, including supply chain interruptions, and may not be able to manage other risks and uncertainties;
risks relating to our status as an early stage company with a history of financial losses, and an expectation to incur significant expenses and continuing losses for the foreseeable future;
rollout of our business plan and the timing of expected business milestones;
the termination or reduction of government clean energy and electric vehicle incentives;

1

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delays in the construction and operation of production facilities;
changes in domestic and foreign business, market, financial, political and legal conditions; and
those factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.

We caution you that the foregoing list does not contain all of the risks or uncertainties that could affect the Company.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Report to reflect events or circumstances after the date of this Report or to reflect new information or the occurrence of unanticipated events, except as required by law. You should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

TRADEMARKS

Our logo and trademark appearing in this Report and the documents incorporated by reference herein are our property. This document and the documents incorporated by reference herein contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of it by, any other companies.

MARKET AND INDUSTRY DATA

We obtained the industry and market data used throughout this Report or any documents incorporated herein by reference from our own internal estimates and research, as well as from independent market research, industry and general publications and surveys, governmental agencies, publicly available information and research, and surveys and studies conducted by third parties. Internal estimates are derived from publicly available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In some cases, we do not expressly refer to the sources from which this data is derived. In addition, while we believe the industry and market data included in this Report or any documents incorporated herein by reference is reliable and based on reasonable assumptions, such data involve material risks and other uncertainties and is subject to change based on various factors, including those discussed in the section entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties or by us.

2

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INFORMATION ABOUT SOLID POWER

We use our website (www.solidpowerbattery.com) and various social media channels as a means of disclosing information about Solid Power and our products to our customers, investors and the public (e.g., @SolidPowerInc on Twitter, Solid Power Inc. on LinkedIn, and Solid Power on YouTube). The information posted on our website and social media channels is not incorporated by reference in this Report or in any other report or document we file with the United States Securities and Exchange Commission (“SEC”). The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings, and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Solid Power when you enroll your e-mail address by visiting the “Investor Email Alerts” section of our website at https://ir.solidpowerbattery.com.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Solid Power, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value and number of shares)

June 30, 2022

    

(Unaudited)

    

December 31, 2021

Assets

Current Assets

 

  

 

  

Cash and cash equivalents

$

301,603

$

513,447

Marketable securities

182,694

75,885

Contract receivables

 

2,031

 

829

Prepaid expenses and other current assets

 

2,864

 

4,216

Total current assets

 

489,192

 

594,377

Property, Plant and Equipment, net

 

59,409

 

22,082

Right-Of-Use Operating Lease Asset, net

7,346

Right-Of-Use Financing Lease Asset, net

204

Other Assets

1,209

602

Long-term Investments

49,873

Intangible Assets, net

 

843

 

619

Total assets

$

608,076

$

617,680

Liabilities and Stockholders’ Equity

Current Liabilities

 

  

 

  

Accounts payable

$

9,540

$

4,326

Current portion of long-term debt

 

58

 

120

Deferred revenue

 

214

 

500

Accrued and other current liabilities:

 

  

 

  

Accrued compensation

 

2,227

 

1,151

Other accrued liabilities

 

805

 

2,269

Operating lease liabilities, short-term

674

Financing lease liabilities, short-term

47

Total current liabilities

 

13,565

 

8,366

Long-term Debt

 

 

10

Operating Lease Liabilities, Long-Term

 

7,312

 

Financing Lease Liabilities, Long-Term

 

152

 

Warrant Liabilities

21,837

50,020

Other Long-term Liabilities

 

 

393

Deferred Taxes

 

240

 

226

Total liabilities

43,106

59,015

Stockholders’ Equity

 

  

 

  

Common stock, $0.0001 par value; 2,000,000,000 shares authorized; 174,447,804 and 167,557,988 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

17

 

17

Additional paid in capital

572,456

568,183

Accumulated other comprehensive loss

(1,291)

Accumulated deficit

 

(6,212)

 

(9,535)

Total stockholders’ equity

 

564,970

 

558,665

Total liabilities and stockholders’ equity

$

608,076

$

617,680

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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Solid Power, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(in thousands, except number of shares and per share amounts)

    

Three Months Ended June 30, 

    

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Revenue

$

2,582

$

561

$

4,778

$

1,041

Operating expenses

 

  

 

Direct costs

2,987

540

5,017

1,055

Research and development

 

8,440

3,203

15,101

 

6,309

Marketing and sales

 

957

535

1,752

 

1,090

General and administrative

 

4,894

2,332

8,918

 

2,929

Total operating expenses

 

17,278

6,610

30,788

 

11,383

Operating loss

 

(14,696)

(6,049)

(26,010)

 

(10,342)

Non-operating income (expense)

 

  

 

  

Interest income

 

735

9

936

 

9

Interest expense

 

(5)

(121)

(10)

 

(342)

Other income (expense)

 

196

(3,100)

235

 

(3,100)

Change in fair value of warrant liabilities

27,473

28,183

Loss from change in fair value of embedded derivative liability

(2,680)

Total non-operating income (expense)

 

28,399

(3,212)

29,344

 

(6,113)

Pretax income (loss)

 

13,703

(9,261)

3,334

 

(16,455)

Income tax expense (benefit)

 

36

12

13

 

(41)

Net income (loss)

$

13,667

$

(9,273)

$

3,321

$

(16,414)

Other comprehensive loss

(961)

(1,291)

Comprehensive income (loss) attributable to common stockholders

$

12,706

$

(9,273)

$

2,030

$

(16,414)

Basic earnings (loss) per share

0.08

(0.10)

0.02

(0.21)

Diluted earnings (loss) per share

0.08

(0.10)

0.02

(0.21)

Weighted average shares outstanding – basic

174,128,230

88,944,577

173,266,760

79,568,181

Weighted average shares outstanding – diluted

174,703,533

88,944,577

173,566,001

79,568,181

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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Solid Power, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

(in thousands, except number of shares)

Common Stock

    

Additional Paid in

Accumulated

    

Accumulated Other

Total Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Comprehensive Loss

    

Equity

Balance as of December 31, 2021

167,557,988

$

17

$

568,183

$

(9,535)

$

$

558,665

Net loss

 

 

 

(10,344)

 

(10,344)

Transaction fees

(12)

(12)

Stock options exercised

6,212,964

 

 

270

 

 

270

Stock-based compensation expense

1,596

1,596

Unrealized loss on marketable securities

(330)

(330)

Balance as of March 31, 2022

173,770,952

$

17

$

570,037

$

(19,879)

$

(330)

$

549,845

Net income

13,667

13,667

Withholding of Employee taxes related to stock-based compensation

(58)

(58)

Shares issued for the vesting of restricted stock units

20,672

Stock options exercised

656,180

163

163

Stock-based compensation expense

2,314

2,314

Unrealized loss on marketable securities

(961)

(961)

Balance as of June 30, 2022

174,447,804

$

17

$

572,456

$

(6,212)

$

(1,291)

$

564,970

    

Common Stock

    

Additional Paid in 

    

Accumulated

    

Accumulated Other 

    

Total Stockholders’

    

Shares

    

Amount

    

Capital

    

 Deficit

    

Comprehensive Loss

    

 Equity

Balance as of December 31, 2020

 

69,885,043

$

7

$

31,492

$

(27,627)

$

$

3,872

Net loss

 

 

 

 

(7,141)

 

 

(7,141)

Beneficial conversion feature on convertible debt

 

 

 

4,875

 

 

 

4,875

Stock options exercised

 

276,822

 

 

17

 

 

 

17

Stock-based compensation expense

 

 

 

70

 

 

 

70

Balance as of March 31, 2021

 

70,161,865

$

7

$

36,454

$

(34,768)

$

$

1,693

Net loss

 

 

 

 

(9,273)

 

 

(9,273)

Redemption of Series A-1 redeemable preferred stock

 

(1,065,432)

 

 

(6,041)

 

 

 

(6,041)

Issuance of redeemable preferred stock

 

27,930,998

 

3

 

140,436

 

 

 

140,439

Stock options exercised

 

501,995

 

 

53

 

 

 

53

Warrants exercised

 

4,731,542

 

 

15

 

  

 

  

 

15

Stock-based compensation expense

 

 

 

147

 

 

 

147

Balance as of June 30, 2021

 

102,260,968

$

10

$

171,064

$

(44,041)

$

$

127,033

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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Solid Power, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

Six Months Ended June 30, 

    

2022

    

2021

Cash Flows from Operating Activities

 

  

 

  

Net income (loss)

$

3,321

$

(16,414)

Adjustments to reconcile net income (loss) to net cash and cash equivalents from operating activities:

 

  

 

  

Depreciation and amortization

 

1,782

 

1,102

Amortization of right-of-use assets

16

Loss on sale of property, plant and equipment

 

 

2

Stock compensation expense

 

3,910

 

217

Deferred taxes

 

13

 

(41)

Change in fair value of warrant liabilities

(28,183)

Accrued interest on convertible notes payable to be paid in kind

 

 

263

Loss from change in fair value of embedded derivative liability

 

 

2,680

Changes in operating assets and liabilities that provided (used) cash and cash equivalents:

 

  

 

  

Contract receivables

 

(1,202)

 

(110)

Prepaid expenses and other assets

 

744

 

(74)

Accounts payable

 

(2,796)

 

792

Deferred revenue

 

(286)

 

(38)

Accrued and other liabilities

 

(465)

 

1,500

Operating lease liability

188

(35)

Net cash and cash equivalents used in operating activities

 

(22,958)

 

(10,156)

Cash Flows from Investing Activities

 

  

 

  

Purchases of property, plant and equipment

 

(30,957)

 

(3,770)

Purchase of marketable securities and long-term investments

(212,792)

Proceeds from sales of marketable securities

54,819

Purchases of intangible assets

 

(228)

 

(85)

Net cash and cash equivalents used in investing activities

 

(189,158)

 

(3,855)

Cash Flows from Financing Activities

 

 

  

Proceeds from debt

 

 

958

Payments of debt

 

(71)

 

(1,574)

Proceeds from issuance of convertible note payable

 

 

4,875

Proceeds from exercise of common stock options

 

354

 

70

Receivable for exercise of common stock options

79

Proceeds from exercise of common stock warrants

15

Proceeds from issuance of Series B preferred stock

135,579

Preferred stock issuance costs

(4,511)

Redemption of preferred stock

(6,041)

Cash paid for withholding of Employee taxes related to stock-based compensation

(58)

Payments on finance lease liability

(20)

Transaction costs

(12)

Net cash and cash equivalents provided by financing activities

272

129,371

Net (decrease) increase in cash and cash equivalents

(211,844)

115,360

Cash and cash equivalents at beginning of period

513,447

4,974

Cash and cash equivalents at end of period

301,603

120,334

Supplemental information

Cash paid for interest

$

5

$

82

Accrued capital expenditures

$

8,146

$

2

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Nature of Business

Solid Power, Inc. (the “Company”), headquartered in Louisville, Colorado, is developing all-solid-state battery cell technology primarily for the electric vehicle market. The Company’s planned business model is to license its all-solid-state battery cell designs and manufacturing know-how to top tier battery manufacturers or automotive original equipment manufacturers and to sell its sulfide-based solid electrolyte for incorporation into all-solid-state battery cells. As of June 30, 2022, the Company has not derived material revenue from its principal business activities.

On December 8, 2021 (the “Closing Date”), the Company (f/k/a Decarbonization Plus Acquisition Corporation III (“DCRC”)) consummated its business combination pursuant to the Business Combination Agreement and Plan of Reorganization, dated June 15, 2021 (as amended, the “Business Combination Agreement”), among the Company, DCRC Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of DCRC (“Merger Sub”), and Solid Power Operating, Inc., a Colorado corporation (f/k/a Solid Power, Inc., “Legacy Solid Power”). Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into Legacy Solid Power, with Legacy Solid Power surviving the merger as a wholly owned subsidiary of the Company (the “Merger” and, together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”).

Pursuant to the Business Combination Agreement, the Merger was accounted for as a reverse recapitalization (the “Reverse Recapitalization”) in accordance with generally accepted accounting principles in the United States (“GAAP”). Under this method of accounting, DCRC was treated as the “acquired” company and Legacy Solid Power is treated as the acquirer for financial reporting purposes. See Note 3.

Note 2 – Significant Accounting Policies

The significant accounting policies followed by the Company are set forth in Note 2 – Significant Accounting Policies to the Company’s financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) and are supplemented by the Notes to the Condensed Consolidated Financial Statements (Unaudited) (the “Notes”) included in this Quarterly Report on Form 10-Q for the period ended June 30, 2022 (this “Report”). The financial statements included in this Report (including the Notes) should be read in conjunction with the 2021 Form 10-K.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on the basis of GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from those estimates. All dollar amounts presented herein are in U.S. dollars and are in thousands, except par value, share and per share amounts.

The accompanying unaudited condensed consolidated financial statements include accounts of the Company and its wholly owned subsidiary, Solid Power Operating, Inc. All intercompany balances and transactions have been eliminated in consolidation.

Long-Term Investments

The Company considers all investments with an original maturity of twelve months or more when purchased to be long-term investments.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents, marketable securities, and long-term investments. The Company seeks to mitigate its credit risk with respect to cash and cash equivalents, marketable securities, and long-term investments by making deposits with several large, reputable financial institutions and investing in high credit rated instruments. See Note 8 for allocation of respective investment holdings.

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Leases

The Company accounts for its leases under ASU No. 2016-02, Leases (Topic 842). Under this guidance, the Company classifies contracts meeting the definition of a lease as operating or financing leases, and leases are recorded on the condensed consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses, including common maintenance fees, insurance and property tax, are recorded when incurred.

In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components for all classes of assets. The Company excludes short-term leases having initial terms of 12 months or less as an accounting policy election, and instead recognizes rent expense on a straight-line basis over the lease term.

Recent Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), followed by other related ASUs that provided targeted improvements and additional practical expedient options. On January 1, 2022, the Company adopted the standards under Topic 842 using the modified retrospective method and elected a number of the practical expedients in its implementation of Topic 842. The key change that affected the Company relates to accounting for operating leases for which it is the lessee that were historically off-balance sheet. The impact of adopting the standards resulted in the recognition of a right-of-use asset of $7,853 and lease liability of $8,246 on the Company’s condensed consolidated balance sheet on January 1, 2022, exclusive of previously recognized lease balances. The implementation of Topic 842 did not have a material effect on the Company’s condensed consolidated statement of operations or condensed consolidated statement of cash flows for the six months ended June 30, 2022.

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. ASU 2016-13 also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements. The Company adopted this guidance as of January 1, 2022.

The Company regularly reviews its available-for-sale marketable securities and evaluates the current expected credit losses by considering factors such as any changes in credit ratings, historical experience, market data, issuer-specific factors, and current economic conditions. Based on this analysis, an allowance for credit losses is recorded as a reduction to the carrying value of the asset.

The Company reviews its receivable aging on an individual customer level, considering collectability of cash flows based on the risk of past events, current conditions, and forward-looking information. The Company establishes allowances for bad debts equal to the estimable portions of accounts receivable for which failure to collect is expected to occur. Allowances for doubtful accounts are recorded as reductions to the carrying values of the related receivables.

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which aims to reduce complexity in accounting standards by improving certain areas of GAAP without compromising information provided to users of financial statements. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted this guidance beginning January 1, 2022 with no financial statement impact at adoption.

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Note 3 – Business Combination

Legacy Solid Power was deemed the accounting acquirer in the Business Combination based on the analysis of the criteria outlined in FASB Topic 805, Business Combinations. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Solid Power issuing stock for the net assets of DCRC, accompanied by a recapitalization. The net assets of DCRC are stated at historical cost, with no goodwill or other intangible assets recorded.

Because Legacy Solid Power was deemed the accounting acquirer, the historical consolidated financial statements of Legacy Solid Power became the historical consolidated financial statements of the combined company. As a result, the condensed consolidated financial statements included in this Report reflect (i) the historical operating results of Legacy Solid Power prior to the Business Combination; (ii) the combined results of the Company and Legacy Solid Power following the closing of the Business Combination (“Closing”); (iii) the assets and liabilities of Legacy Solid Power at their historical cost; and (iv) the Company’s equity structure for all periods presented as discussed below.

In accordance with guidance applicable to the Business Combination, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s common stock, $0.0001 par value per share issued to Legacy Solid Power’s stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Solid Power redeemable convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect an exchange ratio of approximately 3.182 (the “Exchange Ratio”). Activity within the condensed consolidated statements of stockholders’ equity for the issuances and repurchases of Legacy Solid Power’s redeemable convertible preferred stock were also retroactively converted to Legacy Solid Power common stock.

Note 4 – Property, Plant and Equipment

Property, plant and equipment are summarized as follows:

    

June 30, 2022

    

December 31, 2021

Commercial production equipment

$

17,229

$

9,139

Laboratory equipment

1,422

1,316

Leasehold improvements

 

9,813

 

4,674

Computer equipment

 

468

 

416

Furniture and fixtures

 

394

 

321

Construction in progress

 

38,143

 

12,684

Total cost

 

67,654

 

28,550

Accumulated depreciation

 

(8,245)

 

(6,468)

Net property, plant and equipment

$

59,409

$

22,082

Depreciation and amortization expense related to property, plant and equipment are summarized as follows:

    

Three months ended June 30,

    

Six months ended June 30,

    

2022

    

2021

    

2022

    

2021

Depreciation and amortization expense

$

1,026

$

556

$

1,777

$

1,098

Depreciation expenses for dedicated laboratory equipment and commercial production equipment are charged to research and development; other depreciation and amortization expenses are included in the Company’s overhead and are allocated across operating expenses on the accompanying condensed consolidated statements of operations based on Company personnel costs incurred.

In the second quarter of 2022, the Company expanded its cell production capabilities through the construction of a second dry room and installation of a second EV cell pilot line at its Louisville, Colorado facility, which is designed to produce larger format all-solid-state battery cells for the automotive qualification process. Construction in progress related to these efforts was $2,145 and $6,875 as of June 30, 2022 and December 31, 2021, respectively. Construction in progress related to multiple other projects at the Louisville, Colorado facility was $2,176 as of June 30, 2022.

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The Company is expanding its sulfide-based solid electrolyte production to a second location in Thornton, Colorado. Scaling this production will allow it to produce larger quantities of electrolyte material required to feed the cell-production lines and continue research and development efforts. The Company expects to begin producing sulfide-based electrolyte from this facility in the first quarter of 2023. Construction in progress related to these efforts was $33,822 and $5,809 as of June 30, 2022 and December 31, 2021, respectively.

Note 5 – Intangible Assets

Intangible assets of the Company are summarized as follows:

June 30, 2022

December 31, 2021

Gross Carrying

Accumulated

Gross Carrying

Accumulated

Amount

Amortization

Amount

Amortization

Intangible assets:

    

  

    

  

    

  

    

  

Licenses

$

149

$

(47)

$

149

$

(42)

Patents pending

 

718

 

 

503

 

Trademarks

 

9

 

 

9

 

Trademarks pending

14

Total amortized intangible assets

$

890

$

(47)

$

661

$

(42)

Amortization expense for intangible assets is summarized as follows:

    

Three months ended June 30,

    

Six months ended June 30,

    

2022

    

2021

    

2022

    

2021

Amortization expense

$

2

$

2

$

5

$

4

Useful lives of intangible assets range from 3 to 20 years. Amortization expenses are allocated ratably across operating expenses on the accompanying condensed consolidated statements of operations.

Note 6 – Long-term Debt

Long-term debt is as follows:

June 30, 2022

December 31, 2021

Various equipment notes payable to banks in monthly installments ranging from $1 to $2, including interest at 6.26 percent to 12.18 percent maturing from July 2022 through April 2023. The notes are collateralized by the financed equipment and guaranteed by a stockholder of the Company.

$

58

$

130

Total

 

58

 

130

Less current portion

 

58

 

120

Longterm portion

$

$

10

Note Payable

On December 7, 2021, prior to the Closing, the Company used available cash to pay off the outstanding balance and remaining fees of a note payable to a commercial bank. The Company was in compliance with all financial covenants through the loan payoff on December 7, 2021.

Interest expense on long-term debt was $2 and $38 for the three months ended June 30, 2022 and 2021, respectively, and $5 and $79 for the six months ended June 30, 2022 and 2021, respectively.

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Note 7 – Convertible Notes Payable

2020 Convertible Promissory Notes

On December 10, 2020 and December 18, 2020, the Company issued unsecured convertible promissory notes to investors in the total principal amount of $5,125, and on February 4, 2021, and March 1, 2021, the Company issued additional unsecured convertible promissory notes to investors in the total principal amount of $4,875, as part of a single financing (collectively, the “2020 Notes”). The 2020 Notes accrued interest at eight percent per annum. The 2020 Notes were converted into 1,007,965 shares of Legacy Solid Power Series B Preferred Stock, on May 5, 2021, in conjunction with the closing of the Legacy Solid Power Series B Preferred Stock (“Series B Financing”). The outstanding balance on the 2020 Notes, including accrued interest, was $10,228 when the 2020 Notes were converted to Legacy Solid Power Series B Preferred Stock. Interest expense for the 2020 Notes during for three and six months ended June 30, 2021 was $66 and $210, respectively. The principal of the 2020 Notes was included in Additional Paid In Capital and the fair value of the embedded derivative was recorded as a liability on Legacy Solid Power’s balance sheet. The fair value of the embedded derivative was $5,497. This balance was transferred, along with the accrued interest, to mezzanine equity upon conversion of the 2020 Notes to Series B Preferred Stock in conjunction with the Series B Financing.

2020 Convertible Promissory Notes Embedded Derivative

The 2020 Notes contained the following embedded derivatives: (i) a share settled redemption upon Qualified Financing; (ii) share settled redemption upon the closing of the Business Combination; and (iii) share settled redemption at maturity.

Embedded derivatives are separated from the host contract and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that certain embedded derivatives within the 2020 Notes meet these criteria and, as such, must be valued separate and apart from the 2020 convertible promissory notes as one embedded derivative and recorded at fair value each reporting period.

See Note 8 – Fair Value Measurement for information about the assumptions that the Company used to measure the fair value of the embedded derivative.

2019 Convertible Promissory Notes

On December 4, 2019, the Company issued an unsecured convertible promissory note to an investor in the principal amount of $3,000 (the “2019 Note,” and together with the 2020 Notes, the “Convertible Promissory Notes”). The 2019 Note accrued interest at 5 percent per annum. The 2019 Note converted into 254,899 shares of Legacy Solid Power Series B Preferred Stock, in conjunction with the Series B Financing. Upon this conversion, the 2019 Note converted to Series B Preferred Stock at a 30 percent discount.

See Note 8 – Fair Value Measurement for information about the assumptions that the Company used to measure the fair value of the 2019 Note. At December 31, 2020, the outstanding balance on the 2019 Note was $3,612. For three and six months ended June 30, 2021, interest expense of $16 and $53, respectively, was incurred related to the 2019 Note.

For all debt instruments, including any for which the Company has elected fair value accounting, the Company classifies interest that has been accrued during each period as Interest expense on the Condensed Consolidated Statements of Operations.

Note 8 – Fair Value Measurements

The carrying amounts of certain financial instruments, such as cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities, and equipment notes payable approximate fair value due to their short maturities.

The fair value of debt instruments for which the Company has not elected fair value accounting is based on the present value of expected future cash flows and assumptions about the then-current market interest rates as of the reporting period and the creditworthiness of the Company. The book values of the Company’s long-term debt approximate fair value because interest rates charged are similar to other financial instruments with similar terms and maturities and the rates vary in accordance with a market index. Most of the Company’s debt is carried on the condensed consolidated balance sheets on a historical cost basis net of

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unamortized discounts and premiums because the Company has not elected the fair value option of accounting. Changes to the inputs used in these valuation models can have a significant impact on the estimated fair value of the Convertible Promissory Notes and the Company’s embedded derivatives.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

As discussed in Note 7, all Convertible Promissory Notes were converted to Legacy Solid Power Series B Preferred Stock in May 2021. As of June 30, 2022 and December 31, 2021 the Company’s financial liabilities measured and recorded at fair value on a recurring basis were classified within the fair value hierarchy as follows:

June 30, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

 

Commercial Paper

$

36,003

$

$

$

36,003

Corporate Bonds

$

173,076

$

$

$

173,076

Government Bonds

$

17,634

$

$

$

17,634

U.S. Treasuries

$

5,854

$

$

$

5,854

Liabilities

Public Warrants

$

12,483

$

$

$

12,483

Private Warrants

$

$

9,354

$

$

9,354

December 31, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets

Commercial Paper

$

33,275

$

$

$

33,275

Corporate Bonds

$

39,593

$

$

$

39,593

Government Bonds

$

3,017

$

$

$

3,017

Liabilities

 

  

 

  

 

  

 

  

Public Warrants

$

26,483

$

$

$

26,483

Private Warrants

$

$

23,537

$

$

23,537

The change in fair value of the Company’s marketable securities is included in Other Comprehensive loss. There were no transfers in and out of Level 3 fair value hierarchy during the three or six months ended June 30, 2022 and 2021.

Fair Value of Stock Warrants

The fair value of the Private Placement Warrants (defined below) has been estimated using a Black-Scholes model as of June 30, 2022 and December 31, 2021. The fair value of the Public Warrants (defined below) has been measured based on the quoted price of such warrants on the Nasdaq Stock Market, a level 1 input. The estimated fair value of the Private Placement Warrants is determined using Level 2 inputs. Inherent in a Black-Scholes model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement. The Company estimates the volatility of its Private Placement Warrants based on implied volatility from the Company’s Public Warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is based on the historical rate, which the Company anticipates remaining at zero. Refer to Note 9 for additional details on the Company’s warrant liabilities.

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The following table provides quantitative information regarding Level 2 inputs used in the recurring valuation of the Private Placement Warrants as of their measurement dates:

    

    

 

June 30, 2022

December 31, 2021

 

Exercise Price

$

11.50

$

11.50

Stock Price

$

5.38

$

8.74

Volatility

 

50.0

%  

 

48.9

%

Term

 

4.44

 

4.94

Risk-free rate