SEC Filing | Solid Power

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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 September 30, 2022


☐	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

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 ☒

175,814,364 shares of common stock were issued and outstanding as of November 4, 2022.

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SOLID POWER, INC.

FORM 10-Q

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PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 6.	Exhibits	28

Signatures		29

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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 manufacturer 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;

●

delays in the construction and operation of production facilities;

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●

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.

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)


	September 30, 2022
	(Unaudited)		December 31, 2021
Assets
Current Assets
Cash and cash equivalents	$	97,700	$	513,447
Marketable securities		270,839		75,885
Contract receivables		3,301		829
Prepaid expenses and other current assets		2,444		4,216
Total current assets		374,284		594,377

Property, Plant and Equipment, net		74,381		22,082
Right-Of-Use Operating Lease Asset, net		7,181		—
Right-Of-Use Financing Lease Asset, net		800		—
Other Assets		1,178		602
Long-term Investments		139,034		—
Intangible Assets, net		921		619
Total assets	$	597,779	$	617,680

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	9,946	$	4,326
Current portion of long-term debt		24		120
Deferred revenue		200		500
Accrued and other current liabilities:
Accrued compensation		2,905		1,151
Other accrued liabilities		1,157		2,269
Operating lease liabilities, short-term		691		—
Financing lease liabilities, short-term		231		—
Total current liabilities		15,154		8,366
Long-term Debt		2		10
Operating Lease Liabilities, Long-Term		7,134		—
Financing Lease Liabilities, Long-Term		545		—
Warrant Liabilities		21,837		50,020
Other Long-term Liabilities		—		393
Deferred Taxes		156		226
Total liabilities		44,828		59,015
Stockholders’ Equity
Common stock, $0.0001 par value; 2,000,000,000 shares authorized; 175,741,566 and 167,557,988 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		18		17
Additional paid in capital		575,381		568,183
Accumulated other comprehensive loss		(3,837)		—
Accumulated deficit		(18,611)		(9,535)
Total stockholders’ equity		552,951		558,665
Total liabilities and stockholders’ equity	$	597,779	$	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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	2,813	$	628	$	7,591	$	1,669
Operating expenses
Direct costs		3,544		709		8,561		1,764
Research and development		9,710		4,400		24,811		10,709
Marketing and sales		864		729		2,615		1,819
General and administrative		4,294		3,271		13,212		6,200
Total operating expenses		18,412		9,109		49,199		20,492
Operating loss		(15,599)		(8,481)		(41,608)		(18,823)
Non-operating income (expense)
Interest income		1,777		18		2,713		27
Interest expense		(12)		(32)		(22)		(374)
Other income (expense)		1,351		(2)		1,587		(3,102)
Change in fair value of warrant liabilities		—		—		28,183		—
Loss from change in fair value of embedded derivative liability		—		—		—		(2,680)
Total non-operating income (expense)		3,116		(16)		32,461		(6,129)

Pretax loss		(12,483)		(8,497)		(9,147)		(24,952)
Income tax expense (benefit)		(84)		(47)		(71)		(88)
Net loss	$	(12,399)	$	(8,450)	$	(9,076)	$	(24,864)
Other comprehensive loss		(2,546)		—		(3,837)		—
Comprehensive loss attributable to common stockholders	$	(14,945)	$	(8,450)	$	(12,913)	$	(24,864)
Net loss per share – Basic and Diluted		(0.07)		(0.08)		(0.05)		(0.28)
Weighted average shares outstanding – Basic and Diluted		175,025,984		102,389,770		173,859,649		87,258,952

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 income	—		—		—		3,323		—		3,323
Transaction fees			—		(12)						(12)
Stock options exercised	6,869,144		—		433		—		—		433
Stock-based compensation expense	—		—		3,910		—		—		3,910
Unrealized loss on marketable securities	—		—		—		—		(1,291)		(1,291)
Withholding of Employee taxes related to stock-based compensation	—		—		(58)		—		—		(58)
Shares issued for the vesting of restricted stock units	20,672		—		—		—		—		—
Balance as of June 30, 2022	174,447,804	$	17	$	572,456	$	(6,212)	$	(1,291)	$	564,970
Net loss	—		—		—		(12,399)		—		(12,399)
Stock options exercised	1,293,762		1		337		—		—		338
Stock-based compensation expense	—		—		2,588		—		—		2,588
Unrealized loss on marketable securities	—		—		—		—		(2,546)		(2,546)
Balance as of September 30, 2022	175,741,566	$	18	$	575,381	$	(18,611)	$	(3,837)	$	552,951


	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	—		—		—		(16,414)		—		(16,414)
Beneficial conversion feature on convertible debt	—		—		4,875		—		—		4,875
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	778,817		—		70		—		—		70
Warrants exercised	4,731,542				15						15
Stock-based compensation expense	—		—		217		—		—		217
Balance as of June 30, 2021	102,260,968	$	10	$	171,064	$	(44,041)	$	—	$	127,033
Net loss	—		—		—		(8,450)		—		(8,450)
Stock options exercised	226,558		—		32		—		—		32
Warrants exercised	—		—		—		—		—		—
Stock-based compensation expense	—		—		758		—		—		758
Balance as of September 30, 2021	102,487,526	$	10	$	171,853	$	(52,491)	$	—	$	119,373

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)


	Nine Months Ended September 30,
	2022		2021
Cash Flows from Operating Activities
Net loss	$	(9,076)	$	(24,864)
Adjustments to reconcile net loss to net cash and cash equivalents from operating activities:
Depreciation and amortization		3,437		1,673
Amortization of right-of-use assets		51		—
Loss on sale of property, plant and equipment		4		4
Stock compensation expense		6,498		975
Deferred taxes		(71)		(88)
Change in fair value of warrant liabilities		(28,183)		—
Amortization of premiums and accretion of discounts on marketable securities		(1,170)
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		(2,473)		(365)
Prepaid expenses and other assets		2,101		(876)
Accounts payable		(2,215)		1,070
Deferred revenue		(300)		20
Accrued and other liabilities		719		1,530
Operating lease liability		192		(55)
Net cash and cash equivalents used in operating activities		(30,486)		(18,033)
Cash Flows from Investing Activities
Purchases of property, plant and equipment		(47,915)		(6,573)
Purchase of marketable securities and long-term investments		(448,757)		—
Proceeds from sales of marketable securities		111,198		—
Purchases of intangible assets		(308)		(189)
Net cash and cash equivalents used in investing activities		(385,782)		(6,762)

Cash Flows from Financing Activities
Proceeds from debt		—		957
Payments of debt		(104)		(1,883)
Proceeds from issuance of convertible note payable		—		4,875
Proceeds from exercise of common stock options		771		102
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		(76)		—
Transaction costs		(12)		—
Net cash and cash equivalents provided by financing activities		521		129,093

Net (decrease) increase in cash and cash equivalents		(415,747)		104,298
Cash and cash equivalents at beginning of period		513,447		4,974
Cash and cash equivalents at end of period		97,700		109,272

Supplemental information
Cash paid for interest	$	5	$	112
Accrued capital expenditures	$	7,818	$	—

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 September 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 September 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 nine months ended September 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.

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.

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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:


	September 30, 2022		December 31, 2021
Commercial production equipment	$	19,272	$	9,139
Laboratory equipment		2,379		1,316
Leasehold improvements		11,806		4,674
Furniture and computer equipment		860		737
Construction in progress		49,966		12,684
Total cost		84,283		28,550
Accumulated depreciation		(9,902)		(6,468)
Net property, plant and equipment	$	74,381	$	22,082

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


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Depreciation and amortization expense	$	1,653	$	569	$	3,430	$	1,666

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 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 $2,010 and $6,875 as of September 30, 2022 and December 31, 2021, respectively. Construction in progress related to multiple other projects at the Louisville, Colorado facility was $1,521 as of September 30, 2022.

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 $46,435 and $5,809 as of September 30, 2022 and December 31, 2021, respectively.

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Note 5 – Intangible Assets

Intangible assets of the Company are summarized as follows:


	September 30, 2022				December 31, 2021
	Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Intangible assets:
Licenses	$	149	$	(49)	$	149	$	(42)
Patents pending		796		—		503		—
Trademarks		9		—		9		—
Trademarks pending		16		—		—		—
Total amortized intangible assets	$	970	$	(49)	$	661	$	(42)

Amortization expense for intangible assets is summarized as follows:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Amortization expense	$	2	$	2	$	7	$	7

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:


	September 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.	$	26	$	130
Total		26		130
Less current portion		24		120
Long‑term portion	$	2	$	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 $1 and $32 for the three months ended September 30, 2022 and 2021, respectively, and $6 and $111 for the nine months ended September 30, 2022 and 2021, respectively.

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 for three and nine months ended September 30, 2021 was $0 and $210, respectively. The principal of the 2020 Notes was included in Additional Paid In Capital

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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 the three and nine months ended September 30, 2021, interest expense of $0 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 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.

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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 September 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:


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Assets
Commercial Paper	$	146,572	$	—	$	—	$	146,572
Corporate Bonds	$	208,824	$	—	$	—	$	208,824
Government Bonds	$	42,938	$	—	$	—	$	42,938
U.S. Treasuries	$	11,539	$	—	$	—	$	11,539

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 nine months ended September 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 September 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.

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:


	September 30, 2022			December 31, 2021
Exercise Price	$	11.50		$	11.50
Stock Price	$	5.26		$	8.74
Volatility		51.5	%		48.9	%
Term		4.19			4.94
Risk-free rate		4.05	%