Content analysis
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H.S. senior Avg
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New words:
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Removed:
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Financial report summary
?Risks
- Our limited operating history and the rapidly evolving industry in which we operate make it difficult to evaluate our business and the risks and challenges we may face and to predict our future performance.
- We are a relatively new company with a history of losses, and we cannot be certain that we will achieve or sustain profitability.
- If we are not able to continue to reduce our cost structure in the future, our ability to become profitable may be impaired.
- Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our liquidity, financial condition and results of operations, either directly or through adverse impacts on certain of our vendors and customers.
- Our independent registered public accounting firm’s 2022 report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”
- Our business and strategic plans rely in large part upon assumptions and analyses developed by us. If these assumptions or analyses prove to be incorrect, our actual operating results may suffer.
- There is no assurance that non-binding letters of intent and memoranda of understanding will be converted into binding contracts.
- The energy storage industry is highly competitive and changing rapidly, which makes it difficult to evaluate our current business and future prospects. Our business may be adversely affected if we cannot adapt quickly and effectively.
- The failure of energy storage costs to continue to decline would have a negative impact on our business and financial condition.
- Our success and future growth is dependent upon the market’s willingness to adopt energy storage systems in general, and our energy storage system in particular.
- If demand for solar PV systems is less than expected or takes longer to develop than we anticipate, sales of our energy storage systems may decline and we may be unable to achieve or sustain profitability.
- The majority of our revenues in the years ended December 31, 2021 and 2022 and for the nine months ended September 30, 2023 were derived from a small number of customers, and one of our customers accounted for greater than 87 percent of our revenue in the year ended December 31, 2022. We expect that the majority of our revenue for the remainder of fiscal year 2023 will be derived as a result of a single relationship with a major U.S. clean-energy company in the sustainable community networks program. The loss of, or events affecting, one of our major customers or this relationship with the major U.S. clean-energy company could reduce our sales and have an adverse effect on our business, financial condition and results of operations.
- Our revenue depends on gaining new customers and purchase commitments from customers.
- Our business is concentrated in certain markets, putting us at risk of region-specific disruptions.
- We conduct business in Puerto Rico and weakness in the fiscal health of the government and the Puerto Rico Electric Power Authority (“PREPA”), the damage caused by hurricanes, a series of earthquakes that affected the island in December 2019 and early 2020 and potential tax increases that may increase our cost of conducting business in Puerto Rico, create uncertainty that may adversely impact us.
- Significant inflation could adversely affect our business and financial results.
- Our business has been affected and may in the future be affected by the COVID-19 pandemic and the steps taken by the government in China to address the pandemic.
- We depend on a limited number of suppliers for key components and systems. This reliance on third parties increases the risk that necessary components of our systems may not be delivered according to our schedule and at prices, quality levels and volumes acceptable to us.
- Risks related to disruption in the supply chain of components to our system could in the future adversely impact our ability to produce and deliver products.
- We may experience delays or other complications in the design, launch and production ramp of our energy storage systems which could harm our brand, business, prospects, financial condition and operating results.
- If our energy storage systems fail to perform as expected, fail to work seamlessly with solar PV systems or fail to meet our customers’ expectations or needs, our reputation could be harmed and our ability to develop, market and sell our products and services could be harmed.
- If we fail to manage our growth effectively, we may not be able to develop, market and sell our hardware and software-enabled services successfully.
- Our growth depends in part on the success of our relationships with third parties.
- We rely primarily on providers of solar financing, installers and distributors, as well as on partners in our sustainable community networks program, to assist in selling our systems to homeowners, and our objective is to develop partnerships with municipalities, community choice aggregators and sustainable solutions developers. If we fail to develop those partnerships, or if these third parties fail to perform at the expected level, or at all, our business and financial results would suffer.
- Our hardware and software-enabled services involve a lengthy sales cycle, and if we fail to close sales on a regular and timely basis it could adversely affect our business, financial condition and results of operations.
- As part of our sustainable community networks program, homeowners enter into long-term PPAs. We receive revenue from PPAs during the term of the agreement. If homeowners default on their PPAs, our business and financial results could be adversely affected.
- A significant portion of our purchased components are sourced in a small number of foreign countries, exposing us to additional risks that might not exist if our suppliers were more geographically diversified or were located in the United States. The interruption of the flow of components and materials from international vendors could disrupt our supply chain, including as a result of the imposition of additional duties, tariffs and other charges on imports and exports.
- We primarily rely on Google Cloud Platform (“GCP”) to deliver our services to users on our back office platform, and any disruption of or interference with our use of GCP could adversely affect our business, financial condition and results of operations.
- Severe weather events, including the effects of climate change, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition.
- Our systems and technology could have undetected defects, errors or bugs in hardware or software which could reduce market adoption, damage our reputation with current or prospective customers and/or expose us to product liability and other claims that could materially and adversely affect our business.
- Our PowerPod 2 energy storage system is designed to be modular and easy to install. If installers find that installation is more difficult than they expected, our business could be harmed.
- Compromises, interruptions or shutdowns of our systems, including those managed by third parties, whether intentional or inadvertent, could lead to delays in our business operations and, if significant or extreme, affect our results of operations.
- Potential tariffs or a global trade war could increase the cost of our products.
- We may be unable to meet our energy storage system assembly plans and delivery plans, which could harm our business and prospects.
- Our customer relationships, business, financial results and reputation may be adversely impacted due to events and incidents relating to storage, delivery, installation, operation and maintenance of our energy storage systems.
- If our estimates of useful life for our energy storage systems and related hardware and software-enabled services are inaccurate or if our component suppliers do not meet service and performance warranties and guarantees, our business and financial results could be adversely affected.
- The economic benefit to homeowners of our energy storage systems depends on the cost of electricity available from alternative sources, including local electric utility companies, which cost structure is subject to change. A material reduction in the retail price of electricity charged by electric utilities or other retail electricity providers or a change in utility pricing structures could harm our business, financial condition and results of operations.
- Improvements in the electrical grid that reduce the frequency or risk of service outages could reduce the demand for our energy storage systems.
- The execution of our growth strategy is dependent upon the continued availability of third party financing arrangements for some of our projects, which is affected by general economic conditions and other factors. We expect to rely on project finance capital to fund the purchase and installation of our solar and energy storage systems in the sustainable community networks market, and that funding may be unavailable or expensive.
- We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflicts in Israel, and between Russia and Ukraine. Our business, financial condition and results of operations may be materially and adversely affected by any negative impact on the global economy and capital markets resulting from the conflicts in Israel, Ukraine or any other geopolitical tensions.
- Market conditions, economic uncertainty, an economic downturn or a recession could reduce demand for our products and materially harm our business.
- The growth and profitability of our business is dependent upon the continued decline in the cost of components for our energy storage system.
- Electriq may not realize the full amount of revenue estimated to be potentially generated over a 30-month period under a project financing agreement entered into with a major U.S. clean-energy company. That failure could adversely affect our business, operations and financial condition.
- Our system and services are subject to substantial regulations, which are evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.
- We have experienced and may continue to experience exposure to risks associated with construction, utility interconnection, cost overruns and delays, including those related to obtaining government permits and other contingencies that may arise in the course of completing installations.
- The reduction, elimination or expiration of government incentives for solar energy systems, or regulations mandating the use of renewable energy or establishing targets for the use of renewable energy, could reduce demand for energy storage systems and harm our business.
- Negative attitudes toward renewable energy projects from the U.S. government, other lawmakers and regulators, and activists could adversely affect our business, financial condition and results of operations.
- The installation and operation of our energy storage systems are subject to environmental laws and regulations in various jurisdictions. We may incur obligations, liabilities, or costs under these laws and regulations, which could have an adverse impact on our business, financial condition, and results of operations.
- Existing policies and regulations impacting the electric power industry and changes to such policies and regulations may create technical, regulatory and economic barriers which could significantly reduce demand for our energy storage systems.
- Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs, and negative publicity and have a material adverse effect on our business, financial condition and results of operations.
- Changes in tax laws or regulations that are applied adversely to us or our customers could materially adversely affect our business, financial condition, results of operations and prospects.
- Regulators may limit the type of electricians qualified to install and service our energy storage systems in California or other states, which may result in workforce shortages, operational delays and increased costs.
- Failure by our vendors or our component suppliers to use ethical business practices and comply with applicable laws and regulations may adversely affect our business.
- If we are unable to obtain, maintain and enforce intellectual property protection for our technology or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize technology substantially similar to ours, and our ability to successfully commercialize our technology may be adversely affected.
- We may need to assert intellectual property-related claims or defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs.
- If our trademarks and trade names are not adequately protected or protectable, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.
- We may not be able to enforce our intellectual property rights throughout the world.
- Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems.
- Cybersecurity attacks or security breaches could adversely affect our ability to operate, could result in personal information and our proprietary information being lost, stolen, made inaccessible, improperly disclosed or misappropriated and may cause us to be held liable or subject to regulatory penalties and sanctions and to litigation (including class action litigation), which could have a material adverse effect on our reputation and business.
- We utilize open-source software, which may pose particular risks to our proprietary software and solutions.
- If we cannot license rights to use technologies on reasonable terms, we may not be able to commercialize new solutions or services in the future.
- We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
- Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information, and our inability to maintain the confidentiality of that information, due to unauthorized disclosure or use, or other event, could have a material adverse effect on our business.
- We are heavily reliant on Frank Magnotti, our Chief Executive Officer and the departure or loss of Mr. Magnotti could disrupt our business.
- If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.
- Failure to maintain adequate financial, information technology and management processes and controls could impair our ability to comply with the financial reporting and internal controls and could lead to errors in our financial reporting and adversely affect our business.
- We have identified a material weakness in our internal control over financial reporting and we may identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our reported financial information or cause us to fail to meet our periodic reporting obligations or cause our business to be impaired.
- Our management team has limited experience managing a public company.
- We may incur increased costs as a result of operating as a public company, and our management may devote substantial time to compliance with its public company responsibilities and corporate governance practices.
- There can be no assurance that we will continue to comply with the continued listing standards of the NYSE, which could result in the delisting of our securities, limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
- Beginning in January 2022, there has been a precipitous drop in the market values of growth-oriented companies. Accordingly, securities of growth companies such as Electriq may be more volatile than other securities and may involve special risks.
- Changes in laws or regulations, or a failure to comply with any laws or regulations, may adversely affect our business, investments and results of operations.
- Future resales of our common stock may cause the market price of our common stock to decline significantly, even if our business is doing well.
- Electriq common stock price may be volatile or may decline regardless of our operating performance. You may lose some or all of your investment.
- We do not intend to pay dividends on our Class A common stock for the foreseeable future.
- If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our Class A common stock, the price of our Class A common stock could decline.
- Electriq may be subject to securities class action litigation, which may harm its business and operating results.
- The Electriq preferred stock issued at Closing is subject to mandatory redemption after three years, in either cash or shares of our Class A common stock. As a result, the mandatory redemption of Electriq preferred stock may result in dilution to holders of our Class A common stock and/or may require Electriq to expend significant amounts of cash. The holders of Electriq preferred stock could receive more shares of Class A common stock if the market price of our Class A common stock declines and if the Electriq preferred stock is redeemed at the holder’s option for shares of Class A common stock, which could exacerbate the dilution to holders of our Class A common stock. Further, if holders choose to redeem our Electriq preferred stock for cash, we may not have sufficient cash to settle redemption of the Electriq preferred stock in cash.
- Our issuance of additional shares of Class A common stock or convertible securities could make it difficult for another company to acquire us, may dilute your ownership of us and could adversely affect our stock price.
- Our issuance of additional shares of common stock or convertible securities could make it difficult for another company to acquire us, may dilute your ownership of us and could adversely affect our stock price.
- Future sales, or the perception of future sales, of our Class A common stock by us or our stockholders in the public market could cause the market price for our common stock to decline.
- The warrant agreement designates the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company.
- Exercise of our Warrants for Class A common stock would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
- The Public Warrants may never be in the money, and they may expire worthless and the terms of the Warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment.
- We are an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act, and we intend to take advantage of certain exemptions from disclosure requirements available to emerging growth companies and/or smaller reporting companies, which could make our securities less attractive to investors and may make it more difficult to compare our performance with that of other public companies.
- Anti-takeover provisions in our governing documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
- The Charter provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Management Discussion
- Our entire activity since inception up to December 31, 2022 was in preparation for our formation and the Initial Public Offering and, after the Initial Public Offering, identifying a target company for a Business Combination. We do not expect to be generating any operating revenues until the closing and completion of our initial Business Combination.
- For the year ended December 31, 2022, we had net income of approximately $10.4 million, which consisted of approximately $5.7 million in interest income from investments held in the trust account and non-operating income of approximately $9.8 million resulting from changes in fair value of derivative warrant liabilities, approximately $690,000 resulting from changes in fair value of the Working Capital Loan, partially offset by approximately $4.4 million in general and administrative expenses, approximately $239,000 in franchise tax expense and approximately $1.1 million in income tax expense.
- For the year ended December 31, 2021, we had net income of approximately $17.9 million, due largely to a noncash gain resulting from changes in fair value of derivative warrant liabilities of approximately $23.9 million, partially offset by a non-operating expense of approximately $1.4 million related to offering costs for derivative warrant liabilities and operating expenses of approximately $4.6 million. Operating expenses consisted of approximately $4.3 million in general and administrative expenses, $78,000 in general and administrative expenses with related parties and $210,000 in franchise tax expenses.