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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

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

 

For the fiscal year ended December 31, 2023

OR

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

 

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

 

Date of event requiring this shell company report

 

For the transition period from          to          

 

Commission File No. 001-41066

 

SONO GROUP N.V.

(Exact name of Registrant as specified in its charter)

 

N/A

(Translation of Registrants name into English)

 

The Netherlands

(Jurisdiction of incorporation or organization)

 

Waldmeisterstraße 93

80935 Munich, Germany

+49 (0)89 4520 5818

(Address of principal executive offices)

 

 

George OLeary

Chief Executive Officer &

Chief Financial Officer

Sono Group N.V.

Waldmeisterstraße 93

80935 Munich, Germany

+49 (0)89 4520 5818

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

 

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

 

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered:

Not Applicable

Not Applicable

Not Applicable

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Ordinary Shares, par value of €0.06 per share

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

105,667,115 ordinary shares, with a par value of €0.06 and 3,000,000 high-voting shares with a par value of €1.50.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.

 

Large accelerated filer ☐         Accelerated filer ☐         Non-accelerated filer ☒         Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.

 

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report.

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

 

 

 

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company. Yes No ☒

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)**

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

 

**As described in more detail in this Annual Report , the issuer was involved in preliminary self-administration proceedings under German insolvency law before the local court of Munich, Germany from mid-May 2023 through January 31, 2024 Since no insolvency plan providing for the distribution of securities was confirmed by the court, the issuer has not checked either of the boxes above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

INTRODUCTION

1

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

1

MARKET AND INDUSTRY DATA

2

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

2

RISK FACTOR SUMMARY

3

PART I.

5

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

5

A. Directors and Senior Management

5

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

5

ITEM 3. KEY INFORMATION

6

A. [Reserved]

6

B. Capitalization and Indebtedness

6

C. Reasons for the Offer and Use of Proceeds

6

D. Risk Factors

6

ITEM 4. INFORMATION ON THE COMPANY

43

A. Corporate History

43

B. Business Overview

44

C. Organizational Structure Organizational Structure

61

D. Property, Plant and Equipment

61

ITEM 4A. UNRESOLVED STAFF COMMENTS

61

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

61

A. Operating Results

66

B. Liquidity and Capital Resources

67

C. Research and Development, Patents and Licenses

69

D. Trend Information

69

E. Critical Accounting Estimates

69

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

70

A. Directors and Senior Management

70

B. Compensation

72

C. Board Practices

78

D. Employees

79

E. Share Ownership

80

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

80

A. Major Shareholders

80

B. Related Party Transactions

82

C. Interests of Experts and Counsel

82

ITEM 8. FINANCIAL INFORMATION.

82

A. Consolidated Statements and Other Financial Information.

82

B. Significant Changes

85

ITEM 9. THE OFFER AND LISTING

85

A. Offer and Listing Details

85

B. Plan of Distribution

85

C. Markets

85

D. Selling Shareholders

85

E. Dilution

85

 

 

 

F. Expenses of the Issue

85

ITEM 10. ADDITIONAL INFORMATION

85

A. Share Capital

85

B. Memorandum and Articles of Association

85

C. Material Contracts

86

D. Exchange Controls

89

E. Taxation

89

F. Dividends and Paying Agents

105

G. Statement by Experts

105

H. Documents on Display

105

I. Subsidiary Information.

106

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

106

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

106

A. Debt Securities.

106

B. Warrants and rights.

107

C. Other Securities.

107

D. American Depositary Shares

107

PART II.

108

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

108

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

108

ITEM 15. CONTROLS AND PROCEDURES

108

A. Disclosure Controls and Procedures

108

B. Management's Annual Report on Internal Control over Financial Reporting

108

C. Attestation Report of the Registered Public Accounting Firm

109

D. Changes in Internal Control over Financial Reporting

109

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

109

ITEM 16B. CODE OF ETHICS

109

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

110

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

111

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

111

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

111

ITEM 16G. CORPORATE GOVERNANCE

111

ITEM 16H. MINE SAFETY DISCLOSURE

111

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

111
ITEM 16J. INSIDER TRADING POLICIES 112
ITEM 16K. CYBERSECURITY 112

PART III.

113

ITEM 17. FINANCIAL STATEMENTS

113

ITEM 18. FINANCIAL STATEMENTS

113

ITEM 19. EXHIBITS.

113

 

 

 

 

INTRODUCTION

 

We conduct our business through our subsidiary Sono Motors GmbH, a German limited liability company (Gesellschaft mit beschränkter Haftung) (the “Subsidiary”). Unless otherwise indicated or the context otherwise requires, the terms “Sono Motors,” “the Companies,” “we,” “our,” “ours,” “ourselves,” “us” or similar terms refer to Sono Group N.V. together with its subsidiary. The “Company” refers to Sono Group N.V. and the “Subsidiary” refers to Sono Motors GmbH. The Companies believe they are a pioneer in the field of solar-powered mobility applications. After terminating the Sion passenger car program (“Sion”) due to a lack of available funding at the end of February 2023, the Companies pivoted their business model to focus exclusively on retrofitting and integrating their proprietary solar technology onto third party vehicles, with an initial focus in the short- to medium-term on the Solar Bus Kit and similar retrofit solar products. For more information on the Companies, see “Item 4. Information on the CompanyB. Business Overview”.

 

The Self-Administration Proceedings and the Yorkville Investment

 

On May 15, 2023, based on management’s conclusion that the Company was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), the Company applied to the insolvency court of the local court of Munich, Germany (the “Court”), to permit the opening of a self-administration proceeding (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of a self-administration proceeding in the form of a protective shield proceeding (Schutzschirmverfahren) with respect to the Subsidiary pursuant Section 270 (d) of the German Insolvency Code (collectively, the “Self-Administration Proceedings”). On May 17, 2023 and May 19, 2023, the Court admitted the opening of Self-Administration Proceedings on a preliminary basis (the “Preliminary Self-Administration Proceedings”) with respect to the Company and the Subsidiary, respectively. On September 1, 2023, the Court opened the Self-Administration Proceedings with respect to the Subsidiary (the “Subsidiary Self-Administration Proceedings”).

 

On January 31, 2024, the Subsidiary withdrew its application for Preliminary Self-Administration Proceedings. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024 via its plan under the German Insolvency Code (the “Plan”), which set out how the Subsidiary intended to restructure its debt and procure the inflow of new cash, including pursuant to a funding commitment from YA II PN, Ltd. (“Yorkville”), in connection with which Yorkville committed to provide financing to the Company (the “First Commitment”) subject to the Companies’ continued compliance with the terms of the Yorkville Agreements (as defined herein). The funding of the first tranche of the investment from Yorkville occurred on February 6, 2024 for €4.0 million, or USD 4,317,600 (the “First Tranche”). On April 30, 2024, Yorkville committed additional financing to the Company (the “Second Commitment” and together with the First Commitment, the “Yorkville Investment”) by way of an amendment to the Funding Commitment Letter (as defined herein) issued by Yorkville to the Company in connection with the First Commitment. For more information on the Yorkville Investment and the transactions contemplated and entered into in connection therewith (the “Transactions”), see “Item 4. Information on the CompanyB. Business OverviewOverviewThe Yorkville Investment”. For more information about the Self-Administration Proceedings, see “Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal ProceedingsThe Self-Administration Proceedings”.

 

Despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment remains subject to a number of contingencies and risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event (as defined herein) or any event of default. For more information see “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville Investment” and “Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal ProceedingsThe Self-Administration Proceedings”.

 

The forward-looking information in this Annual Report is subject to, and qualified in its entirety by, the risk factors discussed herein. For more information see “Item 3. Key InformationD. Risk Factors”.

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

 

We report under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

 

1

 

Our consolidated financial statements are reported in euros, which are denoted “euros,” “EUR” or “€” throughout this Annual Report and refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended. Also, throughout this Annual Report, the terms “dollar,” “USD” or “$” refer to U.S. dollars.

 

Financial information is presented in thousands or millions, and percentage figures have been rounded. Rounded total and subtotal figures in tables in this Annual Report may differ marginally from unrounded figures indicated elsewhere in this Annual Report or in the financial statements. Moreover, rounded individual figures and percentages may not produce the exact arithmetic totals and subtotals indicated elsewhere in this Annual Report.

 

MARKET AND INDUSTRY DATA

 

We obtained the industry, market and competitive position data in this Annual Report from our own internal estimates, surveys, and research as well as from publicly available information, industry and general publications and research, surveys and studies conducted by third parties, including, but not limited to, Bloomberg New Energy Finance (“BloombergNEF”), the International Energy Agency (IEA) and the German Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz).

 

Industry publications, research, surveys, studies and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this Annual Report. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Item 3. Key Information.” These and other factors could cause results to differ materially from those expressed in our forecasts or estimates or those of independent third parties.

 

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

 

We have proprietary rights to trademarks used in this Annual Report that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, the trademarks, service marks, logos and trade names referred to in this Annual Report are without the ® and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

This Annual Report contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this Annual Report are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains forward-looking statements that relate to our current expectations and views of future events. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, these forward-looking statements can be identified by words or phrases such as “believe,” “may,” “will,” “expect,” “estimate,” “could,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar or comparable expressions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements contained in this Annual Report include, but are not limited to, statements about:

 

 

our expectations regarding our ability to access the unfunded portion of the Yorkville Investment, including our ability to successfully comply with the Yorkville Agreements and the absence of any Termination Event or any event of default;

 

 

our ability to maintain relationships with lenders, suppliers, customers, employees and other third parties in light of the performance and credit risks associated with our constrained liquidity position and capital structure;

 

2

 

 

the Subsidiary’s ability to comply with its obligations under the Plan and related agreements in connection with its exit from the Subsidiary Self-Administration Proceedings;

 

 

our status as a foreign private issuer under the Exchange Act;

 

 

following the delisting of our ordinary shares from The Nasdaq Global Market (“Nasdaq”) in February 2024, our ability to have our ordinary shares admitted to trading on OTCQB and to comply with OTCQB continuing standards, as well as our ability to have our shares admitted to trading on a stock exchange in the future, including our ability to meet the relevant initial listing requirements and to pay for all costs associated with an initial listing;

 

 

our strategies, plan, objectives and goals, including, for example:

 

 

the successful implementation and management of the pivot of our business to exclusively retrofitting and integrating our solar technology onto third party vehicles, with an initial focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products; and

 

 

the successful development, launch of sales and delivery of our Solar Bus Kit, as well as the continuous advancement of our current technologies and development of new technologies;

 

 

our ability to raise the additional funding required beyond the Yorkville Investment, if we are able to successfully access the unfunded portion of the investment as planned , to further develop and commercialize our solar technology and business as well as to continue as a going concern;

 

 

our future business and financial performance, including our ability to turn profitable, scale our operations and build a well-recognized and respected brand cost-effectively;

 

 

our ability to achieve customer acceptance of and demand for our products, including by developing and maintaining relationships with key business partners who are crucial for our operations or who directly deal with end users in our target market; and

 

 

our expectations regarding the development of our industry, market size and the regulatory and competitive environment in which we operate.

 

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions, many of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industries in which we operate are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Item 3. Key Information”.

 

RISK FACTOR SUMMARY

 

The Self-Administration Proceedings we have applied for and our business are subject to numerous risks, as more fully described in “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville Investment.

 

The principal risks associated with the Yorkville Investment include, but are not limited to, the following:

 

 

our ability to successfully access the unfunded portion of the Yorkville Investment by complying with the terms of the Yorkville Agreements , or to otherwise obtain sufficient financing to allow us to execute our business plan following our emergence from the Self-Administration Proceedings;

 

3

 

 

the risk that, in the event of a Termination Event, Yorkville could, at its sole discretion, cancel any unfunded amounts of the Yorkville Investment and exercise all of its rights under any of the new convertible debentures as if an event of default had occurred;

 

 

our ability to maintain our relationships with our suppliers, service providers, creditors, customers, officers, supervisory board members, employees, counterparties and other third parties, to pursue new customer arrangements and projects, and to attract, retain and motivate key employees as a result of the Self-Administration Proceedings;

 

 

the risk that, as a result of the Transactions, we may lose our status as a foreign private issuer , which may result in additional legal, accounting and other expenses and would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospect;

 

 

our ability to maintain contracts that are critical to our operations on reasonably acceptable terms and conditions as a result of the former Self-Administration Proceedings; 

 

 

the Subsidiary’s ability to comply with its obligations under the Plan and related agreements in connection with its exit from the Subsidiary Self-Administration Proceedings, violations of which could expose us to legal proceedings and therefore financial and other liabilities; and

 

 

our ability to achieve our stated goals and continue as a going concern following our emergence from the Self-Administration Proceedings.

 

If we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, our business continues to be subject to numerous other risks, and we may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. Such risks include, but are not limited to, the following:

 

 

the dependence of our success and future growth upon the market’s willingness to adopt solar-powered mobility solutions;

 

 

the competitiveness of the mobility market and the risk to fail to successfully commercialize our proprietary solar technology in time or at all;

 

 

the risk that we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future and pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future;

 

 

our ability to prevent liquidation and continue as a going concern, including our ability to raise the additional external financing upon which our ability to accomplish any of our business plans is dependent;

 

 

our ability to remediate material weaknesses in our internal control over financial reporting and to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner;

 

 

our unproven ability to commercialize solar technology on a larger scale and to develop solar power electronics, such as our maximum power point tracker central unit (“MCU”), and the risk of failing to further develop and realize the commercialization of our solar products within the intended timeframe, budget or at all; 

 

 

that our products may not be fully functional or available on our anticipated schedule or at all, and may remain unproven and pose additional risks;

 

 

our dependence on the adequate protection of our intellectual property, which can be difficult and costly;

 

 

that our patent applications are unsuccessful, which may adversely affect our ability to prevent others from commercially exploiting products similar to ours and/or that one or more of our products conflicts with the proprietary rights of third parties of which we are not aware, which could have a material adverse effect on our ability to commercialize and market our products as planned;

 

4

 

 

our possible inability to develop installation processes and capabilities within our projected costs and timelines;

 

 

our dependence on a limited number of suppliers for the sourcing of raw materials and components required for our Solar Bus Kit; 

 

 

increases in costs, disruption of supply or shortage of raw materials or certain products that could harm our business;

 

 

ongoing negotiations of contractual agreements with many of our prospective suppliers and business partners and potential renegotiations of these agreements as we scale our business;

 

 

our ability to obtain or agree on acceptable terms and conditions on all or a significant portion of the government grants, loans and other incentives for which we may apply, which may negatively affect our ability to reach funding goals;

 

 

the involvement of numerous third parties in our process, which adds significant complexity;

 

 

our dependence on the acceptance of our brand and any negative publicity relating to any of our business partners and their products or services, which could have a significant negative impact on our business and reputation;

 

 

the risk that our solar solutions may fail to perform as expected;

 

 

damage to our reputation due to the perception that our advertisements were overly positive or that we do not live up to our promises;

 

 

our ability to establish a network for aftersales customer service or otherwise successfully address the service and maintenance requirements of our customers;

 

 

product recalls that could materially adversely affect our business, prospects, operating results and financial condition;

 

 

health and safety risks posed by our products;

 

 

risks posed by interruptions or failures of information technology and communications systems;

 

 

risks associated with international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business;

 

 

our inability to attract and retain key employees and hire additional qualified management, technical and engineering personnel, which could harm our ability to compete;

 

 

our exposure to various liability risks resulting from past or existing employment relationships and labor laws; and

 

 

the adverse effects that disasters or unpredictable events could have on our operations.

 

 

Part I.

 

ITEM 1.          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

A.    Director and Senior Management

 

Not applicable.

 

ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

5

 

ITEM 3.          KEY INFORMATION

 

 

A.

[Reserved]

 

 

B.

Capitalization and Indebtedness

 

Not applicable.

 

 

C.

Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

 

D.

Risk Factors

 

The following risks may have material adverse effects on our business, financial condition and results of operations. Additional risks and uncertainties of which we are not presently aware or that we currently deem immaterial could also materially affect our business operations and financial condition.

 

Risks Related to the Yorkville Investment

 

We are subject to risks and uncertainties associated with the Companies Self-Administration Proceedings.

 

On May 15, 2023, based on management’s conclusion that the Company was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), the Company applied to the Court, to permit the opening of a self-administration proceeding (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of a self-administration proceeding in the form of a protective shield proceeding (Schutzschirmverfahren) with respect to the Subsidiary pursuant Section 270 (d) of the German Insolvency Code. The applications, in each case, were made with the goal of sustainably restructuring the business of both Companies. On May 17, 2023 and May 19, 2023, the Court admitted the opening of the Preliminary Self-Administration Proceedings with respect to the Company and the Subsidiary, respectively. On September 1, 2023, the Court opened the Subsidiary Self-Administration Proceedings.

 

In mid-November 2023, in connection with the Yorkville Investment, the Company and Yorkville entered into certain investment-related agreements that became effective on November 20, 2023, including a restructuring agreement (as amended from time to time, the “Restructuring Agreement”) and a funding commitment letter with respect to the First Commitment (as amended from time to time, the “Funding Commitment Letter” and together with the Restructuring Agreement and the ancillary agreements entered into in connection therewith, (the “Yorkville Agreements”). The Subsidiary filed the Plan with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. The Plan set out how the Subsidiary intended to restructure its debt and procure the inflow of new cash, including in connection with the First Commitment , and subsequently exit the Subsidiary Self-Administration Proceedings. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The funding of the First Tranche of the Yorkville Investment occurred on February 6, 2024. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment.

 

The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025, subject to the Companies’ continued compliance with their obligations under the terms of the Yorkville Agreements. For more information on the Transactions and the structure of the Yorkville Investment, see “Item 4. Information on the CompanyB. Business OverviewOverviewThe Yorkville Investment”.

 

However, despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment poses a number of risks, including, among others:

 

6

 

 

our ability to successfully access the unfunded portion of the Yorkville Investment by complying with the terms of the Yorkville Agreements , or to otherwise obtain sufficient financing to allow us to execute our business plan;

 

 

the risk that, in the event of a Termination Event, Yorkville could, at its sole discretion, cancel any unfunded portion of the Yorkville Investment and exercise all of its rights under any of the new convertible debentures as if an event of default had occurred;

 

 

our ability to maintain our relationships with our suppliers, service providers, creditors, customers, officers, supervisory board members, employees, counterparties and other third parties, to pursue new customer arrangements and projects, and to attract, retain and motivate key employees as a result of the former Self-Administration Proceedings;

 

 

the risk that, as a result of the Transactions, we could lose our status as a foreign private issuer , which may result in additional legal, accounting and other expenses and would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospect;

 

 

our ability to maintain contracts that are critical to our operations on reasonably acceptable terms and conditions ;

 

 

the Subsidiary’s ability to comply with its obligations under the Plan and related agreements in connection with its exit from the Subsidiary Self-Administration Proceedings, violations of which could expose us to legal proceedings and therefore financial and other liabilities; and

 

 

our ability to achieve our stated goals and continue as a going concern following our emergence from the Self-Administration Proceedings.

 

Although we have taken multiple measures to reduce our expenses and have significantly reduced the scale of our operations in connection with both the change of our business model announced on February 23, 2023 and the business changes and streamlined initial business focus on our Solar Bus Kit implemented in connection with the Yorkville Investment, we expect to require additional cash in an amount of approximately €5.0 million to fund our ongoing operations through the second quarter of 2025. Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to maintain adequate cash on hand, (ii) our ability to access the unfunded portion of the Yorkville Investment, and (iii) our ability to raise additional external funding in the short term.

 

If we are unable to meet our liquidity requirements, our businesses and assets may become subject to liquidation in a regular insolvency proceeding under the German Insolvency Code, and we may cease to continue as a going concern.

 

Because of the risks and uncertainties associated with the Yorkville Investment and despite our emergence from the Self-Administration Proceedings, we cannot accurately predict or quantify the ultimate impact that events related to the investment or the proceedings may have on us and there is no certainty as to our ability to continue as a going concern. Following our emergence from the Self-Administration Proceedings, we may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that has recently emerged from such proceedings.

 

If the Company is not able to access the unfunded portion of the Yorkville Investment, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.

 

In mid-November 2023, the Companies entered into the Yorkville Agreements in connection with the First Commitment. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment, which increased Yorkville’s funding commitment to the Company by EUR 2.0 million and extended the date upon which the obligation of Yorkville to commit any fundings automatically lapses from December 31, 2024 to May 1, 2025. The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025, subject to the Companies’ continued compliance with the terms of the Yorkville Agreements. The funding of the First Tranche took place on February 6, 2024 in the amount of €4.0 million.

 

7

 

 

Under the Funding Commitment Letter, Yorkville will secure the financing of the Companies’ expected operational costs, with an initial focus on the Solar Bus Kit during the period from December 1, 2023 until the end of the second quarter of 2025 (the “Funding Period”) up to a maximum amount of €11.0 million minus €2.048 million of cash left-over at the Company as of December 1, 2023. . Pursuant to the Funding Commitment Letter, funding from Yorkville is provided by way of new interest-bearing convertible debenture(s). The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. Such funds are paid by the Company to the Subsidiary under the terms of the Continuation Agreement and the Back-to-Back Letter of Comfort (as defined herein) by way of intercompany loan(s). In the event of a shortfall during the Funding Period, Yorkville has agreed to provide additional funds to the Company, provided that agreements are reached in good faith on an adjusted budget for the Funding Period.

 

Yorkville’s obligation to provide funding pursuant to the terms of the Funding Commitment Letter, is subject to our compliance with certain covenants and other obligations set forth in the Yorkville Agreements, including the terms of the new convertible debenture(s) issued to Yorkville in connection with the Yorkville Investment. In addition, Yorkville’s funding commitment is subject to the absence of the following events (each a “Termination Event”):

 

 

The Budget (as defined below) is exceeded as a result of incorrect or misleading work.

 

 

The Budget is exceeded and Yorkville and the Company cannot agree on an adjustment, or Yorkville requests information regarding the Budget and the Company fails to provide it within ten business days.

 

 

An event of default occurs with regard to the convertible debentures.

 

 

The Companies fail to materially comply with the Yorkville Agreements and fail to rectify their noncompliance within ten business days following a request from Yorkville to such effect.

 

 

Other than with regard to the Self-Administration Proceedings, the Companies are unable or admit inability to pay their debts as they fall due, suspend making payments on any of their debts, or, by reason of actual or anticipated financial difficulties, commence negotiations with one or more of their creditors (excluding any finance party in its capacity as such) with a view to rescheduling any of their indebtedness.

 

 

An entity incorporated in Germany is unable to pay its debts as they fall due (zahlungsunfähig) within the meaning of section 17 of the German Insolvency Code (Insolvenzordnung) or is over indebted within the meaning of section 19 of the Germany Insolvency Code (Insolvenzordnung).

 

 

Except in relation to the Self-Administration Proceedings, any corporate action, legal proceedings or other procedure or step is taken in relation to, amongst others, the suspension of payments, an arrangement with a creditor of the Company, the appointment of a liquidator or administrative receiver or the enforcement of a security over any asset of the Company or the Subsidiary.

 

 

It is or becomes unlawful for the Company to perform any of its obligations under the Yorkville Agreements.

 

In the event of a Termination Event, Yorkville would have the right, at its sole discretion, to cancel any unfunded portion of the Yorkville Investment , meaning that the Company would no longer be able to draw down on the unused portion of the Yorkville Investment, and to exercise all of its rights under any of the new convertible debentures as if an event of default had occurred.

 

Our ability to access the unfunded portion of the Yorkville Investment is subject to certain risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event or any event of default.

 

If we are unable to access the unfunded portion of the Yorkville Investment as planned, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation. For more information on the Transactions and the Yorkville Investment, see “Item 4. Information on the CompanyB. Business OverviewOverviewThe Yorkville Investment”.

 

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The Plan that was submitted to the Court in connection with the Subsidiary Self-Administration Proceedings is based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, the Plan may not be successful in its execution. Furthermore, should we fail to comply with our obligations under the Plan, we may be subject to legal proceedings, which could expose us to substantial financial and other liabilities.

 

The Plan submitted to the Court under the German Insolvency Code in connection with the Subsidiary Self-Administration Proceedings addresses the structure and operation of our business going forward and reflects assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, which are highly uncertain, including but not limited to: (i) our ability to obtain adequate liquidity and access financing sources, including our ability to comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment and the absence of any Termination Event or any event of default , (ii) our ability to maintain customers’ confidence in our viability as a going concern and to attract sufficient business from them, (iii) our ability to retain key employees and (iv) the overall strength and stability of general macroeconomic conditions. Should actual future results and developments not be consistent with our expectations and assumptions, this could materially adversely affect the sustainable restructuring of our business.

 

In addition, the Subsidiary’s Plan under the German Insolvency Code relies upon financial projections that are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts are not accurate. In our case, the forecasts will be even more speculative than normal because of the many uncertainties we face relating to the successful implementation and management of the pivot of our business to exclusively retrofitting and integrating our solar solutions onto third party vehicles, with an initial focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products, and our ability to raise the funding required to further develop and refine our own solar technology and business. Accordingly, there is a substantial risk that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by the Plan will occur or, even if they do occur, that they will have the anticipated effects on us or our business or operations. The failure of any such results or developments to materialize as anticipated could materially and adversely affect the successful execution of the Plan. Furthermore, if we are unable or otherwise fail to comply with our obligations under the Plan, we may be subject to legal proceedings or other liabilities, which could have a material adverse effect on our financial condition and results of operations.

 

Despite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects.

 

We will attempt to minimize the potential adverse effect of the Self-Administration Proceedings on our relationships with creditors, customers, suppliers, service providers, employees and counterparties. Nonetheless, these relationships may be adversely impacted and our operations could be materially and adversely affected.

 

For instance, negative publicity associated with the Self-Administration Proceedings may adversely affect our commercial relationships and our ability to negotiate favorable terms with important stakeholders and counterparties. Furthermore, our creditors will not receive complete recovery for their claims in the context of the proceedings. Public perception of our continued viability may also adversely affect our relationships with customers and their loyalty to us, as well as our ability to pursue new customer arrangements and projects. Strains in any of these relationships could materially and adversely affect us.

 

Our management has been required to spend a significant amount of time and effort focusing on these proceedings instead of focusing exclusively on our business operations, and will be required to continue to do so in the context of the Subsidiary’s compliance with its remaining obligations under the Plan and the Companies’ compliance with the terms of the Yorkville Investment. This diversion of attention may have a material adverse effect on the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the proceedings are protracted.

 

In addition, our employees faced considerable distraction and uncertainty during the pendency of the proceedings, which may lead to increased levels of employee attrition. Apart from negatively affecting our ability to retain existing high performing employees, executives and supervisory board members, the proceedings may also prevent us from attracting new employees, executives and supervisory board members. A loss of, or failure to attract, key personnel or a material erosion of employee morale could impair our ability to execute our strategy and implement operational initiatives, thereby adversely affecting us.

 

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Despite our emergence from the Self-Administration Proceedings, we may not be able to achieve our stated goals and continue as a going concern.

 

Despite our emergence from the Self-Administration Proceedings, we will continue to face a number of risks in connection with our business and operations, financial condition and the industry we operate in or otherwise. Accordingly, we cannot guarantee that the Plan will achieve our stated goals and permit us to effectively implement our strategy.

 

Furthermore, even if we are able to access the unfunded portion of the Yorkville Investment as planned, we will need to raise additional funds through public or private debt or equity financing or other means to fund our business beyond the Funding Period. Our access to additional financing is, and for the foreseeable future will likely continue to be, limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms and we may not be able to continue as a going concern.

 

The Companys visibility, credibility, stock price, and trading volume, as well as investor confidence, may further decrease as a result of the delisting of the Companys securities from Nasdaq.

 

On December 11, 2023, the Company received a decision of the Nasdaq Hearings Panel (the “Panel”) advising the Company that the Panel had determined to delist the Company’s ordinary shares from Nasdaq. Nasdaq filed a Form 25 Notification of Delisting with the U.S. Securities and Exchange Commission (the “SEC”) on February 15, 2023 to complete the delisting.

 

The Company received a first delist determination letter on July 12, 2023 from the staff of the Listing Qualifications Department (the “Staff”) following the Company’s application for its Preliminary Self-Administration Proceedings pursuant to Section 270 (b) of the German Insolvency Code. The Staff’s delist letter additionally found that the Company failed to meet the filing requirement in Listing Rule 5250(c)(1), as it had failed to file its Annual Report on Form 20-F for the year ended December 31, 2022. On August 28, 2023, the Staff issued an additional delist determination letter for the Company’s failure to meet the minimum bid price requirement in Listing Rule 5450(a)(1) and the audit committee requirement in Listing Rule 5605(c)(2). The Company appealed the Staff’s determination and appeared before the Panel on September 14, 2023.

 

Trading of our ordinary shares on Nasdaq was suspended on July 21, 2023. Since then, our ordinary shares have been quoted on the over-the-counter market, and we are currently applying to have our ordinary shares admitted to trading on OTCQB. As a result, we have faced, and in the future could continue to face, significant material adverse consequences, such as (i) a limited availability of market quotations for our ordinary shares; (ii) a reduced liquidity of our ordinary shares; (iii) a determination that our ordinary shares are a “penny stock” which will require brokers trading in our ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; (iv) a limited amount of news and analyst coverage; and (v) a decreased ability to issue additional securities or obtain additional financing in the future. The delisting of the Company’s securities from Nasdaq may result in a loss of investor confidence and further decrease our visibility, credibility and trading volume, all of which could adversely impact the market price of our shares.

 

Risks Related to Our Industry

 

If we are able to access the unfunded portion of the Yorkville Investment and restructure our business, our success and future growth will be dependent upon the markets willingness to adopt solar-powered mobility solutions.

 

If we are able to successfully access the unfunded portion of the Yorkville Investment, we intend to focus in the short- to medium-term on our Solar Bus Kit. While we expect the Yorkville Investment to position us to obtain sufficient funding for our business operations, with the initial focus on our Solar Bus Kit and similar retrofit solar products, through June 30, 2025, our pursuit of other solar integration projects will be dependent on the success of future capital raising efforts. The market for mobility-related solar solutions is still evolving, characterized by rapidly changing technologies, prices and other competition, evolving government regulation and industry standards, as well as changing or uncertain consumer demands and behaviors. Factors that may influence the adoption of our solar technology solutions include:

 

 

perceptions about the effectiveness of mobility-related solar technology solutions;

 

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perceptions about the quality, safety, design, performance and cost of solar technology solutions;

 

 

significant developments in new alternative technologies, such as hydrogen fuel cell technology;

 

 

improvements in the fuel economy of internal combustion engines;

 

 

the degree of environmental consciousness of consumers;

 

 

changes in the relative cost of electricity, oil, gasoline and hydrogen;

 

 

government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

 

 

the availability of tax and other governmental incentives promoting e-mobility or future regulation requiring increased use of nonpolluting mobility solutions; and

 

 

macroeconomic factors.

 

Solar-powered mobility solutions largely remain commercially unproven. Our solar-powered mobility solutions may therefore not be as well accepted by the market as expected, or may not be accepted at all, and may not be able to claim the market position we hope for.

 

The mobility market is highly competitive and even if we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, we may not be able to successfully commercialize our solar solutions in time or at all.

 

The segment of alternative mobility solutions is highly competitive and continuously evolving. We are not the only company seeking to develop and offer solar-powered mobility solutions. Numerous competitors strive to offer mobility and e-mobility solutions to the mass market and several other market players are currently experimenting with or intend to commercialize solar charging technology, including manufacturers with established brands and significantly greater financial resources than us. Some of our competitors benefit from greater financial resources, more extensive development, manufacturing, marketing and service capabilities, owned manufacturing assets, greater brand recognition and a larger number of managerial and technical personnel. Smaller existing or future competitors may be acquired by larger companies with significant capital or other resources, thereby further intensifying competition with us. Any inability on our part to remain competitive in terms of the technology capabilities of our solar solutions could have a material adverse effect on our business, prospects, operating results and financial condition. As a result, even if we are able to successfully access the unfunded portion of the Yorkville Investment, we may experience a significant reduction in potential market share and expected revenue streams, which could impact our ability to successfully market our solar technology and adversely affect our business, results of operations, financial position and cash flows.

 

We expect competition in our industry to intensify in the future, particularly in light of increased demand for alternative fuel and a regulatory push for e-mobility (e.g., CO2 target emission regulations and tax or other monetary incentives), as well as declining battery prices. Continuing globalization may lead to additional potential competitors in emerging economies. Factors affecting competition include manufacturing efficiency, product prices and quality, performance and features, innovation and development time, reliability, safety, energy economy, charging options, customer service and financing terms. Increased competition may lead to lower product sales and increased inventory, which may result in price pressure. Even if we are able to access the unfunded portion of the Yorkville Investment and restructure our business, we may not be able to successfully compete in our markets. In addition, there can be no assurance that our intention to initially focus in the short- to medium-term on our Solar Bus Kits and similar retrofit products is a viable business setup.

 

Risks Related to Our Business and Operations

 

We are an early-stage company with a history of significant losses that recently adapted its business model and expects continuing losses for the foreseeable future, which means that our ability to prevent insolvency and continue as a going concern and, if we are successful in doing so, to accomplish any of our business plans depends on our ability to imminently raise significant external financing.

 

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For the year ended December 31, 2023, we incurred a loss of €53.6 million. We have incurred net losses since our inception in March 2016, resulting in an accumulated deficit of €384.3 million as of December 31, 2023 compared to an accumulated deficit of €330.8 million as of December 31, 2022.

 

Even if we are able to successfully access the unfunded portion of  the Yorkville Investment and restructure our business, we expect to continue to generate operating losses in 2024, and may continue to generate operating losses thereafter if we are not able to complete the development of our solar technology and significantly scale our sales and operations as planned.

 

We have already realized revenues from certain of our solar technology products. However, such sales were, and at least in the short term are expected to remain, only marginal and will not be sufficient to support our operations and cash requirements until we significantly scale our operations, which is currently expected to occur in the second half of 2024. We have finished the development phase with respect to our Solar Bus Kit and plan to start commercial production in the second quarter of 2024. We are in discussions with several potential customers and have been developing a potential customer base by signing letters of intent and contracts for pilot fleets and prototypes, and although the pre-series version of our Solar Bus Kit has been installed, and is currently in operation, on buses of multiple customers we have not yet executed any large-volume binding series sales contracts for our Solar Bus Kit. We seek to incrementally increase monetization of our technology, starting with our Solar Bus Kits in 2024. The current business plan, which was elaborated in the context of the Yorkville Investment, foresees a clear focus on the bus industry and our Solar Bus Kit product in 2024, and additionally considers the truck and trailer industry, including the refrigerated vehicle industry, and the e-transporter industry as long-term business opportunities.

 

If we are able to successfully access the unfunded portion of the Yorkville Investment and continue as a going concern, we would expect to continue to incur significant expenses as we seek to further develop, expand and refine our solar technology and to invest in sales and operations. We would also expect to incur expenses related to preparations for the commercialization of our technology, starting with our Solar Bus Kits, increasing our sales and marketing activities with the goal of building our brand, and adding infrastructure and personnel to support our growth. In addition, we currently continue to incur various expenses from, for example, general administrative functions, our headquarters and costs relating to being a public company. We will not be able to cover our expenses with revenues at least until we complete the development and start the commercialization of our solar technology, starting with our Solar Bus Kits, and significantly increase the scale of our operations. We expect to incur additional substantial expenses in the foreseeable future. The activities related to our solar technology and the development of our business may result in prolonged losses. There is no guarantee that we would ever reach meaningful revenue levels or profitability or even that we will be able to continue as a going concern. Our ability to reach profitability in the future will not only depend on our ability to successfully implement the change in our business to exclusively retrofitting and integrating our solar technology onto third party vehicles, with an initial focus on our Solar Bus Kits and similar retrofit solar products, and to successfully complete the development of and commercialize our solar technology but also on our ability to control our expenses and capital expenditures and manage our costs efficiently. If we are unable to achieve profitability, we may have to reduce the planned scale of our operations, which may impact our business growth and adversely affect our financial condition, results of operations, financial position and cash flows. In addition, our continuous operation and our ability to continue as a going concern will depend on our ability to obtain sufficient external equity or debt financing. If we do not succeed in doing so, we may need to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.

 

There is no historical basis for reliably assessing the market potential and demand for our products, our ability to develop, integrate, and deliver our products at commercial scales, or our future profitability. There can be no assurance that any of our products, including our Solar Bus Kits, will be commercially successful or that we will be able to scale our operations. We currently rely on a single product, our Solar Bus Kits, and variations thereof, and if the market does not accept our Solar Bus Kits or similar products or does not develop as expected, we will have no other product to compensate for the shortfall. We have no reliable basis for the prediction of our future revenues and expenses, and we may have limited insight into future trends that may emerge and affect our business. The estimated costs and timelines that we have developed to reach commercial production of our products are subject to inherent risks and uncertainties involved in the transition from a start-up company focused on development activities to the commercial-scale sourcing and sale of our products. You should therefore consider our business and prospects in light of the risks and challenges we face as a new market entrant, including, but not limited to:

 

 

our ability to successfully implement and manage the change of our business to exclusively retrofitting and integrating our solar technology onto third party vehicles;

 

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our ability to successfully develop and launch commercial production and sales of our Solar Bus Kit;

 

 

our ability to obtain, maintain and protect patents and other intellectual property rights that are crucial to our solar technology and commercialization efforts in our target markets;

 

 

our ability to raise the funding required to develop business operations and sales;

 

 

our ability to maintain, further develop and improve our Solar Bus Kit and any other solar solutions or variations thereof;

 

 

customer acceptance of and demand for our products;

 

 

our ability to turn profitable, scale our operations and build a well-recognized and respected brand cost-effectively;

 

 

our ability to develop and maintain relationships with key business partners who are crucial for our operations or who directly deal with end users in our target market;

 

 

our ability to navigate the evolving regulatory environment and potentially expand our product line-up;

 

 

our ability to improve and maintain our operational efficiency, set up and manage our supply chain efficiently and adapt to changing market conditions, including technological developments and changes in our competitive landscape; and

 

 

our ability to find the necessary qualified personnel and to build up and scale functioning structures within Sono Motors.

 

Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and entailed significant changes to our consolidated balance sheet and consolidated statement of operations. In addition, due to the opening of the Self-Administration Proceedings, the Company lost control of the Subsidiary on May 19, 2023 and regained control when the Subsidiary exited the Subsidiary Self-Administration Proceedings on February 29, 2024. The effect of the loss of control is that in 2023, the results of the Subsidiary are consolidated up until the loss of control and the assets and liabilities of the Subsidiary will be derecognized from the consolidated statement of financial position. The Subsidiary is again consolidated with the Company following the Company’s regaining of control in 2024. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for the years ending December 31, 2022 and 2023 contains significant expenses related to the Company’s former Sion passenger car project, which was terminated in February 2023. Accordingly, the financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.

 

We intend to use the financing that we obtain in connection with the Yorkville Investment, assuming we are able to successfully access the unfunded portion of the investment, mainly to finance the operations of the Subsidiary and the Company. Accordingly, the Company and the Subsidiary entered into the Back-to-Back Letter of Comfort (as defined herein) in connection with the Transactions to provide funding for the Subsidiary’s business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products. These arrangements mean that the Company may only hold a small fraction of our total liquidity, which means that creditors at the Company level are structurally subordinated to creditors at the Subsidiary level.

 

There is substantial doubt about our ability to continue as a going concern, and there is a material risk that we may be liquidated.

 

Management has concluded, and the report of our auditors included in this Annual Report reflects, that there is substantial doubt about our ability to continue as a going concern within 12 months after the date of this filing. The reaction of investors to the inclusion of a going concern statement by management and our auditors and our potential inability to continue as a going concern may materially adversely affect the price of our publicly traded securities and our ability to raise new capital or financing or enter into partnerships or strategic collaborations. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment. Further, the perception that we may be unable to continue as a going concern may impede our ability to pursue strategic opportunities or operate our business due to concerns regarding our ability to fulfill our contractual obligations. In addition, if there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, or at all.

 

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As a result of our recurring losses from operations and the need for additional financing to fund our operating and capital requirements despite the change in our business model, we decided to apply for the Self- Administration Proceedings in May 2023. On January 31, 2024, the Subsidiary withdrew its application for Preliminary Self-Administration Proceedings, and the Subsidiary exited its Self-Administration Proceedings on February 29, 2024 via the Plan.

 

Because of the risks and uncertainties associated with the Yorkville Investment management cannot accurately predict or quantify the ultimate impact that events related to these proceedings may have on the Companies and thus there is no certainty as to our ability to continue as a going concern. Even if we are able to successfully access the unfunded portion of the Yorkville Investment and restructure our business, the Company’s business plan is reliant on income from customers. As of the date of this Annual Report, while there are several letters of intent, no large-volume contracts with regards to the Solar Bus Kit have been signed, and hence there is a risk that revenue will be less than expected in 2024 and the first half of 2025. Similarly, there is a risk that the solar technology is not fully functional or available on the anticipated schedule or at all, which would result in a delay in realizing potential revenue. Finally, the Yorkville Agreements provide funding until June 30, 2025. We will therefore have to either secure a sufficient number of future customer contracts or other additional financing in order to fund the business from July 2025 onwards. The foregoing can affect the Company’s ability to continue as a going concern.

 

Even if we are able to successfully access the unfunded portion of the Yorkville Investment, the Company’s access to required additional financing is, and for the foreseeable future will likely continue to be, limited, if it is available at all as of July 1, 2025 and beyond. Therefore, adequate funds may not be available when needed or may not be available on favorable terms and thus the Company might not be able to continue as a going concern.

 

Based on the above, the Company will need to raise substantial additional capital to finance its planned future operations, which is not assured, and has consequently concluded that there is substantial doubt about its ability to continue as a going concern.

 

We have identified multiple material weaknesses in our internal control over financial reporting and, as a result, management has concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2023. If we are unable to remediate these material weaknesses, or if other control deficiencies are identified as a result of ongoing or future processes, we may not be able to report our financial results accurately, prevent fraud or file our periodic reports as a public company in a timely manner.

 

Prior to our initial public offering (“IPO”) on November 17, 2021, we operated as a private company that was not required to comply with the obligations of a public company with respect to internal controls over financial reporting under the Sarbanes-Oxley Act. Since our IPO in 2021, we have been a public company in the United States subject to the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F, starting with our annual report on Form 20-F for the year ended December 31, 2022. As a result, we are required to disclose changes made in our internal controls and procedures and our management is required to assess the effectiveness of these controls annually.

 

In connection with the audits of our consolidated financial statements for the years ended December 31, 2020, 2021 and 2022 and management’s assessment of the effectiveness of our internal controls and procedures for the year ended December 31, 2023, we identified multiple material weaknesses in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or condensed consolidated interim financial statements will not be prevented or detected on a timely basis. Due to the multiple material weaknesses identified, which had not been remediated as of December 31, 2023, our management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2023. While we are continuing to work on remediating the weaknesses identified, based on our limited financial and operational resources we cannot at this time predict when we will have remediated these material weaknesses. The remediation measures are time-consuming and costly and place significant demands on our financial and operational resources. For more information on the nature of the material weaknesses and the related ongoing remediation measures, see “Item 15. Controls and ProceduresB. Management's Annual Report on Internal Control over Financial Reporting.

 

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During the course of documenting and testing our internal control procedures in the future, we, or an outside advisor, may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

 

Further we are non-compliant with the Dutch financial reporting requirements with regard to the timely filing of our audited 2020, 2021 and 2022 Dutch statutory financial statements with the Dutch trade register and, as a result of the corporate measures implemented in connection with the restructuring of our business and resulting personnel and other limitations, it is likely that we will not be timely with the filing of our audited 2023 Dutch statutory financial statements with the Dutch trade register. Dutch financial reporting rules require the timely filing of our audited Dutch statutory financial statements with the Dutch trade register. Non-compliance with these filing requirements exposes us to penalties and fines. Non-compliance with the requirements under Dutch law with respect to the preparation, audit and publication of our Dutch statutory financial statements could also lead to increased exposure for our management board and supervisory board members to direct liability under the standards of Dutch corporate law, which may negatively affect our reputation.

 

In addition, the Subsidiary is also non-compliant with the German financial reporting requirements with regard to the timely filing of its 2022 statutory financial statements with the German trade register and the German Federal Gazette, which has in the past led, and - until compliance is established - may in the future lead, to the imposition of penalties and fines. German financial reporting rules under the Securities Trading Act (“Vermögensanlagegesetz”) require the timely filing of the Subsidiary’s audited German statutory financial statements by June 30 of the year following the applicable financial period. Non-compliance with these filing requirements exposes us to penalties and fines.

 

Any failure on our part to discover and/or remediate existing material weaknesses, to discover and address any other control deficiencies and to achieve and maintain an effective internal control environment, could result in inaccuracies in our consolidated financial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis, could cause investors to lose confidence in our reported financial information. This could, in turn, limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods. We cannot assure you that all of our existing material weaknesses have been identified, that we will not in the future identify additional material weaknesses and that we will be able to achieve and maintain an effective internal control environment.

 

Our ability to commercialize solar technology is unproven and we may fail to further develop and realize the commercialization of our solar technology within the intended timeframe, budget or at all.

 

Our future success will depend in large part on our ability to execute our plans to commercialize and further develop our proprietary solar technology, starting with our Solar Bus Kits, at large scale. Our industry is characterized by rapid technological evolution and continuing technological changes, which could adversely affect demand for our products. Our development efforts may not be successful and we may not be able to realize all advertised specifications of our technology such as, for example, the effectiveness of our solar modules. We further have to secure the supply of necessary components and raw materials on acceptable terms. For example, lock-downs in China resulted in the limited availability of semiconductor chips, which could also impact our ability to meet any planned timelines. In addition, we may have to change specifications of relevant components on short notice, which may make it difficult for suppliers to deliver required parts in time, at all or at pre-agreed costs, which may, in turn, put potential timelines or projects at risk. Our products also have to meet stringent and constantly evolving safety and certification requirements, potentially in various jurisdictions, and there is no guarantee that our products or vehicles equipped with our solar kits will receive the required certification from relevant authorities. Given the complexities involved in commercializing our solar technology and preparing our solar technology for the mass market, there is no guarantee that we will be successful within the intended timeframe or budget or at all. Any delay in committed or planned timelines due to, for example, a delay in the financing, development or regulatory approval of our solar technology could materially damage our brand, business, prospects, financial condition, results of operations, and cash flows, and could lead to material liquidity constraints.

 

15

 

In early 2023, we decided that it is not feasible for us to further pursue the development and commercialization of the Sion, which the Company had envisaged to become an affordable solar electric vehicle . There is no guarantee that this change and emphasis of our business activities proves successful. We may conclude that the further development and commercialization of our solar technology is not feasible. We may decide to abandon this project, due to, for example, a change in the regulatory framework, lack of feasibility, engineering issues, lack of skilled research and development or other personnel, lack of supplier capacity or availability, lack of customer demand or our inability to secure sufficient capital. In such a case, we may not be able to amortize any investments made. We may enter into contractual arrangements with suppliers or other partners, which may subject us to continuous payment or other obligations irrespective of a decision to abandon the relevant underlying project. Any such decision to discontinue the development or commercialization of our technology or any of our solutions would likely lead to significant losses.

 

We may also find engineering errors, defects or areas that need improvement in our products. Technological changes or changes in supplier components may require us to change our technology. There can be no assurance that we will be able to implement any such changes in a timely manner or that these changes will not trigger any follow-on issues. Our solar technology may not be as well received, functional or efficient as expected and we may face significant competition with respect to our solar technology. To the extent we may want to monetize our technology based on licensing arrangements with third parties and royalty payments, which requires patent-based or similar legal protection, there is no guarantee that we will obtain such protection in a timely manner, in the relevant jurisdictions or at all. Employees who we have terminated may challenge our ownership in relevant patents or other intellectual property; there is no guarantee that any such challenges will not be successful. We may fail to identify technical innovations that could be patentable and, accordingly, may fail to protect them via patents.

 

Our solar technology may not be fully functional or available on our anticipated schedule or at all, and may remain unproven and pose additional risks.

 

The functionality, usability and availability of our solar technology and other solutions in day-to-day use and at scale is largely unproven. There is no guarantee that our products will initially perform as expected under real conditions or that we will be able to detect and fix any potential weaknesses in our technology and solutions prior to commencing commercial production. For example, our solar module technology may not provide the expected efficiency advantage or may be less reliable or more expensive to produce than expected. In addition, our solar modules may be subject to degradation or malfunction due to the weather and mechanical stress over life-time in automotive-use cases. Any of our hardware or software solutions may contain errors, bugs, vulnerabilities or design defects or may be subject to technical limitations that may compromise the functionality of our offering. Some errors, bugs, vulnerabilities, or design defects inherently may be difficult to detect and may only be discovered after industrial commercialization of our technology has begun. Additional risks may result from the use of any of our solutions in jurisdictions where such use is not lawful. For example, our solar module technology may be used or commercialized by any of our licensees in jurisdictions where the use of such a solution may not be lawful or subject to additional regulatory requirements, which may potentially expose us or individuals to significant liability risks or negatively affect our brand.

 

We depend on the adequate protection of our intellectual property, which can be difficult and costly.

 

We have invested significant resources in the development of certain proprietary solar technology, and currently plan to continue to invest significant resources in the development of our solar power electronics, the protection of which is critical to our business and the commercial success of our products. We hold several patents relating to our technological innovations, such as our solar module technology and our energy management system for vehicles. To establish and protect our rights in our technology, we rely on a combination of patents, trade secrets (including know-how), copyrights, trademarks, intellectual property licenses, employee and third-party nondisclosure agreements and other contractual rights. Any failure to obtain, maintain, protect, and monitor the use of our existing intellectual property rights could result in the loss of valuable technologies or material business opportunities.

 

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The measures we take to protect our intellectual property from unauthorized use by others, including current or former suppliers, partners or employees, may not be effective for various reasons. Any patent applications we submit may not result in the issuance of patents, the scope of our issued patents may not be broad enough to protect our proprietary rights or our issued patents may be challenged and/or invalidated by our competitors. Any successful challenge to any of our intellectual property rights, including by competitors or current or former employees, could deprive us of rights necessary for the successful commercialization of our solar technology and innovations. Challenges to our patents could impair or eliminate our ability to collect future revenues and royalties in the event we license our technology in the future. The patent prosecution process is expensive, time consuming and complicated, and we and our future licensors may not be able to file, prosecute or maintain all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that we and any of our future licensors may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We filed trademark applications in relevant jurisdictions, and in the future may file further trademark applications as we see fit, but may be unable to register our trademarks or otherwise protect them. For example, we have failed in some jurisdictions to obtain protection for our circle with a dot in the middle, if it is not combined with other distinctive elements. In China, our trademark application for certain logos has been objected to. In the United States, our application to register “Driven by the Sun” as a trademark has been denied. In addition, we are in ongoing discussions with an American developer and manufacturer of audio products, who filed oppositions against various trademarks that were filed by us after a rebranding process. Furthermore, in Europe, a producer of telescopic sights has also filed oppositions against the same trademarks that were filed by us after the rebranding process, as well as an application for a declaration of invalidity against our registered trademark of our circle with a dot between the words Sono Motors. With both opponents, we are in negotiations to find an amicable solution. Therefore, for the oppositions that have been filed by these opponents, an extension of the cooling-off period has been filed, and in the case of the application for a declaration of invalidity, an extension of the response period has been requested.  Any efforts to register a trademark may be subject to opposition and if a third-party were to register our trademarks, or similar trademarks, in a jurisdiction where we have not successfully registered such a trademark, it could create a barrier to the successful commercialization of our products. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage as well as a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results.

 

Even if we hold valid and enforceable patents or other intellectual property rights, the legal systems of certain countries, including certain developing countries, may not favor the enforcement of these rights or otherwise offer the same degree of protection as do the laws in the EU or United States, which could make it difficult for us to stop the infringement, misappropriation, or other violation of our patents or other intellectual property rights. Further, policing the unauthorized use of our intellectual property in various jurisdictions around the world may be difficult and require significant resources.

 

We have applied for patent protection relating to our technological innovations in certain jurisdictions. While we generally consider applying for patents in those countries where we intend to make, have made, use, sell or license patented products, we may not accurately assess all the countries where patent protection will ultimately be desirable. In addition, due to the cost-intensive nature of the patent application process and in accordance with the change in our business model to focusing exclusively on integrating our solar technology into third-party vehicles, we plan to terminate and/or discontinue patents and patent applications that do not address our core products and markets and instead focus on our most promising applications and markets (mainly Europe). Should we decide to address additional markets or expand our product offerings at a later date, a prior decision to discontinue a patent or a patent application may result in lost opportunities with respect to protecting our intellectual property. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, our pending patent applications may be challenged by third parties or such applications may not eventually be issued by the applicable patent offices as patents. The denial of our key patent applications or of a substantial portion of our patent applications could have a substantial negative impact on the value and strength of our intellectual property rights, our ability to execute our business plans and compete with others in our industry. In addition, the patents issued as a result of our foreign patent applications may not have the same scope of coverage as our patents in the EU or United States.

 

Changes in the patent laws or their interpretation in the relevant jurisdictions may reduce our ability to protect or commercialize our inventions and enforce our intellectual property rights. More generally, these changes could affect the value of our patents and other intellectual property. Our efforts in seeking patent protection for our solar technology and other innovations could be negatively impacted by any such changes, which could have a material adverse effect on our existing patent rights and our ability to protect, enforce or commercialize our intellectual property rights in the future. In particular, our ability to prevent third parties from making, using, selling, offering to sell or importing products that infringe our intellectual property rights will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions and improvements.

 

In some cases, we rely upon unpatented proprietary manufacturing expertise, continuing technological innovation, and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, our confidentiality agreements could be breached and may not provide meaningful protection against improper use of our trade secrets or other proprietary information. There can be no assurance that third parties will not seek to gain access to our trade secrets or other proprietary information. In addition, adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets or other proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition.

 

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Our patent applications may not lead to the granting of patents or desired protection in time or at all, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

 

We cannot be certain that we are the first inventor of the subject matter to which a particular patent application pertains. If another party has filed a patent application pertaining to the same subject matter as we have, we may not be entitled to the protection sought by our patent application. Patent applications in many jurisdictions are typically not published until several months after filing and we cannot be certain that we were the first to make the inventions claimed in any of our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions and may face similar risks in other jurisdictions should we expand our operations, including in significant markets such as the United States and China.

 

Further, the scope of protection of issued patent claims is often difficult to determine. As a result, we cannot be certain that the patent applications that we file will issue, or that our issued patents will afford protection against competitors with similar technology. In addition, our competitors may seek to bypass our issued patents, which may require costly and time-consuming litigation and adversely affect our business, prospects, financial condition or operating results. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid or unenforceable or will be threatened by third parties.

 

We may not be able to reliably source our component supply within our projected costs and timelines.

 

Our asset-light business model partly provides for the sourcing of off-the-shelf sub-components from suppliers, as well as partly outsourced logistics and delivery management based on low inventories.

 

Even if we are successful in reliably sourcing our sub-component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers or logistics, or in time to meet our commercialization schedules or to satisfy the requirements of customers. Impacts of inflation, including an increase in energy costs, may negatively affect our cost base. Any failure to reliably source our sub-component supply within our projected costs and timelines could have a material adverse effect on our business, prospects, operating results and financial condition.

 

Furthermore, our relationships with business partners such as suppliers and logistics services providers may be negatively impacted by the former Self-Administration Proceedings. See also “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentDespite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects” and “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentWe are subject to risks and uncertainties associated with the Companies' Self-Administration Proceedings”.

 

We rely on a single supplier for certain components and other materials used in our solar solutions.

 

There are only a limited number of suppliers of solar technology components or raw materials. We currently depend on a single supplier for various raw materials or components required for the manufacturing of our solar technology products. This makes our supply chain and the production of our offering dependent on the performance of such suppliers and increases the risks of interruption. Our operations will be negatively affected if one of our suppliers experiences capacity constraints and is not in a position to deliver the required quantities of a certain raw material, component or part.

 

Our dependency on a limited number of suppliers also increases the bargaining power of the relevant suppliers with respect to certain materials or components, which may expose us to abusive conduct, may prevent us from entering into long-term supply agreements with guaranteed pricing or may require us to accept disadvantageous economic or legal conditions. The acquisition of any supplier could limit our access to relevant raw materials or components and require material redesigns of our solar technology and impair our business prospects. We may also be forced to stop production should a supplier fail to provide required certifications for its products or should the supplier be accused of infringing or misappropriating third-party intellectual property rights. If we need to replace a supplier or if a supplier terminates its relationship with us, there is no guarantee that we will be able to find adequate substitute products or suppliers in time or at all. In addition, global events such as pandemics, war or crude oil shortages may negatively affect the availability, price levels, delivery times or minimum order quantities of products, components and materials, such as polymers for solar cells or microelectronic chips for MCUs. The vast majority of supplies of raw materials for the solar industry come from China, which makes our supply chains particularly vulnerable to intensifying political tensions with or trade sanctions or comparable limitations concerning China. As a result, we may be required to find replacement suppliers, which may prove difficult, increase our production cost and could lead to a delay in the envisaged start of commercial production.

 

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Furthermore, we may ask for product changes or amendments of certain specifications of components or raw materials to be delivered by suppliers, sometimes on short notice, due to new development results or the insufficiency of previous specifications, which may increase the costs for relevant components or raw materials or may render the relevant supplier unable to accommodate relevant requests. It is also possible that the supplier does not have the right to sell the relevant product to us, for example, because the supplier lacks the intellectual property rights to the design or because the supplier has an exclusivity agreement with another manufacturer, which we could force us to discontinue production or sales of our products, to replace the part or to change the design of our technology, which could result in significant delays and costs or make the production of our products impossible altogether. Suppliers may change their products or may go out of business, resulting in limited or no availability of relevant parts and materials for the production and maintenance of our products. All of our sourced components and raw materials are subject to typical transportation risks, such as delivery delays, damage or theft in the course of transportation or fines resulting from the violation of customs or other transportation regulations.

 

Furthermore, our relationships with our suppliers may be negatively impacted by the former Self-Administration Proceedings. See also “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentDespite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects” and “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentWe are subject to risks and uncertainties associated with the Companies' Self-Administration Proceedings”.

 

Increases in costs, disruption of supply or shortage of raw materials or certain products could harm our business.

 

The solar industry is frequently subject to significant disruptions and resulting shortages of components or raw materials may impair our ability to commercialize our products at attractive margins or at all. Suppliers may decide to allocate relevant components or raw materials, particularly the ones with high demand or insufficient production capacity, to more profitable or established customers and our supply may be reduced as a result. Once commercial production of our solar technology begins, our manufacturing partners who are expected to produce our solar modules, or any of our other suppliers, may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials required for the manufacturing of our products or certain parts or components used in them. Our solar technology depends on various raw materials and products. The prices for these materials and products may fluctuate depending on market conditions, inflation levels, energy prices, macroeconomic factors, and political developments. Some products may not be available at all in the short term. In addition, the imposition of new government regulations, duties or taxes, such as taxes on imported materials and components that are used in our solar modules or are otherwise necessary for production of our solar technology, could also affect the prices for these materials and products. Substantial increases in the prices for raw materials and/or increases in freight charges would increase our operating costs and could reduce our margins if the increased costs cannot be recouped through increased product prices. There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing product prices.

 

We have yet to enter into contractual agreements with many of our prospective suppliers and business partners and may have to renegotiate these agreements as we scale our business.

 

We have yet to finalize our contractual arrangements with some of our prospective suppliers and business partners. Negotiations with our prospective suppliers and business partners may consume significant resources and time and there is no guarantee that such negotiations will be concluded successfully. In the negotiations, we may agree to terms and conditions that are less favorable to us than expected. We may be subject to unfavorable rules on the transfer of risk with respect to our solar modules or supplied components or disadvantageous payment terms. Any failure to finalize our arrangement with our suppliers and business partners in a timely manner may lead to reduced volumes of our offering. Terms and conditions of any contractual arrangement, including any preliminary contractual arrangement, may have to be renegotiated due to a lapse of time or a change in material circumstances should we not be able to realize the anticipated timelines.

 

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Prospective suppliers and business partners may end their relationship or negotiations with us for various reasons. Some of the suppliers we involve, or intend to involve, are well- known market players with significant bargaining power and whose position towards us is bolstered due to our dependency on such suppliers as there are only a limited number of suppliers for solar technology components and raw materials. We, on the other hand, are not an established business and have limited market power. Therefore, we may not be able to successfully assert our own interests and may have to enter into contracts with significantly disadvantageous terms and conditions, such as unfavorable prices, limitations on remedies in cases of breach of contract, unfair liquidated damages provisions or broad termination rights allowing our business partners to end their relationship with us at will. If we successfully market our solar technology on an industrial scale, we will seek to further scale our operations. We may have to renegotiate, amend or extend our relationships with our business partners and there is no guarantee that we will be successful in doing so. We may incur substantial additional costs and expenses should we have to amend our business model to scaled operations and we may even fail to do so.

 

Furthermore, our relationships with prospective suppliers and business partners may be negatively impacted by the former Self-Administration Proceedings. See also “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentDespite our emergence from the Self-Administration Proceedings, the proceedings may materially and adversely affect our operations, including by consuming significant time and attention of our management team, adversely affecting our ability to maintain important relationships with creditors, customers, suppliers, service providers, employees and counterparties, and impacting our ability to pursue new customer arrangements and projects” and “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentWe are subject to risks and uncertainties associated with the Companies' Self-Administration Proceedings”.

 

We may not be able to obtain or agree on acceptable terms and conditions all or a significant portion of the government grants, loans and other incentives for which we may apply, which may negatively affect our ability to reach funding goals.

 

We may apply for federal and state grants, loans and tax incentives under various government programs designed to stimulate the economy or to support the development or production of solar integration solutions for the mobility industry. Our ability to obtain funds or incentives from these sources is subject to the availability of funds under applicable programs and approval of our applications to participate in such programs. The application process for these funds and other incentives will likely be highly competitive. We cannot assure you that we will be successful in obtaining any grants, loans and other incentives.

 

In addition, as a result of our termination of the Sion passenger car program in February 2023 and the recent employee terminations in light of our intention to focus in the short- to medium-term on our Solar Bus Kits and similar retrofit solar products, we are in the process of withdrawing from and terminating certain grants and other incentives that we were previously awarded but no longer align with our current business model and staffing. For example, we exited the SCALE project, which related to the mass deployment of electric vehicles and the accompanying smart charging infrastructure/V2G (vehicle-to-grid) to demonstrate how AC bi-directional charging can support the electric grid (e.g. by reducing peak loads) using open standards, and as a result were required to repay some of the funds received in connection therewith in accordance with the Subsidiary’s Plan. If we are not successful in obtaining any of these additional incentives and unable to find alternative sources of funding to meet our planned capital needs, our business and prospects could be materially adversely affected.

 

We depend on the acceptance of our brand and any negative publicity relating to any of our business partners and their products or services could have a significant negative impact on our business and reputation.

 

Our business and prospects depend on our ability to develop, maintain, and strengthen our brand. Potential competitors could have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. We have a limited budget for marketing and publicity and we may not succeed in establishing, maintaining and strengthening our brand. In addition, our brand and reputation could be severely harmed by negative publicity with respect to us, our directors, officers, employees, shareholders, peers, business partners, customers or our industry in general. Any actual or alleged misconduct by, or negative publicity relating to, any of our business partners and their products or services could have a significant negative impact on our business and reputation whether or not such publicity is directly related to their collaboration with us. Our ability to successfully build our brand could also be adversely affected by any negative perception about the quality of our business partners’ products or services.

 

If our solar modules or any other of our solutions fail to perform as expected, our ability to market our products could be harmed.

 

Our solar modules or any other of our solutions, including our Solar Bus Kits, may not perform as expected or may require repair. Our solar modules will consist of, and their performance depends on, various complex components supplied by various suppliers and assembled by a third-party manufacturer. There is no guarantee that all product specifications of our solar modules, which partly reflect our current expectations and development targets, will actually be realized if and when the commercial production and delivery of our solar modules begins or at all. Our asset-light business model and the intended production of our solar modules by an external manufacturing partner pose particular challenges to our quality management processes. Our quality management system may not be effective or sufficient and the number of defective products may be substantially higher than anticipated. The risk that we do not detect defects before the commencement of large-scale sales of our products and that our products will not comport with previously defined product specifications is heightened by our limited experience in designing, developing and manufacturing solar modules. We may experience product recalls in the future, which could result in the incurrence of substantial costs relating to, for example, return shipping for defective products and costs associated with the repair of the underlying product defect. Any product recall may consume a significant amount of our resources. Any product defects or any other failure of our products to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims and significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.

 

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Our advertisements may not have complied in the past and may not comply in the future with all relevant legal requirements and may be subject to misperception.

 

We cannot guarantee that all of our public statements that qualify as advertisements, or whole advertising campaigns, comply with legal requirements under competition law or other laws, rules or regulations. Any non-compliance could lead to administrative fines and may result in us being required to discontinue a campaign. We may also be forced to publicly correct incorrect statements. In addition, our public communications also may have contained, or may contain in the future, incorrect information or statements or may be subject to misperception. We often advertise our products with rather general characteristics and specifications that are subject to interpretation, such as “green,” or “environmentally friendly” and any statement relating thereto may spark discussions, challenges or legal claims should any of our customers or other third party have an understanding of these characteristics and specifications that differs from ours. Any of the foregoing could adversely affect our reputation and brand and our business.

 

We intend to market and sell our products via direct business-to-business channels and will not maintain a network of physical presences.

 

If and when our products reach commercial production, we intend to sell them to our customers via customary business-to-business channels rather than through physical sales offices, company-owned retail stores or another form of physical presences. This distribution model subjects us to various risks as it requires, in the aggregate, significant expenditures and provides for slower expansion of our distribution and sales systems than may be possible by utilizing a network of physical presences. Moreover, we will be competing with other market players who may have well established distribution channels. Our success will depend in large part on our ability to effectively develop our own sales channels and marketing strategies and our inability to successfully implement such a distribution model could adversely affect our business, reputation, results of operations, financial condition and prospects.

 

If we are unable to establish a network for aftersales customer service or otherwise successfully address the service and maintenance requirements of our customers, our business, reputation, results of operations, financial condition and prospects will be materially and adversely affected.

 

If and when our products reach commercial production, we intend to offer our own aftersales service and also maintain our own network of cooperating service partners for the provision of aftersales customer service. We have entered into negotiations with several potential business partners maintaining a suitable network of physical workshops to implement our concept of installation and aftersales customer service for some industries but there can be no assurance that we will be able to achieve our goal of establishing a service network that offers installation, repair, servicing, maintenance and warranty service to our customers in time or at all. Even if we successfully manage to partner with relevant service partners, they will initially only have limited experience in installation and servicing our solar modules and solutions for our customers. If our cooperation partners do not render the desired results, we may need to find further suitable external partners and enter into installation and service arrangements with them on terms and conditions acceptable to us in order to offer our customers adequate service and maintenance offerings. If we are unable to successfully address the service and maintenance requirements of our customers, our business, reputation, results of operations, financial condition and prospects will be materially and adversely affected.

 

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Product recalls or defects that subject us to warranty claims could materially adversely affect our business, prospects, operating results and financial condition.

 

Our solar module technology and other solutions are complex products, and because they are still in the developmental phase, their reliability and durability in the day-to-day wear and tear have not yet been proven over a full lifetime in real-life conditions. Despite testing conducted either by us or by our supplier partners that simulated lifetime conditions, there can be no assurances about how real-life conditions may vary from the test results. In the future, we may, voluntarily or involuntarily, initiate a recall if any of our products prove to be defective or noncompliant with applicable relevant regulatory or safety standards. Relevant defects may include, for example, a lack of durability of our solar modules, intense heat development as well as thermal expansion of our modules. Any product recall in the future may result in adverse publicity and damage our brand. Such recalls could involve significant expense and diversion of management attention and other resources and could adversely affect our business, prospects, financial condition and results of operations. Furthermore, defects could result in warranty claims from customers. Warranty claims from customers that exceed our provision for warranty costs could materially adversely affect our business, operating results and financial condition.

 

The solar modules and other components in our products could pose certain health and safety risks.

 

Solar modules, including the solar modules that are part of our Solar Bus Kits, may pose various risks to the environment. Solar modules include components and complex systems that can fail, such as switches, fuses and wiring feeding the solar modules’ power into a vehicle’s systems. In addition, chemical and potentially toxic materials are used in the production of solar cells, in a process that generates many toxic byproducts such as hexafluoride. These products are dangerous for the environment as well as for humans. Even if producers of our solar modules have implemented safety procedures related to the handling of such toxic materials, a safety issue, contamination or fire related to the solar modules could disrupt operations. Furthermore, solar modules may catch fire due to, for example, spontaneous combustion, either from the parts within the modules or in the surrounding environment, due to the high levels of heat produced by the device. In the case of vehicle-applied solar solutions, such as our Solar Bus Kit, solar modules or components attached thereto that come loose may cause accidents, which may result in damage to property or even bodily harm. In addition, in the event that solar modules overcharge the battery, there is a risk of damage to the vehicle. Furthermore, depending on the type of battery used in the vehicle, overcharging may lead to the production of oxyhydrogen or even fire. Solar modules that catch fire may produce heat, smoke and toxic byproducts, may lead to the destruction of the vehicle or may cause bodily harm. While we do not currently receive official certifications from our standard suppliers of photovoltaic (PV) modules, we conduct internal and external testing of the PV modules in accordance with ISO/ECE standards. Additionally, our MCU has achieved ECE R-10 certification and therefore complies with regulatory requirements for electromagnetic compatibility.

 

Interruption or failure of information technology and communications systems could disrupt our business and affect our ability to effectively provide our services.

 

We utilize information technology systems and networks as well as cloud computing services to process, transmit and store electronic information in connection with our business activities. We manage and maintain our applications and data utilizing a combination of on-site systems as well as externally managed data centers and cloud-based data centers. We utilize third-party security and infrastructure service providers to manage our information technology systems and data centers. These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information, and business and financial information as well as personal data of customers, community members or employees. In addition, we also rely on independent third-party service providers, such as Google, which play an important role for our offering, marketing channels and overall presence. Our data of any kind stored on the cloud services and on individual devices could be lost due to improper handling, insufficient commissioning of third parties to create backup copies, or due to damage or accidental or intentional deletion by our employees. Our data could also fall into the hands of third parties, whether through espionage, hacking or due to incorrect operation of the systems. Any unauthorized access to our data or any asset could result in its leakage, loss, manipulation or fraud or materially impair our business operations.

 

Despite the implementation of security measures by us or our service partners, our or our service partners’ systems as well as any relevant third-party service provider will be vulnerable to damage or interruption from, among others, fire, terrorist attacks, natural disasters, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm our systems. The relevant data centers could also be subject to break-ins, sabotage and intentional acts of vandalism causing potential disruptions. Some of our or our service providers’ systems will not be fully redundant, and our disaster recovery planning cannot account for all eventualities.

 

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Any problems with or insufficiencies of our or our service providers’ data centers or services could result in lengthy interruptions of our or our service providers’ information technology systems. Cyber threats are persistent and constantly evolving. Such threats have increased in frequency, scope and potential impact in recent years. Information technology evolves rapidly and we or our service providers may not be able to address or anticipate all types of security threats, and may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies. There can be no assurance that we or our service providers, contractors or consultants will be successful in preventing cyberattacks or successfully mitigating their effects. Similarly, there can be no assurance that any third-party service provider will be successful in protecting our confidential and other data that is stored on their systems. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyberattacks or other data security breaches and may incur significant additional expense to implement further data protection measures. Any disruption of the networks and services of independent third-party service providers could also negatively affect our operations, accessibility or offering.

 

If we are able to successfully access the unfunded portion of the Yorkville Investment, we may face risks associated with international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business.

 

If we are able to successfully access the unfunded portion of the Yorkville Investment, we expect that our initial market will be central Europe, but our geographic coverage could exceed these markets. As a result, we would face risks associated with such growth, including possible unfavorable regulatory, political, tax and labor conditions, which could harm our business, as well as incurring significant expenditures necessary for satisfying relevant regulatory requirements or obtaining product certification in such new markets. Our operations will be subject to the local legal, political, regulatory and social requirements and economic conditions in the relevant jurisdictions. There is no guarantee that we will obtain relevant certifications for our products in the relevant markets or at all. We have not yet checked the feasibility of a rollout of our products in all the markets we may tap in the future and may identify political, regulatory, operational or practical hurdles, which may render an expansion into such a market unfeasible.

 

We have no experience to date selling our products. Any international sales would require us to make significant expenditures, including the potential hiring of local employees and potential establishment of local offices or facilities, in advance of generating any revenues. We may become subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our products as planned and require significant management attention. If we fail to successfully address such risks, our business, prospects, operating results and financial condition could be materially harmed.

 

If we are unable to attract and retain key employees and hire additional qualified management, technical and engineering personnel, our ability to compete could be harmed.

 

Our success and financial performance depend on technological innovation and resources. Our success in such an environment depends, to a large extent, on our management and the ability to retain our key personnel. We benefit from the expertise and knowledge of our research and development team and our competitiveness could be significantly impaired should we be unable to retain the key employees in our research and development team or any other team member. Any temporary or permanent unavailability or any unexpected loss of one or more of our management members or key employees could adversely affect our business and competitiveness. Changes in management may also have a significant impact on our operations and the loyalty and motivation of our employees.

 

Our success also depends, in part, on our continuing ability to identify, hire, attract, train and develop highly qualified personnel. In light of our decision to terminate the Sion program in February 2023, as of the end of March 2023, we had notified 254 employees about the termination of their employment with us and, in this context, additional employees decided to leave us. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit and similar retrofit solar products, in September 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. In addition, in late October 2023, we gave notice to all of our remaining employees in the interest of protecting the Subsidiary’s creditors during the Self-Administration Proceedings by ensuring that employee wages did not result in an additional liquidity burden. Following our agreement with Yorkville on the Yorkville Investment, we offered to reinstate those employees in November 2023. While more than 80% of these employees accepted our offer to stay, these events may have damaged our reputation as an employer and may significantly negatively affect our ability to hire and retain employees. Further, the significant reduction in headcount in 2023, as well as the change in management at both the Company and Subsidiary levels in connection with the Yorkville Investment, which in both cases resulted in smaller management teams, expose us to the risk that employees with relevant knowledge and know-how may have left us and that the remaining employees may not be able, or may not have the adequate skills or time, to successfully perform all of the functions that are necessary for us to manage, develop or grow our business.

 

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We may have to hire additional employees in order to maintain our daily operations, corporate functions and be able to complete the development of our solar technology in order to start its commercial production according to our currently envisioned timelines. We may not succeed in hiring employees in sufficient numbers or at all, as our technological solutions are complex and innovative and individuals with sufficient experience with solar technology, particularly solar technology used in vehicles, are scarce, and as a result, we will need to expend significant time and money to train available employees. Competition for qualified employees is intense, and our ability to hire, attract and retain them depends, among others, on our ability to provide competitive compensation. Despite our emergence from the Self-Administration Proceedings, these proceedings and the events that lead up to them are likely to have damaged our reputation as an employer. Furthermore, we have a limited operating history and our brand and reputation as an employer are not as developed as that of established market players. We have not yet generated any material revenues, significantly depend on external financing and may not be able to offer potential employees attractive or competitive remuneration.

 

We may therefore not be able to attract, integrate, develop or retain qualified personnel in sufficient quantities or at all. Any failure to do so could adversely affect our business, including the execution of our global business strategy. Unqualified or unreliable personnel may also expose us to various risks not directly related to our operations, such as violations against insider trading laws, the misappropriation of trade and business secrets or personal data from our technology infrastructure, material incorrect entries in our accounting systems, weak management of our customer or supplier relationships or logistics management.

 

We are exposed to various liability risks resulting from past or existing employment relationships and labor laws.

 

In light of our decision to terminate the Sion program in February 2023 and our financial situation, we terminated the vast majority of our employees. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit, in September 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. We may also decide to terminate further employment relationships in the foreseeable future. In the event of any employee terminations, we face the risk of legal proceedings in which the former employees may challenge their termination, claim damages or other payments and benefits in relation to their employment relationship or seek ownership in intellectual property rights and other assets. Should employees be successful in challenging terminations, we may be exposed to substantial financial and other liabilities. As of December 1, 2023, 13 employees had initiated legal proceedings against us in connection with their termination due to our changes in business model, 11 of which have already been resolved as of the date of this Annual Report. In addition, despite their termination, former employees may still claim to be, fully or partially, entitled to certain benefits granted to them while they were still employed with us, such as, for example, certain incentives, bonuses or pension entitlements. We may also be liable for substantial social security contributions with respect to terminated employees for a prolonged time.

 

Workforce management poses various risks and challenges, particularly in the EU and Germany, where the vast majority of our workforce is located. The labor laws in Germany are complex and rather employee-friendly. For example, the German Working Time Act (Arbeitszeitgesetz) sets out a strict framework for, among others, the length of working shifts and resting breaks, the definition of working days and holidays, work on holidays, compensation and the obligation of employers to record working times of employees. There can be no assurance that we have complied or will comply in all material aspects with applicable labor laws, which may lead to the imposition of material fines or even criminal liability and may significantly negatively affect our reputation.

 

Regulations and stakeholder expectations relating to environmental, social and governance matters may impose additional costs and expose us to new risks.

 

We continue to closely monitor developments relating to environmental, social and governance (“ESG”) regulations. At the federal level in the United States, the SEC has approved new rules requiring public companies to disclose extensive climate-related information in their registration statements and periodic reports where material. The approved rules would mandate disclosures related to material climate-related risks and their impacts, greenhouse gas emissions and climate-related financial statement metrics. While the SEC has stayed these rules given current litigation challenging their authority, we are monitoring closely the SEC requirements to be in preparation for any final court rulings. As a result of new and approved climate-related regulatory requirements, we will develop robust systems, processes, and controls for assessing and reporting our material climate-related financial risks, as well as ensuring transparency and accuracy in our disclosures.

 

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There is an increasing focus from stakeholders, including certain investors, customers and employees, concerning ESG matters. For example, some investors may use ESG performance factors to guide their investment strategies and, in some cases, may choose not to invest in us if they believe our policies and actions relating to ESG are inadequate. In addition, we may face reputational damage in the event that we do not meet the ESG standards set by various constituencies.

 

As ESG best practices and regulations continue to evolve, we expect to incur increasing costs relating to ESG monitoring, reporting and compliance, and these efforts will require substantial time and attention of management. This could have a material adverse effect on our business, results of operations, value chain and financial condition.

 

Fluctuations in currency exchange rates may significantly impact our results of operations.

 

A substantial percentage of our operations are conducted in Europe. As a result, we are exposed to an exchange rate risk between the U.S. and the Euro. The exchange rates between these currencies in recent years have fluctuated significantly and may continue to do so in the future. An appreciation of the Euro against the U.S. dollar could increase the relative cost of our products outside of Europe, which could lead to decreased sales. Conversely, to the extent that we are required to pay for goods or services in U.S. dollars, the depreciation of the Euro dollar against the U.S. dollar would increase the cost of such goods and services.

 

We do not hedge our currency exposure and, therefore, we incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the Euro. Given the volatility of exchange rates, we might not be able to effectively manage our currency transaction risks, and volatility in currency exchange rates might have a material adverse effect on our business, financial condition or results of operations.

 

Our operations could be adversely affected as a result of disasters or unpredictable events.

 

Our operations could be disrupted, among others, by natural disasters such as earthquakes, fires or explosions, pandemics and epidemics, power outages, terrorist attacks, cyberattacks, war or other critical events. This also applies to the operations of our suppliers and other business partners. Disruptions may also result from possible regulatory or legislative changes in the relevant jurisdictions of our, our suppliers’ or our business partners’ operations.

 

In February 2022, Russia invaded Ukraine across a broad front. In response to this aggression, governments around the world have imposed severe sanctions against Russia. These sanctions disrupted manufacturing, delivery and supply chains at a global scale. In addition, the recent war between Israel and Hamas may also disrupt or otherwise negatively impact manufacturing, delivery and supply chains at a global scale and may also have a material impact on business relationships with customers in the region. We cannot yet foresee the full extent of the impact that these wars and the sanctions imposed as a result thereof, as well as any future sanctions that may be imposed in connection with these wars, will have on our business and operations. Such impact will depend on future developments of the wars, which are highly uncertain and unpredictable. The wars could have a material impact on our results of operations, liquidity, and capital management. We will continue to monitor the situation and the effect of these developments on our liquidity and capital management. At the same time, we have taken actions to maintain operations and to secure our supply chain.

 

Regulatory, Legal and Tax Risks

 

We are subject to substantial regulation and unfavorable changes to, or failure by us to comply with, these regulations could substantially harm our business and operating results.

 

We are subject to substantial regulation under international, national, regional, and local laws. We expect to incur significant costs in complying with these regulations. In addition, additional regulatory costs or hurdles may materialize in the future as we expand our operations, as we have not yet assessed all relevant legal aspects of our operations and current business model with respect to the relevant legal framework of all jurisdictions we may conduct business in. Regulations related to the mobility and e-mobility industry and alternative energy are evolving and we face risks associated with changes to these regulations. We are unable to predict future legislative or regulatory changes, initiatives or interpretations and any such changes, initiatives or interpretations may increase costs and competitive pressure on us. To the extent laws change, our products may not comply with applicable international, national, regional or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results would be adversely affected.

 

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We are subject to various environmental laws and regulations that could impose substantial costs upon us.

 

Our operations, are or will be subject to international, national, regional and/or local environmental laws and regulations, including, in the jurisdictions in which we intend to sell our products, laws relating to the use, handling, storage, disposal and human exposure to hazardous materials (including the German Federal Soil Protection Act (Bundes-Bodenschutzgesetz), and Regulation (EC) no. 1907/2006 (REACH)). Furthermore, we will be affected by the Extended Producer Responsibility, an EU policy approach under which producers are given a significant responsibility - financial and/or physical - for the treatment or disposal of post-consumer products. We may be or become subject to various environmental, social and governance-related regulations in the future, such as the EU Corporate Sustainability Reporting Directive, EU Taxonomy for sustainable activities, the EU Corporate Sustainability Due Diligence Directive or the Act on Corporate Due Diligence Obligations in Supply Chains (“Lieferkettensorgfaltspflichtengesetz”, LkSG) including as a result of recent legislative or regulatory initiatives. Environmental and health and safety laws and regulations can be complex. We expect that we will be affected by future amendments to such laws or other new environmental and health and safety laws and regulations, which may require us to change our operations, potentially resulting in a material adverse effect on our business, prospects, financial condition and operating results.

 

These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury, fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties, third-party damages, suspension of production or a cessation of our operations.

 

We may be involved in legal proceedings based on the alleged violation of intellectual property rights either by us or third parties, such as patent or trademark infringement claims, which may be time-consuming and cause us to incur substantial costs.

 

Technological innovation will be a crucial aspect of our potential success. We have been granted several patents for our technologies and intend to continue to file additional patent applications in the future. As the number of competitors in our market increases, and as the number of patents issued in the area of mobility grows, the possibility of patent infringement claims against us or by us increases. While we are not aware that our technologies infringe the proprietary rights of any third party or that technologies of a third party infringe our proprietary rights, we do not regularly conduct freedom to operate searches. Policing violations of our intellectual property rights or unauthorized use of our proprietary technology can be difficult and result in substantial costs. Litigation may be necessary to enforce our intellectual property rights or determine the validity and scope of our proprietary rights and of others. We cannot ensure that the outcome of such potential litigation will be in our favor, and such litigation may be costly and may divert management attention and other resources away from our business. We may not be able to manufacture or commercialize our technology as planned and our freedom to operate may be impaired, absent a license, which may not be available on reasonable terms or at all, should we fail to successfully identify or challenge any patents or patents applications that cover our technology or innovations. This risk is more pronounced against the background that it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We may in-license patents and other intellectual property from third parties, including suppliers and service providers, and we may face claims that our use of this in- licensed technology infringes the intellectual property rights of others. In such cases, we will seek indemnification from our licensors. However, our rights to indemnification may be unavailable or insufficient to cover our costs and losses.

 

We may be required to participate in interference, derivation or opposition proceedings that concern disputes regarding priority of inventions disclosed in our patents. Determining patent infringement by a product, as well as priority of inventions and other patent-related disputes, involves complex legal and factual issues and the outcome is often uncertain. We have not conducted any significant search of patents issued to third parties, and third-party patents containing claims covering our technology or methods that predate our patents may exist. Because of the number of patents issued and patent applications filed in our technical areas or fields (including some pertaining specifically to electric vehicles), we may identify third party technologies that infringe our patents or our competitors or other third-parties may assert that our technology and the methods we employ in the use of products incorporating our technology are covered by patents held by them. In addition, because patent applications can take many years to issue and because publication schedules for pending applications vary by jurisdiction, we may not be aware of certain patent applications that are currently pending, which applications may result in issued patents that our technology or other future products would infringe. Also, because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe.

 

26

 

Our ability to successfully commercialize our solar technology, and therefore our ability to potentially generate meaningful revenue streams, may be significantly impaired should it or any of its components violate third parties’ intellectual property rights. The scope of patent claims is subject to construction based on interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect. Established vehicle manufacturers, technology companies or other market players may invest significant resources and capital to protect their intellectual property and scan the market for potential violations. There is a heightened risk that inquiries or legal proceedings based on the alleged violation of intellectual property rights are initiated by established vehicle manufacturers or technology companies that develop and test technologies similar to ours and that have much more resources and funds than us. Other companies owning patents or other intellectual property rights relating to technologies relevant for us, such as solar modules or electronic power management systems may also allege infringement of such rights. In addition, we may also be exposed to claims from individuals who were or are engaged in the design and development of our technologies or previously developed vehicles. We initiated mass layoffs of former employees in connection with the change in our business model, which increases the risk for retaliatory actions. Former employees who left us or were terminated may seek to assert ownership in or otherwise challenge intellectual property rights that we claim or are crucial for our plans. The publicity interest we receive as a public company draws significant attention to us and likely generally increases the risks of such claims and legal proceedings, no matter whether such claims lack the required merits or not or are of merely fraudulent nature.

 

In addition, we may be required to indemnify our customers and distributors against claims relating to the infringement of intellectual property rights of third parties related to our products. Third parties may assert infringement claims against our customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or distributors, or may be required to obtain licenses for the products or services they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our distributors may be forced to stop distributing our products or services, and our customers may be forced to stop using our products or services.

 

The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. Because of the substantial amount of discovery required in certain jurisdictions in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. If we are required to obtain a license from any third party in order to use the infringing technology and continue developing, manufacturing or marketing our products, we may not be able to obtain such required license on commercially reasonable terms or at all, including due to competitors being unwilling to provide us a license under any terms. A successful claim of infringement of intellectual property against us could therefore materially adversely affect our business, prospects, operating results and financial condition. Any litigation or claims, whether valid or invalid, could result in substantial costs and diversion of resources and we have not yet created any reserves for litigation related to intellectual property.

 

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, which may adversely affect our business.

 

Our trademark registrations and applications are valuable assets and may be challenged, infringed, circumvented or declared generic or determined to infringe a third party’s trademarks. In March 2022, we filed eight new trademarks with the European Union Intellectual Property Office, each of which has been opposed by two separate opponents. We are currently in negotiations with these opponents and are seeking an amicable solution. In addition, one of those opponents has also opposed our European registered trademark of our circle with a dot between the words Sono Motors. We may not be able to protect our rights to these trademark registrations or applications, which may be necessary to build name recognition among potential collaborators or customers in our markets of interest. For example, we have failed in some jurisdictions to obtain protection for our circle with a dot in the middle, if it is not combined with other distinctive elements. Equally, there can be no assurance that we will be successful in registering additional or replacement trademarks if we were to engage in a rebranding. At times, competitors may adopt trademarks or trade names similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our trademark registrations or applications. We have not conducted any availability searches for trademarks to assess whether our trademark registrations would not infringe a third party’s trademarks, or whether our trademark applications would be successfully registered. We can provide no assurance that our pending trademark applications will be approved. Successful third-party challenges to the use of any of our trademarks may require us to rebrand our business or certain products or services associated therewith.

 

Over the long term, if we are unable to establish name recognition based on our trademarks, then we may not be able to compete effectively and our business may be adversely affected. We may fail to adequately maintain the quality of our products and services associated with our trademarks, and any loss to the distinctiveness of our trademarks may cause us to lose certain trademark protection, which could result in the loss of goodwill and brand recognition in relation to our name and products. In addition, we may license our trademarks to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks may be used, a breach of these agreements or misuse of our trademarks by these licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks. Our efforts in enforcing or protecting our trademarks may be ineffective and could result in substantial costs and diversion of resources and adversely affect our business.

 

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We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers or claims asserting ownership of what we regard as our own intellectual property.

 

Some of our employees were previously employed at other companies that may have proprietary rights related to our business. Some of these employees may have executed proprietary rights, non-disclosure and noncompetition agreements in connection with such previous employment. Although we try to ensure that such individuals do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of their former employers. We are not aware of any such disclosures, or threatened or pending claims related to these matters, but in the future, litigation may be necessary to defend against such claims. If we fail to defend any such claims, we may lose valuable intellectual property rights or personnel, and may be required to pay monetary damages and be enjoined from conducting our business as contemplated. Even if we are successful in defending against such claims, litigation can be expensive and time-consuming.

 

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage.

 

For example:

 

 

others may be able to make products or processes that are identical or similar to any product or process we may develop and commercialize or utilize similar intellectual property or technologies that we now or may in the future own or have in-licensed;

 

 

we or our future licensors or collaborators might not have been the first to make the inventions covered by the patents or pending patent applications that we own or have in- licensed;

 

 

we or our future licensors or collaborators might not have been the first to file patent applications covering certain of our or their inventions;

 

 

others may independently develop similar or alternative intellectual property or technologies or duplicate any of our intellectual property or technologies without infringing our owned or in-licensed intellectual property rights;

 

 

it is possible that our pending patent applications or those that we may own or in-license in the future will not lead to issuance of patents;

 

 

patents that we own or have in-licensed may be held invalid or unenforceable, including as a result of legal challenges by our or our licensors’ competitors;

 

 

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products or processes for sale in our major commercial markets;

 

 

we may not develop additional trade secrets or proprietary know-how that is patentable;

 

 

the patents of others may have an adverse effect on our business and/or our technology may infringe existing third party patents, leading to either loss of freedom to operate or the need to pay license fees;

 

 

we may choose not to file a patent in order to maintain certain trade secrets or proprietary know-how, and a third party may subsequently file a patent covering such trade secrets or proprietary know-how; and

 

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a third party may infringe our patents resulting in the need for legal action, including potential litigation, to protect our patents, and there can be no guarantees that we would be successful in such legal actions in all jurisdictions.

 

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and reputation.

 

We may be subject to various privacy laws, the violation of which could result in substantial fines and other negative consequences.

 

We collect, store and process substantial amounts of data in the course of our business operations, which may subject us to various data protection and privacy laws. The regulatory framework for data protection, privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.

 

The data and information we collect and manage in conducting our business may subject us to legislative and regulatory burdens and requirements in the European Economic Area (“EEA”) and the United States of America that could require notification of data breaches, restrict our use of such information and hinder our ability to acquire new customers or market to existing customers. We have not yet implemented a comprehensive set of internal- or external-facing written data protection and privacy policies, procedures and rules. Non-compliance or a major breach of our network security and systems could have serious negative consequences for our business and future prospects, including possible fines, penalties and damages, reduced customer demand for our products, and harm to our reputation and brand. For instance, Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the General Data Protection Regulation, “GDPR”) imposes strict limitations on the processing of personal data. The GDPR and other data privacy laws regulate when and how personal data may be collected, for which purposes it may be processed, for how long such data may be stored and to whom and how it may be transferred. The GDPR contains strict requirements for obtaining the consent of data subjects (i.e., the persons to whom personal data relates) to the use and processing of their personal data and also requires the implementation of appropriate technical and organizational measures, depending on the nature of the processing activities, and imposes certain documentation obligations relating to data processing activities. The GDPR also imposes various obligations in the context of processing of data, including, among others, far-reaching transparency, data minimization, storage limitations, privacy by design and privacy by default obligations, data security, integrity and confidentiality obligations. In addition, it may require data protection impact assessments where the data processing is likely to result in a high risk to the rights and freedoms of individuals. In case of a violation of the provisions of the GDPR, we could be subject to fines of up to €20,000,000 or up to 4% of our total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. We may also be liable should any individual who has suffered financial or non-financial damage arising from our infringement of the GDPR exercise their right to receive compensation against us. Furthermore, adverse publicity relating to our failure to comply with the GDPR could cause a loss of goodwill, which could have an adverse effect on our reputation, brand, business and financial condition. In addition, local authorities may construe new regulations in a way that is even more restrictive and there is no guarantee that we will be able to comply with such restrictive approaches.

 

There is a risk that personal data that we process could become public if there were a security breach in respect of such data and, if such security breach were to occur, we could face liability under data protection laws, including the GDPR, and lose the goodwill of our customers, which may have a material adverse effect on our reputation, brand, business and financial condition. Any risk of liability under data protection laws, including the GDPR, is more pronounced against the background of our mass terminations of employees that we implemented in connection with the change in our business model and which could subject us to retaliatory actions by former employees, including willful data leakages or the disclosure of confidential information.

 

We are exposed to the risk of litigation or other legal proceedings that could cause us to spend substantial resources and disrupt our business.

 

We are exposed to the risk of product liability claims, regulatory action and litigation if any defect of our solar technology solutions or other innovations is alleged to have caused loss or injury. We face the risk of significant monetary exposure to product liability claims in the event our products do not perform as expected or contain design, manufacturing, or warning defects, and to claims without merit, or in connection with malfunctions, resulting in personal injury or death. Product liability claims could arise, for example, from malfunctions, defects, quality issues, design flaws or structural weaknesses relating to, or abuse of, our solar technology solutions implemented in or offered with vehicles. Our risks in this area are particularly pronounced given the limited field experience of our products and because we are a new entrant into the market. Any product liability claims or corresponding regulatory actions against us could result in increased costs and could adversely affect our reputation and our perception by our customers. We may not be able to secure product liability insurance coverage on commercially acceptable terms, at reasonable costs when needed, or at all and insurance coverage might not be sufficient to cover all potential product liability claims.

 

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In light of our decision to terminate the Sion passenger car program in February 2023, as of the end of March 2023, we had notified 254 employees about the termination of their employment with us. Thereafter, in connection with the corporate structure and future business model envisioned in the Yorkville Investment, including the streamlined initial business focus on the Solar Bus Kit and similar retrofit solar products, in September 2023, we terminated the contracts of 40 employees, including the contracts of the four managing directors of the Subsidiary. We may also decide to terminate further employment relationships in the future. In the event of any employee terminations, we face the risk of legal proceedings in which the former employees may challenge their termination, claim damages or other payments and benefits in relation to their employment relationship or seek ownership in intellectual property rights and other assets. Should employees be successful in challenging terminations, we may be exposed to substantial financial and other liabilities. As of December 1, 2023, 13 employees had initiated legal proceedings against us in connection with their termination due to our changes in business model, 11 of which have already been resolved as of the date of this Annual Report. We also terminated and settled relationships with several former business partners that became obsolete. Former business partners may assert substantial payment claims or sue us for damages.

 

Furthermore, we may also face litigation and legal proceedings based on advertisements or other public statements should such statements turn out to be unrealistic, unfeasible or false or should the overall advertised performance or specifications of our products deviate from such advertisements or public statements.

 

We may or will be, as the case may be, subject to anti-corruption, anti-bribery, anti-money laundering, financial and economic sanctions and similar laws and our compliance systems may not be sufficient to adequately prevent or detect legal, financial and operational risks.

 

Our business may or will be subject to various laws and regulations relating to, among other things, prevention of illegal employment, bribery and corruption, and money laundering, as well as compliance with antitrust, data protection (particularly the GDPR), consumer protection, minimum wage regulations, various criminal as well as export control regulations and trade and economic sanctions and embargoes on certain countries, persons, groups and/or entities, projects and/or activities. We are reliant on the compliance of our employees and the members of our management board, our contractors, consultants, agents, vendors and (other) collaboration partners with applicable laws and compliance policies implemented by us.

 

However it cannot be excluded that our employees, the members of the management board, our contractors, consultants, agents, vendors and (other) collaboration partners have committed or will commit criminal, unlawful or unethical acts (including corruption) or that our compliance and risk management and its monitoring capabilities may prove insufficient to prevent or detect any breaches of the law. Any such acts or breaches of law could result in whistle-blower complaints, adverse media coverage, (criminal) investigations, significant civil, administrative, and criminal penalties and damage claims, disgorgement or other sanctions, (collateral) consequences, remedial measures and legal expenses, and cause considerable damage to our reputation, thereby negatively affecting our business, results of operations, financial condition and future business opportunities.

 

We may become subject to additional Dutch and German taxes, in particular, due to the statutory seat of the Company in the Netherlands.

 

There is a risk that the German tax authorities classify the Company as Dutch tax resident. If the German tax authorities conclude that the Company is not, has ceased, or ceases to be (also as a consequence of the change of facts or the law), a German tax resident, it could, inter alia, become subject to German exit taxation. This could have serious German tax consequences, including German exit taxes or the increase of German withholding taxes on dividends received by the Company. Such German exit taxes could lead to the taxation of the built-in gains in the assets (e.g., intellectual property or goodwill) of the Company.

 

If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands.

 

We currently do not intend to pay any dividends to holders of our ordinary shares. However, if we do pay dividends, we may need to withhold tax on such dividends in both Germany and the Netherlands.

 

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As an entity incorporated under Dutch law, any dividends distributed by us are subject to Dutch dividend withholding tax based on Dutch domestic law. However, on the basis of the 2012 Convention between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation with respect to taxes on income, or the “double tax treaty between Germany and the Netherlands,” the Netherlands will be restricted in imposing these taxes if we continue to be a tax resident of Germany and our place of effective management is located in Germany. This withholding tax restriction does, however, not apply, and Dutch dividend withholding tax is still required to be withheld from dividends, if and when paid to Dutch resident holders of our ordinary shares and non-Dutch resident holders of our ordinary shares that have a permanent establishment in the Netherlands to which their shareholding is attributable. As a result, upon a payment (or deemed payment) of dividends, we will be required to identify our shareholders in order to assess whether there are Dutch residents (or non-Dutch residents with a permanent establishment in the Netherlands to which the ordinary shares are attributable) in respect of which Dutch dividend tax has to be withheld. Such identification may not always be possible in practice. If the identity of our shareholders cannot be determined, withholding of both German and Dutch dividend tax may occur upon a payment of dividends.

 

Furthermore, the withholding tax restriction referred to above is based on the current choices and reservation made by Germany under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). If Germany changes its MLI choices and reservation, we may not be entitled to any benefits of the double tax treaty between Germany and the Netherlands, including the withholding tax restriction, as long as Germany and the Netherlands do not reach an agreement on our tax residency for purposes of the double tax treaty between Germany and the Netherlands, and, as a result, any dividends distributed by us during the period no such agreement has been reached between Germany and the Netherlands may be subject to withholding tax both in Germany and the Netherlands.

 

We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.

 

Since our incorporation we have had, on a continuous basis, our place of “effective management” in Germany (albeit that such management connection with Germany has been diluted). The German tax authorities may still deem the remaining management connection or other local presence sufficiently strong to assert taxing rights under German domestic law. As an entity incorporated under Dutch law, however, we also qualify as a tax resident of the Netherlands on the basis of Dutch domestic law. Yet, based on our current management structure and the current tax laws of the United States, Germany and the Netherlands, as well as applicable income tax treaties, and current interpretations thereof, if the German tax authorities would seek to assert taxing rights due to effective management from Germany, we should qualify solely as a tax resident of Germany for the purposes of the double tax treaty between Germany and the Netherlands due to the “effective management” tie-breaker included in Article 4(3) of the double tax treaty between Germany and the Netherlands and the current MLI choices and reservation, seeing that management ties with the Netherlands are entirely absent. Our sole tax residency in Germany for purposes of the above-mentioned tax treaty is subject to the application of the provisions on tax residency as stipulated in such treaty as amended from time to time. The MLI, Germany and the Netherlands entered into, among other countries, should not, as of this date, affect such tax treaty’s rules regarding tax residency.

 

The test of “effective management” is largely a question of fact and degree based on all the circumstances, rather than a question of law. Nevertheless, the relevant case law and OECD guidance suggest that our Company is unlikely to be regarded as a Dutch tax resident in a tax treaty context if, as our Company intends, (i) no management board meetings will be held in the Netherlands and management board members attending through video conferencing will not be present in the Netherlands for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting our Company and its subsidiaries; (iii) those meetings are properly minuted; (iv) none of our management board members, together with supporting staff, are based in the Netherlands; and (v) our Company does not have permanent staffed office premises in the Netherlands. We may, however, become subject to income tax liability in other countries with regard to the income generated in the respective other country, for example, due to the existence of a permanent establishment or a permanent representative in such other country.

 

The applicable tax laws, tax treaties or interpretations thereof may change, including the MLI choices and reservation. Furthermore, whether we have our place of effective management in Germany and are as such solely tax resident in Germany is largely a question of fact and degree based on all the circumstances, rather than a question of law, which facts and degree may also change. Changes to applicable tax laws or interpretations thereof, changes to applicable facts and circumstances (for example, a change of directors or the place where board meetings take place), or changes to applicable tax treaties, including a change to the application of the MLI, may result in a taxable presence in (an)other jurisdiction(s). See “Item 3. Key InformationD. Risk FactorsRegulatory, Legal and Tax RisksIf we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands.” As a consequence, our overall effective income tax rate and income tax expense could materially increase, which could have a material adverse effect on our business, results of operations, financial condition and prospects, which could cause our share price and trading volume to decline.

 

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We may be or become a passive foreign investment company (PFIC), which could result in adverse United States federal income tax consequences to United States investors.

 

Based on the composition of our income and valuation of our assets, including goodwill, we believe that we were not a PFIC in our taxable year ended December 31, 2023. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (1) 75% or more of our gross income in a taxable year is passive income, or (2) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%.

 

Our PFIC status is a factual determination that is made annually and thus may be subject to change. It is therefore possible that we could become a PFIC in our taxable year ending December 31, 2024 or in a future taxable year.

 

If we are or were to become a PFIC, such characterization could result in adverse United States federal income tax consequences and burdensome reporting requirements to a holder of ordinary shares if such holder is a United States investor. See Item 10. Additional InformationE. TaxationU.S. Federal Income Tax ConsiderationsPFIC Rules”.

 

Risks Related to Our Shares

 

Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline.

 

Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales may occur, could cause the market price of our ordinary shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our articles of association, we are authorized to issue up to 320,000,000 ordinary shares. Although our articles of association provide that upon an increase of our issued share capital to at least €25,000,000 our authorized share capital will automatically increase to €102,000,000, divided into 1,500,000,000 ordinary shares and 8,000,000 high voting shares, in connection with the Yorkville Investment, shareholders at the EGM (as defined herein) approved a proposal to increase (in one or a series of amendments) our authorized share capital in order to cover conversions under the convertible debentures held by Yorkville. An issuance of new ordinary shares may also lead to substantial dilution of our then existing shareholders. We cannot predict the size of future issuances of our shares, or the effect, if any, that future issuances and sales of shares would have on the market price of our ordinary shares.

 

Our ordinary shares were delisted from Nasdaq, which has had and may continue to have a material adverse effect on our business and the trading and price of our ordinary shares.

 

Our ordinary shares were delisted from Nasdaq effective February 25, 2024. As at the date of the filing of this Annual Report, the Company’s securities are quoted on the OTC Markets Pink Open Market (“OTC Pink Market”) on an “unsolicited only” basis.

 

The OTC Pink Market is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in the over-the-counter equity securities and provides significantly less liquidity than a listing on the Nasdaq Stock Markets or other national securities exchange. OTC Pink Market securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our securities. Quotes for securities included on the OTC Pink Market are not listed in the financial sections of newspapers as are those for the Nasdaq Stock Market or the NYSE. Therefore, prices for securities traded solely on the OTC Pink Market may be difficult to obtain.

 

Trading on the OTC Pink Market as opposed to a national securities exchange had resulted and may continue to result in a reduction in some or all of the following, each of which could have a material adverse effect on the price of our ordinary shares and our company:

 

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liquidity of our ordinary shares;

 

 

the market price of our ordinary shares;

 

 

more difficult and more expensive financings in the future; our ability to obtain financing to support our operations and the implementation of our business plan;

 

 

decreased ability to issue additional securities or obtain additional financing in the future;

 

 

loss of exemption under U.S. state securities registration requirements, which may require us to comply with applicable U.S. state securities laws;

 

 

the number of institutional and other investors that will consider investing in our ordinary shares;

 

 

the number of market markers in our ordinary shares;

 

 

the availability of information concerning the trading prices and volume of our ordinary shares; and

 

 

the number of broker-dealers willing to execute trades in our ordinary shares.

 

In addition, the market price of our ordinary shares could be subject to wide fluctuations in response to:

 

 

actual or anticipated fluctuations in our results of operations;

 

 

the sale by us of our ordinary shares or other securities, or the anticipation of sales of such securities;

 

 

the trading volume of our ordinary shares, particularly if such volume is light;

 

 

the introduction of new products or services, or product or service enhancements by us or our competitors;

 

 

announcements of significant acquisitions or other agreements by us or our competitors;

 

 

sales or anticipated sales of our ordinary shares by our officers and directors;

 

 

conditions and trends in our industry;

 

 

changes in our pricing policies or the pricing policies of our competitors;

 

 

changes in the estimation of the future size and growth of our markets; and

 

 

general economic conditions.

 

The stock market in general, and the OTC Pink Market in particular, have experienced extreme price and volume fluctuations that in some cases may be unrelated or disproportionate to the operating performance of companies. These broad market and industry factors may materially harm the market price of our ordinary shares, regardless of our operating performance. In addition, this volatility could adversely affect an investor’s ability to sell our ordinary shares and/or the available price for such ordinary shares, at any given time.

 

We are currently applying to have our ordinary shares admitted for trading on the OTCQB, and in the future, we plan to seek to relist our ordinary shares on a national stock exchange through the normal relisting application process. However, we cannot assure you that we will list our ordinary shares successfully on Nasdaq or another national securities exchange, or that once listed, our ordinary shares will remain listed thereon. An active trading market for the Company’s ordinary shares may never develop or, if developed, it may not be sustained. You may be unable to sell your ordinary shares unless an active market for such ordinary shares can be established and sustained.

 

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Following the delisting of our ordinary shares from Nasdaq in February 2024, we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future or to pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future.

 

On December 11, 2023, the Company received a decision of the Panel advising the Company that the Panel had determined to delist the Company’s ordinary shares from Nasdaq. Nasdaq filed a Form 25 Notification of Delisting with the SEC on February 15, 2024 to complete the delisting.

 

On July 12, 2023, we received a delisting notice from Nasdaq stating that the staff of the Listing Qualifications Department (the “Staff”) has determined that our securities will be delisted from Nasdaq in accordance with Listing Rules 5101, 5110(b) and IM-5101-1 and notifying us of the suspension in trading of our common shares as of the opening of business on July 21, 2023. The delisting notice further stated that a Form 25-NSE was to be filed with the SEC, which would remove our securities from listing and registration on Nasdaq. The Staff’s determination was based on the following factors: the associated public interest concerns raised by our announcement of the applications for the Self-Administration Proceedings; concerns regarding the residual equity interest of the existing listed securities holders; and concerns about our ability to sustain compliance with all requirements for continued listing on Nasdaq. The delisting notice further stated that our failure (up to that time) to file our Annual Report on Form 20-F for the fiscal year ended December 31, 2022 with the SEC and Nasdaq and resultant failure to comply with Nasdaq’s filing requirement as set forth under Listing Rule 5250(c)(1) served as an additional and separate basis for delisting.

 

On August 28, 2023, we received an additional staff determination letter (the “Letter”) from the Staff stating that, for the 12 consecutive trading days prior to the Letter, the closing bid price of our ordinary shares had been below $0.10, which served as an additional basis for delisting our ordinary shares from Nasdaq pursuant to Listing Rule 5810(c)(3)(A)(iii). In addition, the Letter stated that the resignation in April 2023 of four out of five members of our supervisory board, including all of our independent members, and our resultant failure to meet the audit committee requirement for continued listing on Nasdaq set forth in Listing Rule 5605(c)(2), served as an additional basis for delisting our ordinary shares from Nasdaq. We appealed the delisting determination and appeared before the Panel on September 14, 2023.

 

Trading of our ordinary shares on Nasdaq was suspended on July 21, 2023. Since then, our ordinary shares have been quoted on the over-the-counter market, and we are currently applying to have our ordinary shares admitted to trading on OTCQB, which we expect to occur shortly after the filing of this Annual Report. Over-the-counter markets which are less visible, less accessible and less liquid markets. Furthermore, there can be no assurance that we will be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future and pay for the costs associated with an initial listing on a stock exchange. At our extraordinary general meeting of shareholders convened on January 31, 2024 (the “EGM”), shareholders approved a proposal to effect the Reverse Share Split (as defined herein) of the ordinary shares and high voting shares and, as part of the Reverse Share Split, to reduce the nominal value per ordinary share and high voting share. Our management board has been authorized by the shareholders at the EGM to determine the exchange ratio for the Reverse Share Split. The Reverse Share Split and the reduction of nominal value of ordinary shares and high voting shares is effected by means of an amendment of our articles of association. The purpose of such proposal is to increase the price of the Company’s ordinary shares and enable a potential application for admission of our ordinary shares to trading on a stock exchange in the future; however, such efforts may not be sufficient. As a result, there can be no assurance that we will be able to have our shares admitted to trading on a stock exchange in the future.

 

The market price of our ordinary shares could fluctuate significantly, which could result in substantial losses for purchasers of our ordinary shares.

 

The stock market in general and the market for smaller technology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may lose some or all of your investment. The market price of our ordinary shares is affected by the supply and demand for our ordinary shares, which may be influenced by numerous factors, many of which are beyond our control, including:

 

 

fluctuation in actual or projected results of operations; changes in projected earnings or failure to meet securities analysts’ earnings expectations; the absence of analyst coverage;

 

 

negative analyst recommendations;

 

 

changes in trading volumes in our ordinary shares (including by the sale of shares granted to our employees under employee participation programs);

 

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large-volume or targeted transactions by short-sellers;

 

 

changes in our shareholder and/or share structure;

 

 

the Reverse Share Split (as defined herein);

 

 

changes in macroeconomic conditions;

 

 

the activities of competitors and sellers;

 

 

changes in the market valuations of comparable companies;

 

 

our ability to successfully develop and refine our solar technology and business and reach market readiness;

 

 

the recruitment or departure of key management or other key employees;

 

 

significant lawsuits, including patent, shareholder or customer litigation;

 

 

the fact that our shares are not currently listed on a stock exchange;

 

 

changes in investor and analyst perception with respect to our business or the solar technology and automotive industries in general; and

 

 

changes in the statutory framework applicable to our business.

 

As a result, our share price may be subject to substantial fluctuation.

 

In addition, general market conditions and fluctuation of share prices and trading volumes could lead to pressure on the market price of our ordinary shares, even if there may not be a reason for this based on our business performance or earnings outlook. Prices for companies with a limited operating history, particularly in industries with barriers such as the solar technology and mobility industries, may be more volatile compared to share prices for established companies or companies from other industries. The price of our shares has been volatile since our IPO.

 

If the market price of our ordinary shares declines as a result of the realization of any of these risks, investors could lose part or all of their investment in our ordinary shares.

 

Additionally, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the shares. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

 

Our dual-class share structure with different voting rights will limit your ability as a holder of ordinary shares to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of ordinary shares may view as beneficial.

 

We have a dual-class share structure, which we currently intend to maintain, as our share capital consists of ordinary shares and high voting shares. In respect of matters requiring the votes of shareholders, holders of ordinary shares will be entitled to one vote per share, while holders of high voting shares will be entitled to 25 votes per share. Each high voting share is convertible into one ordinary share at any time by the holder thereof, while ordinary shares are not convertible into high voting shares under any circumstances.

 

As of the date of this Annual Report, all of the Company’s high voting shares are held by SVSE LLC, a Delaware limited liability company (“SVSE”). The sole member of SVSE is George O’Leary, the Company’s CEO, CFO and sole managing director. The current concentration of ownership, if so maintained, may discourage, delay or prevent a change in control of our Company, which could deprive our other shareholders of an opportunity to receive a premium for their ordinary shares as part of a sale of our Company and might ultimately affect the market price of our ordinary shares. Such concentrated control will limit your ability to influence corporate matters that holders of ordinary shares may view as beneficial. In addition, certain index providers, such as S&P Dow Jones or FTSE Russell, view multi-class shares critically and have amended their rules so that companies with multi-class shares will no longer be added to their indexes. For information about the percentage of voting rights held by our major shareholders, see “Item 7. Major Shareholders and Related Party TransactionsA. Major Shareholders”.

 

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Future offerings of debt or equity securities by us could adversely affect the market price of our ordinary shares, and future issuances of equity securities could lead to a substantial dilution of our shareholders.

 

We will require significant additional capital in the future to finance our business operations and growth. For example, we will require additional funding to reach commercial operation, and we may seek to offer new equity and/or debt in the future for such funding. The Company may seek to raise such capital through the issuance of additional equity or debt securities with conversion rights (e.g., convertible bonds and option rights) or preferred equity (e.g., preference finance shares). An issuance of additional equity or debt securities with conversion rights could potentially reduce the market price of our ordinary shares and the Company currently cannot predict the amounts and terms of such future offerings. We expect such funding to be in the form of, or at least include, additional equity fundraising, which will dilute existing shareholders.

 

If such offerings of equity or debt securities with conversion rights are made without granting preemptive rights to our existing shareholders, these offerings would dilute the economic and voting rights of our existing shareholders. Preemptive rights may be restricted or excluded by a resolution of the general meeting or by another corporate body designated by the general meeting. In accordance with market practice and our past practice, our management board has been authorized for a period of 18 months following the date of the Company’s annual general meeting which took place on December 29, 2023 (the “AGM”) or until the next annual general meeting of shareholders (whichever comes first) to issue shares or grant rights to subscribe for shares representing up to 10% of the nominal issued capital as per the AGM and to limit or exclude preemptive rights in connection therewith. In addition, in connection with the Yorkville Investment, at our EGM shareholders approved proposals to authorize our management board as the corporate body authorized to issue ordinary shares and/or high voting shares to effect the Reverse Share Split (as defined herein) and to limit or exclude preemptive rights in connection therewith. Furthermore, shareholders at the EGM approved additional proposals to (i) grant rights to subscribe for ordinary shares (the “Debenture Shares”) to the holder(s) of the Existing Convertible Debentures (as defined herein) or the new convertible debenture(s) issued to Yorkville in connection with the Yorkville Investment, (ii) effect the potential issuance of more than 20% of the Company’s outstanding shares upon the conversion of one or more of such debentures, and (iii) exclude any pre-emption rights in relation to such debentures and the granting of rights to subscribe for the Debenture Shares. All of the foregoing could cause existing shareholders to experience substantial dilution of their interest in us.

 

In addition, dilution may also arise from (i) the acquisition or investments in companies in exchange, fully or in part, for newly issued ordinary shares or high voting shares, (ii) convertible rights in connection with (a) the Existing Convertible Debentures and (b) the new convertible debenture issued to Yorkville on February 5, 2024 and the additional convertible debenture(s) expected to be issued to Yorkville in connection with the Yorkville Investment, (iii) stock options or conversion rights granted to our business partners or our customers as well as from the exercise of stock options or conversion rights granted to our employees in the context of existing or future stock option programs or (iv) the issuance of ordinary shares to employees in the context of existing or future employee participation programs.

 

Any future issuance of ordinary shares or high voting shares could reduce the market price of our ordinary shares and dilute the holdings of existing shareholders.

 

Future sales by major shareholders could materially adversely affect the market price of our ordinary shares.

 

For various reasons, shareholders may sell all or some of our ordinary shares, including in order to diversify their investments. Sales of a substantial number of our ordinary shares in the public market, or the perception that such sales might occur, could depress the market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ordinary shares and trading volume could decline.

 

The trading market for our ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analyst coverage results in downgrades of our ordinary shares or publishes inaccurate or unfavorable research about our business, our share price will likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and demand for our ordinary shares could decrease, which, in turn, could cause the market price or trading volume for our ordinary shares to decline significantly.

 

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Shareholders may not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of ordinary shares.

 

In the event of an issuance of ordinary shares, subject to certain exceptions, each shareholder will have a pro rata preemptive right in proportion to the aggregate nominal value of the ordinary shares held by such holder. These preemptive rights may be restricted or excluded by a resolution of the general meeting or by another corporate body designated by the general meeting. Our management board, subject to approval of our supervisory board, has been authorized, for a period of 18 months from the AGM or until the next annual general meeting (whichever comes first) to issue shares or grant rights to subscribe for shares representing up to 10% of the nominal issued capital as per the AGM and to limit or exclude preemptive rights in connection therewith. In addition, in connection with the Yorkville Investment, at our EGM shareholders approved and adopted proposals to authorize our management board as the corporate body authorized to issue ordinary shares and/or high voting shares to effect the Reverse Share Split (as defined herein) and to limit or exclude preemptive rights in connection therewith. Furthermore, shareholders at the EGM approved additional proposals to (i) grant rights to subscribe for Debenture Shares to the holder(s) of the Existing Convertible Debentures (as defined herein) or the new convertible debenture(s) issued to Yorkville in connection with the Yorkville Investment, (ii) effect the potential issuance of more than 20% of the Company’s outstanding shares upon the conversion of one or more of such debentures, and (iii) exclude any pre-emption rights in relation to such debentures and the granting of rights to subscribe for the Debenture Shares. All of the foregoing could cause existing shareholders to experience substantial dilution of their interest in us.

 

We do not expect to pay any dividends in the foreseeable future.

 

We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the change in our business model, the further development of our solar technology and start of its commercial production, as well as the growth of our business. Accordingly, we currently do not intend to pay any dividends to holders of our ordinary shares. As a result, capital appreciation in the price of our ordinary shares, if any, will be your only source of gain on an investment in our ordinary shares.

 

Risks Related to Our Companys Status

 

We have and will continue to incur increased costs as a result of operating as a public company, and our management has and will continue to be required to devote substantial time to new compliance initiatives and corporate governance practices.

 

As a public company we have and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including, but not limited to, costs and expenses for management board members’ and supervisory board members’ fees, increased directors and officers insurance, investor relations, and various other costs of a public company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

 

We are required to comply with Sections 302 and 906 of the Sarbanes-Oxley Act. In addition, pursuant to Section 404(a) of the Sarbanes-Oxley Act, we are required to furnish a report by our management on our internal control over financial reporting annually. While we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm pursuant to Section 404(b).

 

To achieve compliance with Section 404(a) of the Sarbanes-Oxley Act, we are engaged in documenting and evaluating our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, have engaged outside consultants and are adopting a detailed work plan to assess and document the adequacy of internal control over financial reporting. We will continue to implement steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404(a) of the Sarbanes-Oxley Act. Such conclusion could adversely impact the market price of our shares due to a loss of investor confidence in the reliability of our reporting processes.

 

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Once we are required to include an attestation report on internal control over financial reporting by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes Oxley Act, there is a risk that such independent assessment of the effectiveness of our internal controls over financial reporting could identify material weaknesses that our management’s assessment pursuant to Section 404(a) does not identify.

 

The consequences of being a public company could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Investors may have difficulty enforcing civil liabilities against us or the members of our management and supervisory board or our other officers (functionarissen).

 

We are organized and existing under the laws of the Netherlands. As such, under Dutch private international law, the rights and obligations of our shareholders vis-à-vis the Company originating from Dutch corporate law and our articles of association, as well as the civil liability of our officers (functionarissen) (including our management board members, supervisory board members and executive officers are governed in certain respects by the laws of the Netherlands.

 

We are not a resident of the United States and our officers of Sono Motors GmbH are not residents of the United States. As a result, depending on the subject matter of the action brought against us and/or our officers, United States courts may not have jurisdiction. If a Dutch court has jurisdiction with respect to such action, that court will apply Dutch procedural law and Dutch private international law to determine the law applicable to that action. Depending on the subject matter of the relevant action, a competent Dutch court may apply another law than the laws of the United States.

 

Also, service of process against non-residents of the United States can in principle (absent, for example, a valid choice of domicile) not be effected in the United States. Furthermore, substantially all of our assets are located outside the United States.

 

As of the date of this Annual Report, (i) there is no treaty in force between the United States and the Netherlands for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters and (ii) both the Hague Convention on Choice of Court Agreements (2005) and the Hague Judgments Convention (2019) have entered into force for the Netherlands, but have not entered into force for the United States. Consequently, a judgment rendered by a court in the United States will not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to that United States judgment if (i) the jurisdiction of the United States court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the United States court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging), (iii) binding effect of such United States judgment is not contrary to Dutch public order (openbare orde) and (iv) the judgment by the United States court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a United States judgment is given binding effect, a claim based thereon may, however, still be rejected if the foreign judgment is not or no longer formally enforceable. Moreover, if the United States judgment is not final (for instance when appeal is possible or pending) a competent Dutch court may postpone recognition until the United States judgment will have become final, refuse recognition under the understanding that recognition can be asked again once the United States judgment will have become final, or impose as a condition for recognition that security is posted.

 

A competent Dutch court may deny the recognition and enforcement of punitive damages or other awards. Moreover, a competent Dutch court may reduce the amount of damages granted by a United States court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Thus, United States investors may not be able, or experience difficulty, to enforce a judgment obtained in a United States court against us or our officers.

 

The United States and Germany currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, in civil and commercial matters. Consequently, a final judgment for payment or declaratory judgments given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in Germany. German courts may deny the recognition and enforcement of a judgment rendered by a U.S. court if they consider the U.S. court not to be competent or the decision to be in violation of German public policy principles. For example, judgments awarding punitive damages are generally not enforceable in Germany. A German court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate for actual losses or damages.

 

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In addition, actions brought in a German court against us, our management board members, our supervisory board members, our senior management and the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions. In particular, German courts generally do not award punitive damages. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. German procedural law does not provide for pre-trial discovery of documents, nor does Germany support pre-trial discovery of documents under the 1970 Hague Evidence Convention. Proceedings in Germany would have to be conducted in the German language and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against us, our management board members, our supervisory board members, our senior management and the experts named in this Annual Report.

 

Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or management board members, supervisory board members, executive officers, our other officers (functionarissen) or certain experts named herein who are residents of or possessing assets in the Netherlands, Germany and or other countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

 

We are a Dutch public company. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions and may not protect investors in a similar fashion afforded by incorporation in a U.S. jurisdiction.

 

We are a public company (naamloze vennootschap) organized under the laws of the Netherlands. Our corporate affairs are governed by our articles of association, the rules of our management board and those of our supervisory board and by the laws governing companies incorporated in the Netherlands. However, there can be no assurance that Dutch law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.

 

The rights of shareholders and the responsibilities of management board members and supervisory board members may be different from the rights and obligations of shareholders and directors in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our management board members and supervisory board members are required by Dutch law to consider the interests of our Company, its shareholders, its employees and other stakeholders, in all cases with due observance of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.

 

Our articles of association stipulate that the planet, humankind and society are important stakeholders of us and the highest principle pursued by us as part of our objects is the protection of the environment, nature and humankind. Under our articles of association, this principle shall form the foundation of our actions and the decisions of our management board and the supervisory board. On the basis of that premise, among other matters, our management board and the supervisory board may let the interests of the planet, humankind and society outweigh the interests of other stakeholders, provided that the interests of the latter stakeholders are not unnecessarily or disproportionately harmed. A resolution to amend the text or purport of these provisions of our articles of association shall require a unanimous vote in a general meeting where all of our shareholders are present or represented.

 

Our articles of association contain exclusive forum provisions for certain claims, which could limit our shareholdersability to obtain a favorable judicial forum for disputes with us or the members of our management or supervisory board.

 

Our articles of association provide that unless we consent in writing to the selection of another forum, the federal district courts of the United States of America will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act or the Exchange Act (the “Federal Forum Provision”). Moreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Our decision to adopt the Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our shareholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.

 

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Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and our articles of association confirm that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Exchange Act. Accordingly, actions by our shareholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court.

 

We may argue that any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities will have, or will be deemed to have, notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. Additionally, our shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. These provisions may limit our shareholders’ ability to bring a claim in a judicial forum they find favorable for disputes with us or the members of our management or supervisory board, or employees and agents, which may discourage lawsuits against us and the members of our management or supervisory board or employees and agents.

 

Alternatively, if a court were to find the choice of forum provision contained in our articles of association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which may have an adverse effect on our business, financial condition and results of operations.

 

Provisions of our articles of association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and prevent, delay or frustrate any attempt to replace or remove our management board members or supervisory board members.

 

Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch law and Dutch case law. In this respect, certain provisions of our articles of association may make it more difficult for a third party to acquire control of us or effect a change in our management board and supervisory board. These include:

 

 

a dual-class share structure which consists of ordinary shares and high voting shares, with ordinary shares carrying one vote per share and high voting shares carrying 25 votes per share;

 

 

the high voting shares are not listed ;

 

 

a provision that our management board members and the supervisory board members are appointed on the basis of a binding nomination prepared by our supervisory board which can only be overruled by a two-thirds majority of votes cast representing more than half of our issued share capital;

 

 

a provision that our management board members and the supervisory board members may only be dismissed by the general meeting by a two-thirds majority of votes cast representing more than half of our issued share capital (unless the dismissal is proposed by the supervisory board in which case a simple majority of the votes cast would be sufficient);

 

 

a provision allowing, among other matters, the former chairperson of our supervisory board to manage our affairs if all of our supervisory board members are removed from office and to appoint others to be charged with the supervision of our affairs, until new supervisory board members are appointed by the general meeting on the basis of the binding nominations discussed above; and

 

 

a requirement that certain matters, including an amendment of our articles of association, may only be brought to our general meeting for a vote upon a proposal by our management board with the approval of our supervisory board.

 

In addition, Dutch law allows for staggered multi-year terms of our management board members and supervisory board members, as a result of which only part of our management board members and supervisory board members may be subject to appointment or re-appointment in any one year.

 

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Our management board, with the approval of our supervisory board, can – in accordance with Dutch law – invoke a cooling-off period of up to 250 days when shareholders, using their right to have items added to the agenda for a general meeting or their right to request a general meeting, propose an agenda item for our general meeting to dismiss, suspend or appoint one or more management board members or supervisory board members (or to amend any provision in our articles of association dealing with those matters) or when a public offer for our Company is made or announced without our support, provided, in each case, that our management board believes that such proposal or offer materially conflicts with the interests of our Company and its business. During a cooling-off period, our general meeting cannot dismiss, suspend or appoint management board members and supervisory board members (or amend the provisions in our articles of association dealing with those matters) except at the proposal of our management board. During a cooling-off period, our management board must gather all relevant information necessary for a careful decision-making process and at least consult with shareholders representing 3% or more of our issued share capital at the time the cooling-off period was invoked, as well as with our Dutch works council (if we or, under certain circumstances, any of our subsidiaries would have one). Formal statements expressed by these stakeholders during such consultations must be published on our website to the extent these stakeholders have approved that publication. Ultimately one week following the last day of the cooling- off period, our management board must publish a report in respect of its policy and conduct of affairs during the cooling-off period on our website. This report must remain available for inspection by shareholders and others with meeting rights under Dutch law at our office and must be tabled for discussion at the next general meeting. Shareholders representing at least 3% of our issued share capital may request the Enterprise Chamber of the Amsterdam Court of Appeal (the “Enterprise Chamber”) (Ondernemingskamer), for early termination of the cooling-off period. The Enterprise Chamber must rule in favor of the request if the shareholders can demonstrate that:

 

 

our management board, in light of the circumstances at hand when the cooling-off period was invoked, could not reasonably have concluded that the relevant proposal or hostile offer constituted a material conflict with the interests of our Company and its business;

 

 

our management board cannot reasonably believe that a continuation of the cooling-off period would contribute to careful policy-making; or

 

 

other defensive measures, having the same purpose, nature and scope as the cooling-off period, have been activated during the cooling-off period and have not since been terminated or suspended within a reasonable period at the relevant shareholders’ request (i.e., no ‘stacking’ of defensive measures).

 

We do not comply with all the best practice provisions of the Dutch Corporate Governance Code.

 

We are subject to the Dutch Corporate Governance Code (“DCGC”). The DCGC contains both principles and best practice provisions on corporate governance that regulate relations between the management board, the supervisory board and the general meeting and matters in respect of financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the DCGC. If they do not comply with those provisions (for example, because of a conflicting securities exchange requirement), the company is required to give the reasons for such noncompliance. The DCGC applies to Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere. We do not comply with all the best practice provisions of the DCGC and we are not reporting or accounting the best practice provisions that we do comply with. See “Item 16G. Corporate Governance”. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.

 

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We are eligible to be treated as an emerging growth company, as defined in the Securities Act, and we cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors, given that we may rely on these exemptions.

 

We are eligible to be treated as an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the independent auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act in our annual reports filed on Form 20-F. As a result, our shareholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years from the date of our IPO, although circumstances could cause us to lose that status earlier, including if our total annual gross revenue exceeds $1.235 billion, if we issue more than $1.00 billion in non-convertible debt securities during any three-year period, or if we are a large accelerated filer and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the end of any second quarter before that time.

 

As a foreign private issuer, we are not subject to U.S. proxy rules and are only subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

 

We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Dutch laws and regulations with regard to such matters, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information. In addition, foreign private issuers are required to file their annual report on Form 20-F within four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, holders of our ordinary shares may not have the same protections afforded to shareholders of a company that is not a foreign private issuer. See “Item 3. Key InformationD. Risk FactorsRisks Related to Our Companys StatusWe may lose our foreign private issuer status in the future, which may result in additional costs and expenses”.

 

We may lose our foreign private issuer status in the future, which may result in additional costs and expenses.

 

As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2024.

 

We will lose our foreign private issuer status if, on the date of determination, among others, (1) more than 50% of our outstanding voting securities, which we intend to determine based on the voting power of our ordinary shares and high voting shares on a combined basis are directly or indirectly held of record by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, more than 50% of our assets are located in the United States or our business is administered principally in the United States. As of the date of this Annual Report, more than 50% of our outstanding voting securities, based on voting power of our ordinary shares and high voting shares on a combined basis are directly or indirectly held of record by U.S. residents, and our managing director as well as the members of our supervisory board are U.S. citizens or residents. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms including consolidated financial statements prepared under U.S. GAAP, and which are more detailed and extensive than the forms available to a foreign private issuer. We currently apply IFRS , and would be required to continue to do so for the filings required under Dutch law. If the SEC reports are prepared under U.S. GAAP, application of both accounting principles will lead to additional cost. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. As a U.S. listed public company that is not a foreign private issuer, we may incur additional legal, accounting and other expenses that we would not incur as a foreign private issuer. These expenses would relate to, among other things, the obligation to present our financial information in accordance with U.S. GAAP in the future.

 

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Additionally, a loss of our foreign private issuer status would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Our ability to use our net operating loss carryforwards and other tax attributes may be limited.

 

Our ability to utilize our net operating loss carryforwards is currently limited, and may be limited further, under Section 8c of the German Corporation Income Tax Act (Körperschaftsteuergesetz) (“KStG”) and Section 10a of the German Trade Tax Act (Gewerbesteuergesetz) (“GewStG”). These limitations apply if a qualified ownership change, as defined by Section 8c KStG, occurs and no exemption is applicable.

 

Generally, a qualified ownership change occurs if more than 50% of the share capital or the voting rights are directly or indirectly transferred to a shareholder or a group of shareholders within a period of five years. A qualified ownership change may also occur in case of a transaction comparable to a transfer of shares or voting rights or in case of an increase in capital leading to a respective change in the shareholding.

 

In the case of such a qualified ownership change tax loss carryforwards expire in full. To the extent that the tax loss carryforwards do not exceed the built-in gains (stille Reserven) in the assets and liabilities taxable in Germany, they may be further utilized despite a qualified ownership change. In case of a qualified ownership change within a group, tax loss carryforwards will be preserved if certain conditions are satisfied. In case of a qualified ownership change, tax loss carryforwards will be preserved (in the form of a “fortführungsgebundener Verlustvortrag”) if the business operations have not been changed and will not be changed within the meaning of Section 8d KStG.

 

According to an appeal filed by the fiscal court of Hamburg dated August 29, 2017, Section 8c, paragraph 1, sentence 1 KStG is not in line with the German constitution. The appeal is still pending. It is unclear when the Federal Constitutional Court will decide this case.

 

As of December 31, 2023, there were net operating loss carryforwards of the Subsidiary for German corporate tax purposes of €30.8 million and for German trade tax purposes of €29.9 million available. The contribution of 100% of the Subsidiary’s shares into Sono Group N.V. was qualified as an ownership change within the meaning of Section 8c KStG and Section 10a GewStG. Furthermore, the termination of the Sion passenger car program in February 2023 was considered a harmful event within the meaning of Section 8d para. 2 KStG. As a result, the available tax loss carryforwards of the Subsidiary would generally expire in full. However, the net operating loss carryforwards would not be forfeited to the extent that the Subsidiary has built-in gains in its assets that are fully taxable in Germany. The built-in gains are determined by comparing the Fair Market Value of the respective entity with the entity’s tax book equity. The built-in gains as of December 31, 2023 have not yet been determined. Therefore it is currently unclear whether all tax losses can still be carried forward.

 

Future changes in share ownership may also trigger an ownership change and, consequently, a Section 8c KStG or a Section 10a GewStG limitation. Any limitation may result in the expiration of a portion or the complete tax operating loss carryforwards before they can be utilized. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to reduce German income tax may be subject to limitations, which could potentially result in increased future cash tax liability to us.

 

ITEM 4.          INFORMATION ON THE COMPANY

 

 

A.

History and Development of the Company

 

We have historically conducted our business through the Subsidiary, which became a wholly-owned subsidiary of the Company after a corporate reorganization described as follows: We were incorporated pursuant to the laws of the Netherlands as Sono Motors Finance B.V. on October 23, 2020 as a wholly-owned subsidiary of the Subsidiary. As part of the corporate reorganization that was completed on November 27, 2020, the Subsidiary’s then-existing shareholders contributed all of their shares in the Subsidiary to Sono Motors Finance B.V. in exchange for newly issued ordinary shares of Sono Motors Finance B.V. In addition, the sole issued and outstanding common share in Sono Motors Finance B.V. at that time, which was held by the Subsidiary, was canceled (ingetrokken). As a result, the Subsidiary became a wholly-owned subsidiary of Sono Motors Finance B.V. and the then-existing shareholders of the Subsidiary became the shareholders of Sono Motors Finance B.V. Also on November 27, 2020, Sono Motors Finance B.V. was converted into a public company with limited liability under Dutch law (naamloze vennootschap), and changed its legal name from Sono Motors Finance B.V. to Sono Group N.V.

 

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On November 17, 2021, our ordinary shares commenced trading on the Nasdaq Global Market under the symbol “SEV.” We received approximately US$156.1 million in net proceeds from our IPO, after deducting underwriting commissions and discounts and the offering expenses payable by us.

 

The Company is incorporated in the Netherlands, and a majority of its outstanding securities is owned by non-U.S. residents. Under the rules of the SEC, the Company is currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we are not required to file periodic reports and consolidated financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. See “Item 3. Key InformationD. Risk FactorsRisks Related to Our Companys StatusWe may lose our foreign private issuer status in the future, which may result in additional costs and expenses”.

 

Our business address is Waldmeisterstraße 93, 80935 Munich, Germany. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the SEC at www.sec.gov. Our website address is https://ir.sonomotors.com/. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report or in deciding whether to purchase our shares.

 

On May 15, 2023, each of the Company and the Subsidiary applied for their respective Self-Administration Proceedings. The Subsidiary withdrew its application for Preliminary Self-Administration Proceedings on January 31, 2024, and the Subsidiary exited its Self-Administration Proceedings on February 29, 2024. For more information on the Self-Administration Proceedings, see “Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal ProceedingsThe Self-Administration Proceedings”.

 

On July 12, 2023 and August 28, 2023, we received notices from Nasdaq stating that the Staff had determined that our securities will be delisted from Nasdaq in accordance with Nasdaq’s Listing Rules and notifying us of the suspension in trading of our ordinary shares as of the opening of business on July 21, 2023. Following the Company’s appeal of the Nasdaq staff’s determination to the Panel, on October 13, 2023, the Panel granted our request for the continued listing of our ordinary shares on Nasdaq, subject to our regaining compliance with the periodic filing requirement on or before November 30, 2023 and providing an update to the Panel including detailed financial projections and the progress of our withdrawal from the Self- Administration Proceedings on or before November 30, 2023. On December 11, 2023, we received a decision of the Panel advising us that the Panel had determined to delist our ordinary shares from Nasdaq, and on February 15, 2024, Nasdaq filed a Form 25 Notification of Delisting with the SEC to complete the delisting. We are currently applying to have our ordinary shares admitted to trading on OTCQB, which we currently expect to occur shortly after the filing of this Annual Report. See “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentThe Companys visibility, credibility, stock price, and trading volume, as well as investor confidence, may further decrease as a result of the delisting of the Companys securities from Nasdaq” and “Item 3. Key InformationD. Risk FactorsRisks Related to Our SharesFollowing the delisting of our ordinary shares from Nasdaq in February 2024, we may not be able to meet the initial listing requirements for admission of our shares to trading on a stock exchange in the future or to pay for the costs associated with such an initial listing, and therefore may not be able to have our shares admitted to trading on a stock exchange in the future”.

 

 

B.

Business Overview

 

Overview

 

We believe we are a pioneer in the field of solar-powered mobility applications. We envision a world that no longer relies on the burning of fossil fuels. After terminating our Sion passenger car program due to a lack of available funding at the end of February 2023, we pivoted our business model to focus exclusively on retrofitting and integrating our proprietary solar technology onto third party vehicles, with an initial focus in the short- to medium-term on our Solar Bus Kit. We believe that our solar technology is suitable for different uses, such as buses, trucks and trailers, and has the potential to accelerate the transition towards sustainable transportation. We have started to market, and are already generating limited revenues from, our proprietary solar technology.

 

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Following the decision to change the Subsidiary’s business model, we continued to face challenges to obtain financing and, after other financing options failed to materialize, our management ultimately concluded that the Subsidiary was over-indebted and faced impending illiquidity (drohende Zahlungsunfähigkeit), with the Company, in turn, becoming over-indebted and also facing impending illiquidity. On May 15, 2023, based on management’s conclusion, the Company applied to the Court, to permit the opening of self-administration proceedings (Eigenverwaltung) with respect to the Company pursuant to Section 270 (b) of the German Insolvency Code (Insolvenzordnung). On the same day and for the same reason, the Subsidiary applied to the Court to permit the opening of self-administration proceedings in the form of a protective shield proceeding (Schutzschirmverfahren) pursuant Section 270 (d) of the German Insolvency Code. The applications, in each case, were made with the goal of sustainably restructuring the business of both Companies. On May 17, 2023 and May 19, 2023, the Court admitted the opening of the Preliminary Self-Administration Proceedings with respect to the Company and the Subsidiary, respectively. On September 1, the Court opened the Subsidiary Self-Administration Proceedings. For more information on the Self-Administration Proceedings, see “Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal ProceedingsThe Self-Administration Proceedings”.

 

Yorkville, the Company’s main creditor in its Preliminary Self-Administration Proceedings apart from the Subsidiary, commenced negotiations regarding a new investment in the Company during the course of the Self-Administration Proceedings. As a result of those negotiations, the Company and Yorkville entered into the Yorkville Agreements, pursuant to which Yorkville has committed to provide financing to the Company subject to the Companies’ continued compliance with the terms of the Yorkville Agreements. The Yorkville Agreements provided for the restructuring of the Company and the Subsidiary, with the intention of enabling the Company to withdraw its application for its Preliminary Self-Administration Proceedings and enabling the Subsidiary to exit the Subsidiary Self-Administration Proceedings via the Plan, which set out how the Subsidiary planned to restructure its debt and procure the inflow of new cash, including in connection with the First Commitment, and subsequently exit the Subsidiary Self-Administration Proceedings. The Plan was filed with the Court on December 7, 2023 for approval by the Subsidiary’s creditors and subsequent confirmation by the Court. Approval by the creditors and confirmation by the Court was obtained in the creditors meeting on December 21, 2023, and the Court confirmed on January 26, 2024 that the Plan became legally binding. On January 31, 2024, the Company withdrew its application for its Preliminary Self-Administration Proceedings with the Court. The Subsidiary exited its Self-Administration Proceedings on February 29, 2024.  On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment.

 

The Companies expect the Yorkville Investment to position them to obtain sufficient funding for their business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. Under the terms of the Yorkville Agreements, the financing will be provided by Yorkville by way of new interest-bearing convertible debenture(s) that will be convertible into ordinary shares of the Company. The new convertible debenture issued  to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. The funding of the First Tranche occurred on February 6, 2024 for €4.0 million. Yorkville is the Company’s main creditor under the Existing Convertible Debentures (as defined herein), see “Item 10. Additional InformationC. Material ContractsExisting Convertible Debentures”. For more information on the Transactions and the Yorkville Investment, see “Item 4. Information on the CompanyB. Business OverviewOverviewThe Yorkville Investment”.

 

Despite the Companies’ emergence from their respective Self-Administration Proceedings, the Yorkville Investment remain subject to a number of contingencies and risks, including, among others, (i) whether the Companies are able to successfully comply with the terms of the Yorkville Agreements so as to gain access to the unfunded portion of the Yorkville Investment, and (ii) the absence of any Termination Event or any event of default. For more information see “Item 3. Key Information—D. Risk Factors—Risks Related to the Yorkville Investment” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—The Self-Administration Proceedings”.

 

Following our emergence from the Self-Administration Proceedings, we intend to continue to pursue our disruptive solar technology, with an initial focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products. See “Item 8. Financial InformationA. Consolidated Statements and Other Financial InformationLegal ProceedingsThe Self-Administration Proceedings”. Our solar technology allows for full solar integration in all kinds of vehicles, and we plan to continue pursuing other solar integration projects, with a planned increase in time and energy devoted to such other solar integration projects in the medium- to long-term, depending on the success of future capital raising efforts. In the process of developing the Sion, we soon realized that the solar technology that was available at the time was not well-suited for mobility applications. Traditional solar technology relies on glass to cover the solar cells. Glass is, however, heavy, relatively inflexible, expensive and dangerous in crash situations. Our polymer technology solves these issues. It is lightweight, allows for flexible surface integration via our patented injection molding process, is affordable due to fast and lean production, avoids the risk of bodily harm caused by broken glass and has proven to meet our expectations in crash tests. We have also developed other critical components for the use of solar technology in mobility applications. Solar cells mounted on different parts of a vehicle’s exterior receive uneven exposure to sunlight, which, in turn, can result in lost solar energy production. Through rapid adaptation and the multi-channel approach of our MCU, certain parts of the vehicle can be turned on or off for power production – despite quickly changing shading conditions. This technology enables us to produce a high-efficiency system to deliver solar energy to vehicle batteries.

 

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Our technology allows for the seamless integration of solar cells into the full body of a vehicle and the charging of its battery through the power of the sun. However, solar technology has many other potential applications, and its use cases extend far beyond passenger cars, allowing for grid-independent charging and a reduction of running costs or total costs of ownership in a variety of transport-related use cases, such as trucks, buses and recreational vehicles. Fleet operators may use our technology to retrofit existing vehicles, to extend the range of battery electric vehicles, or BEVs, or to comply with emission regulations. The transport and logistics industries, in particular, are very focused on total cost of ownership. We believe our solar integration can reduce their running costs significantly. Manufacturers may also use our technology for new production vehicles. We have several patents granted or pending that protect our proprietary technology.

 

We have already generated limited revenues from our proprietary solar technology, having shipped prototypes and solar retrofits to customers. We have also been developing a customer base by signing non-binding letters of intent and purchase orders. We expect the Yorkville Investment to position us to obtain sufficient funding for our business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, through June 30, 2025. Our available cash and cash equivalents, together with financing under the Yorkville Investment, will not be sufficient to secure our funding needs until such point in time when we expect the monetization of our solar technology to reach sufficient scale. Our ability to meet our ongoing operational obligations, continue as a going concern and grow our business is dependent upon, among other things: (i) our ability to access the unfunded portion of the Yorkville Investment, and (ii) our ability to raise additional external funding in the short term. See “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentIf the Company is not able to access the unfunded portion of the Yorkville Investment, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.

 

For the year ended December 31, 2023 we had a loss for the period of €53.6 million, compared to a loss for the year ended December 31, 2022 of €183.7 million. We have incurred net losses since our inception in March 2016, resulting in an accumulated deficit of €384.3 million as of December 31, 2023 compared to an accumulated deficit of €330.8 million as of December 31, 2022.

 

The following table sets forth the amount and percentage of our revenues for the years presented by customer location:

 

   

Year ended December 31,

 
   

2023

   

2022

   

2021

 
   

(in €, except percentages)

 

By country

                                               

Germany

    12,106       28.8 %     88,945       38.8 %     7,000       43.8 %

UK

    19,920       47.4 %      —                    

Belgium

    9,960       23.7 %                        

France

                65,000       28.4 %            

Sweden

                51,480       22.5 %            

Switzerland

                21,824       9.5 %            

Italy

                2,000       0.9 %            

USA

                      0.0 %     9,000       56.3 %

Revenues

    41,986       100.0 %     229,249       100.0 %     16,000       100.0 %

 

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The Yorkville Investment

 

In mid-November 2023, the Companies entered into the Yorkville Agreements in connection with the First Commitment. In addition to the Restructuring Agreement between the Company and Yorkville, which was amended on February 2, 2024 and February 5, 2024, there is (i) an agreement between the Company and the Subsidiary pursuant to which a settlement amount was agreed for intercompany claims (the “Settlement Agreement”), (ii) an agreement between the Company and the Subsidiary relating to the satisfaction of intercompany claims, the further financing of the Subsidiary by the Company and key aspects of the Subsidiary Self-Administration Proceedings and the Plan (the “Continuation Agreement”), (iii) the Funding Commitment Letter, which was subsequently amended on February 5, 2024 and April 30, 2024, between the Company and Yorkville to provide the Company with sufficient financial resources to fund the business operations of the Companies pursuant to an agreed upon budget with Yorkville (the “Budget”), (iv) an agreement between the Company and Yorkville Advisors to postpone the repayment date of the Existing Convertible Debentures to July 1, 2025, with the possibility of further extensions at Yorkville’s discretion (the “Prolongation Agreement”), (v) an agreement between our Founders, the Company and the Subsidiary pursuant to which the Companies were entitled to request that each of the Founders enters into a share sale and transfer agreement (the “Sale and Transfer Agreements”) under the terms of which the respective Founder would sell and transfer, if so requested, a portion of their ordinary shares of the Company to a trustee to be appointed for the benefit of the Subsidiary’s creditors and a portion of their ordinary shares of the Company and all of their high voting shares in the Company to the new members of the management board to be appointed for the Company (the “Shareholders Commitment Letter”), (vi) Sale and Transfer Agreements executed by each of the Founders to carry out the transfers contemplated in the Shareholders Commitment Letter, and (vii) a back-to-back letter of comfort from the Company to the Subsidiary, which was subsequently amended on May 8, 2024, to provide funding for the Subsidiary’s business operations, with an initial focus on the Solar Bus Kit and similar retrofit solar products, which the Companies currently expect to be sufficient at least until, and including, June 30, 2025 (as amended from time to time, the “Back-to-Back Letter of Comfort”). The funds to be provided under the Back-to-Back Letter of Comfort will be provided by way of intercompany loan(s).

 

Pursuant to the Yorkville Agreements and following the satisfaction of certain conditions precedent (the “Closing Conditions”), Yorkville funded the First Tranche of €4.0 million, or USD 4,317,600, on February 6, 2024. On April 30, 2024, the Company and Yorkville entered into an amendment to the Funding Commitment Letter in connection with the Second Commitment, which increased Yorkville’s funding commitment to the Company by EUR 2.0 million and extended the date upon which the obligation of Yorkville to commit any fundings automatically lapses from December 31, 2024 to May 1, 2025. Under the Funding Commitment Letter, Yorkville has committed to secure the financing of the Companies’ expected operational costs through the end of the second quarter of 2025 (the “Funding Period”). The financing is provided by Yorkville by way of new interest-bearing convertible debenture(s). The new convertible debenture issued  to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. Pursuant to the Funding Commitment Letter, a second funding of €3.0 million is to be made in accordance with the Budget as required upon the funds provided in the First Tranche having been applied in accordance with the Budget,  and third and fourth tranches of €1.0 million each are to be made in the first week of January 2025 and in the first week of April 2025, respectively. Up to a maximum total of €11.0 million minus €2.048 million of cash left-over at the Company as of December 1, 2023 would be callable by the Company and evidenced by new convertible debentures. Cash available at the Company in excess of €2.048 million cash left-over as of December 1, 2023 was or will be used to satisfy claims of creditors, with the exception of the amounts payable to Yorkville under the Existing Convertible Debentures (as defined herein), and pay for services related to the Subsidiary Self-Administration Proceedings. Under the terms of the Continuation Agreement and the Back-to-Back Letter of Comfort, funds are paid by the Company to the Subsidiary by way of intercompany loan(s). In the event of a shortfall during the Funding Period, Yorkville will provide additional funds to the Company, provided that agreements are reached in good faith on an adjusted budget for the Funding Period.

 

In accordance with the Settlement Agreement, the Company transferred or will transfer funds to the Trustee (as defined herein) in settlement of the intercompany claims owed by the Company to the Subsidiary. In turn, the Subsidiary waived all claims that the Subsidiary had or may have against the Company arising from intercompany claims or from either of two hard comfort letters issued by the Company for the benefit of the Subsidiary. Payment of the settlement amount, as well as payments of funds that belong to the Company’s creditors are ultimately processed by Bambino 255. V V UG, an entity established to serve as a trustee for the benefit of the Subsidiary’s creditors (the “Trustee”).

 

Under the Yorkville Agreements, starting December 1, 2023, the Subsidiary became obligated to finance its business operations in accordance with the agreed Budget. Following satisfaction of the Closing Conditions, Yorkville became obligated to pay the First Tranche to the Company at the Closing. The Company, in turn, became obligated to reimburse the Subsidiary’s insolvency estate for the continuation costs incurred for the period from December 1, 2023 to the date of Closing and to finance the business operations of the Subsidiary until the end of the fiscal year 2024, both in accordance with the Budget. Pursuant to the terms of the Back-to-Back Letter of Comfort, the Company must provide funds to the Subsidiary (subject to the availability of such funds at the Company level) of up to approximately €7.2 million by way of intercompany loan(s). The first funding under the Back-to-Back Letter of Comfort amounted to €3.0 million and occurred immediately after the Closing.

 

47

 

In connection with the Yorkville Investment, the Founders entered into respective Sale and Transfer Agreements, pursuant to which they agreed to cumulatively transfer 13,306,249 ordinary shares of the Company to the Trustee. Following the transfer of the shares, the Trustee shall be entitled to sell such shares following expiration of a lock-up agreement and subject to certain volume restrictions agreed with Yorkville. The proceeds from such sales will be used to satisfy claims of the Subsidiary’s creditors. Whether and to what extent such sale proceeds can be realized will depend on a number of factors, including, among others, the performance of the Company's share price. Currently, it is not possible to reliably forecast whether and to what extent such sale proceeds can be expected. In addition, under the terms of their respective Sale and Transfer Agreements, the Founders agreed to cumulatively transfer 17,306,251 ordinary shares of the Company and all of their cumulative 3,000,000 high voting shares of the Company to SVSE, whose sole member is George O’Leary, the Company’s sole Managing Director. The transfers of the high voting shares and the ordinary shares to SVSE were reflected in the Company’s share register on February 1, 2024 and March 25, 2024, respectively. The transfer of the ordinary shares to the Trustee was reflected in the Company’s share register on June 5, 2024.

 

Under the terms of the Yorkville Agreements, cash available to the Subsidiary and the proceeds from any sale of the Subsidiary’s assets that do not belong to the Subsidiary’s third-party vehicle solar integration business, including any proceeds from a future sale of the Sion program, may be used to cover the costs of the Subsidiary Self-Administration Proceedings and to satisfy claims of the Subsidiary’s creditors.

 

Yorkville’s obligation to provide funding pursuant to the terms of the Funding Commitment Letter and the continued execution of the Transactions contemplated in connection with the Yorkville Investment are subject to our compliance with certain covenants and other obligations set forth in the Yorkville Agreements, including the terms of the new convertible debenture(s) to be issued to Yorkville in connection with the Yorkville Investment. In addition, Yorkville’s funding commitment is subject to the following Termination Events:

 

 

The Budget is exceeded as a result of incorrect or misleading work.

 

 

The Budget is exceeded and Yorkville and the Company cannot agree on an adjustment, or Yorkville requests information regarding the Budget and the Company fails to provide it within ten business days.

 

 

An event of default occurs with regard to the convertible debentures.

 

 

The Companies fail to materially comply with the Yorkville Agreements and fail to rectify their noncompliance within ten business days following a request from Yorkville to such effect.

 

 

Other than with regard to the Self-Administration Proceedings, the Companies are unable or admit inability to pay their debts as they fall due, suspend making payments on any of their debts, or, by reason of actual or anticipated financial difficulties, commence negotiations with one or more of their creditors (excluding any finance party in its capacity as such) with a view to rescheduling any of their indebtedness.

 

 

An entity incorporated in Germany is unable to pay its debts as they fall due (zahlungsunfähig) within the meaning of section 17 of the German Insolvency Code (Insolvenzordnung) or is over-indebted within the meaning of section 19 of the Germany Insolvency Code (Insolvenzordnung).

 

 

Except in relation to the Self-Administration Proceedings, any corporate action, legal proceedings or other procedure or step is taken in relation to, amongst others, the suspension of payments, an arrangement with a creditor of the Company, the appointment of a liquidator or administrative receiver or the enforcement of a security over any asset of the Company or the Subsidiary.

 

 

It is or becomes unlawful for the Company to perform any of its obligations under the Yorkville Agreements.

 

48

 

In accordance with the Yorkville Agreements, the Company convened the AGM and the EGM to submit certain agenda items for shareholder votes. Under the terms of the Shareholders Commitment Letter, each Founder in his respective capacity as a shareholder of the Company agreed (i) to attend the AGM, either in person or represented by proxy, (ii) not to transfer any shares and/or voting rights such Founder holds in the capital of the Company prior to the AGM and (iii) to exercise the voting rights on all the shares in the capital of the Company held by such Founder in favor of all proposed resolutions. In addition, in the event that one or more subsequent general meetings are convened or deemed necessary to give full effect to the Yorkville Agreements and/or certain required agenda items, each Founder further agreed to comply with the requirements of (i) - (iii) above with respect to such subsequent general meeting(s) and to exercise his voting rights at such subsequent general meeting(s) so as to give effect to the Yorkville Agreements and/or certain required agenda items in the fullest possible manner. The following agenda items, among others, were proposed and approved at the EGM: (1) a proposal to effect a reverse share split of the ordinary shares of the Company and the high voting shares of the Company at an exchange ratio to be determined and established by the Company’s management board (the “Reverse Share Split”); (2) a proposal to reduce  the nominal value per ordinary share to €0.01 per ordinary share (after giving effect to the Reverse Share Split) without repayment or any other payment by the Company to the shareholders; (3) a proposal to reduce the nominal value per high voting share to €0.25 per High Voting Share (after giving effect to the Reverse Share Split) without repayment or any other payment by the Company to shareholders; and (4) a proposal to authorize one or more amendments to the Company’s articles of association, in such a manner that, with each amendment, the authorized capital of the Company is amended to facilitate the issue shares under the Existing Convertible Debentures and the new convertible debentures held by Yorkville. The measures identified in items (1) - (3) above have not yet been implemented and may be implemented in the future at the discretion of the Company’s management board.

 

In the event of a Termination Event, Yorkville would have the right, at its sole discretion, to cancel any unfunded portion of the Yorkville Investment , meaning that the Company would no longer be able to draw down on the unused portion of the Yorkville Investment , and to exercise all of its rights under any of the new convertible debentures as if an event of default had occurred.

 

If we are not able to successfully access the unfunded portion of the Yorkville Investment as planned, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation. See “Item 3. Key InformationD. Risk FactorsRisks Related to the Yorkville InvestmentIf the Company is not able to access the unfunded portion of the Yorkville Investment, in the absence of substantial additional sources of external funding, we would be required to curtail our operations, which could adversely affect our business, results of operations, financial position and cash flows and may ultimately lead to insolvency and liquidation.

 

Our Market Opportunity

 

We believe that more action must be taken to mitigate climate change and that new technologies are essential to reducing CO2 emissions. Through the planned integration of our proprietary solar technology, we intend to continue to assist the world in achieving these goals.

 

For the solar application market, we believe that our solar technology is a solution to making combustion engine and battery electric vehicles more climate friendly. By integrating our solar technology, fleet operators can reduce energy consumption in a variety of vehicles including, among others, buses, trailers and trucks, and thereby significantly reduce the total cost of ownership. Sustainability goals have and will continue to lead to environmental regulations requiring vehicle manufacturers to meet increasingly challenging regulatory targets. For example, more and more municipalities have announced that they intend to set stringent emission targets for vehicles driving in their municipal area. Further, an increase in the number of battery electric vehicles may result in grid overload and destabilization. In parallel, we anticipate an increase in demand for sustainable energy. Concurrently, energy prices are expected to remain elevated, with further increases possible due to the taxation on carbon dioxide emissions.

 

Other users, such as building owners, already see the power of solar integration to reduce energy consumption and, accordingly, total cost of ownership. As more means of transportation, including ships, trucks, vans and buses, switch over to electric engines in the coming years, the benefit of solar integration will, we believe, become increasingly clear and important to market participants. In addition to using our technology for solar retrofitting, we also believe that solar integration will be the logical next step for pure electric vehicles. Solar production prices declined relatively consistently over the last ten years, with some marginal increases since the beginning of 2020 resulting partly from supply chain issues in connection with the global COVID-19 pandemic. The current solar production prices as well as the increase in efficiency of solar cells enable solar integration to have a meaningful impact on energy consumption, ranges and autonomy of electric vehicles. Additionally, the continuing growth of electric vehicle sales and the relatively slower increase in charging stations is expected to create a bottleneck for the adoption of electric vehicles on a larger scale. We believe that, within the next few years, people living in locations without private access to charging stations will be reluctant to buy BEVs due to uncertainty as to whether they will be able to find relevant charging options. This will put even more focus on electric vehicles with solar integration.

 

49

 

Operations

 

Our Technology

 

We consider our technological achievements to be at the core of our business activities and key to our future success. We have developed several innovative technologies for use in the mobility area and have been approached by a number of companies, such as manufacturers of trucks, commercial vehicle equipment and public transport operators to provide them with access to our technology. We believe these technologies will offer users a unique experience and increased practicability of their vehicles.

 

Traditional Solar Modules - Vehicle Applied Modules

 

Vehicle applied modules, or VaPV, are a core part of our solar integration business. This approach aims at using solar technology for large flat surfaces on the top or sides of vehicles - which are especially abundant in commercial vehicles. Additionally VaPV can be mounted easily on vehicles in series production processes or even after they have been fully built. The application of these semi-flexible, light-weight modules on the exterior of vehicles has little influence on the substructure, design and homologation and type approval process, which eases an integration of solar technology. We currently intend to focus in the short- to medium-term on one such use case for our VaPV products, our Solar Bus Kit.

 

A VaPV approach uses different types of semi-flexible solar modules, which are mounted onto the vehicle. The relevant solution is developed and tested based on the needs of the specific customer, taking into account the expected lifetime of the vehicle, weights and costs specifications, installation times and synergies between solutions for different vehicle types. In 2022 and 2023, we equipped several prototypes for customers such as VBR Verkehrsbetriebe und Servicegesellschaft mbH, Scania CV AB, Koegel Trailer GmbH and Jean CHEREAU S.A.S, Hofbus GmbH and Stadtwerke Muenchen GmbH. Also during 2022 and 2023, we improved our technologies significantly, for example, by reducing system costs, improving installation methods to reduce installation times and by increasing system uptimes by eliminating software bugs and telematics problems. In addition, we gained experience in various commercial vehicle applications, including trailers, diesel buses, hybrid buses, electric buses as well as electric vans. We equipped all of those vehicle types on a prototype stage with various customers. Continuous technical and cost improvements are being implemented through our technology and operations departments.

 

Our novel Solar Bus Kit is a scalable business-to-business retrofit solution that reduces energy consumption and inner-city greenhouse gas emissions, thereby contributing to climate protection. The Solar Bus Kit is a versatile and straightforward solution, optimized for the most common 12-meter public transport bus types on the European market, including Mercedes-Benz Citaro and MAN Lion City. We plan to offer a complete and efficient retrofit solution for bus fleet operators who have a compelling need to reduce diesel and energy consumption and CO2 emissions to meet their sustainability goals.

 

50

 

https://cdn.kscope.io/c4d43a50f67c338d94c8b7f3407f779c-solarbuskit.jpg

 

The Solar Bus Kit allows subsystems like heating, ventilation and air conditioning to be partially powered by renewable energy thereby reducing fuel consumption, CO2 emissions and costs. The Solar Bus Kit can gain an energy yield of up to 2,000kWh per bus per year from the approximately 1.4 kW peak installation with a total size of about eight square-meters of solar panels. That energy gain leads to a reduction of diesel consumption by approximately 3%. Bus fleet operators are expected to see a potential payback time of approximately 3 to 6 years, depending on generated solar yield (influenced, for example, by days in operation, geographical location) and energy prices. Further reductions in material costs, economies of scale as well as local subsidies for sustainable energies might further reduce the payback time. We intend to cooperate with ÖPNV-Service Hagen (“ÖPNV-Service”) with respect to installation of the kit and after-sales and logistics services.

 

Although our initial focus in the short- to medium-term is expected to be on our Solar Bus Kit and similar retrofit solar products, our solar technology allows for full solar integration in all kinds of vehicles. We intend to continue pursuing such other applications, and subject to the success of future capital raising efforts, we anticipate increasing the time and resources devoted to such other solar integration projects in the medium- to long-term.

 

Maximum Power Point Tracker

 

The integration of solar modules into energy systems for transport-related use cases requires power electronics that fit the vehicle powertrain or auxiliary systems. Our MCU is the central piece of our power electronics. Our MCU is a multichannel, dynamic system that is both conversion and tracking efficient. Our power electronics optimize the power output through the use of intelligent algorithms and energy earnings for solar modules mounted on, or integrated into, moving objects by a multichannel approach that considers quickly changing sun radiation conditions and differently oriented solar modules. Our MCU and algorithms allow for fast adaptation to changing sun conditions, resulting in high energy yields. Our multi-channel architecture allows for individual tracking of differently oriented solar panels. We test and certify our technology according to automotive standards and specific use cases. For example, our MCU has achieved ECE R-10 certification and therefore complies with regulatory requirements for electromagnetic compatibility. Our MCU is able to communicate with controlled area networks (CAN), a standard communication protocol in the automotive industry that enables intelligent integrations in the vehicle architectures to perform clever tasks like preconditioning (heating/air-conditioning) a bus when a surplus of solar power is given. In addition, multiple MCUs can be connected to work with systems with higher power, such as eBuses and Trailers.

 

51

 

We are currently focusing on two variants of our MCU:

 

 

High Voltage System: The high voltage system was originally developed and tested in our Sion pre-series vehicles. While the Sion architecture was designed to operate at 400V, the high voltage system has been developed further to also comply with 800V architectures. 400V and 800V architectures currently dominate the BEV market. Our high voltage MCU can be used for electric vehicles, including buses, vans, trucks and passenger vehicles or electrified reefer trailers. Pre-series versions of the high voltage MCU have been and are expected to be installed and tested in vans, reefers and passenger cars of big OEMs.

 

 

Low Voltage System: Our low voltage system is designed to be integrated in all architectures operating at 24V, which is the standard for commercial vehicles such as buses and trucks. Generated solar power will be provided directly to the 24V battery and 24V system to power auxiliary units like ventilation or air conditioning. By doing so, energy consumption will be reduced. The MCU is designed with eight input channels to improve efficiency in dynamic shading conditions. Additionally, the multi-channel architecture ensures that vehicles stay below 60V DC to comply with low voltage directives allowing, for example, an easy integration in a vehicle’s architecture and retrofitting.

 

Customer Arrangements

 

The Company has consistently and steadily expanded its solar integration business since its launch, engaging with a diverse range of customers. To date, we have signed a total of 13 non-binding letters of intent (LOIs) and 21 purchase orders, contracts, or delivered products, resulting in active relationships with 28 distinct customers, some of whom have engaged with us through both LOIs and contractual agreements. Following the discontinuation of the Sion program and our pivot to a solar-integration business model, we further refined our strategy during our emergence from the Self-Administration Proceedings. This refinement has sharpened our focus on continuing collaborations with 20 customers who best align with our current business strategy and product offerings. Of these 20 customers, six have entered into non-binding LOIs and 17 have entered into purchase orders and contracts with us.

 

The former Self-Administration Proceedings have had a negative impact on our ability to pursue new customer arrangements. In several cases, the signing of contracts related to new projects had been postponed until the conclusion of the Subsidiary Self-Administration Proceedings. Following our emergence from the Self-Administration Proceedings, we now are able to pursue and execute on those projects. We have resumed active customer development efforts, which are aimed at signing new clients and growing our pipeline of projects and orders, thereby reinforcing our commitment to our refined business model and the evolving needs of our market.

 

In 2022 and 2023, we signed purchase orders or contracts with, amongst others, Koegel Trailer GmbH, VBR Verkehrsbetriebe und Servicegesellschaft mbH, Scania CV AB, The Reefer Group/Jean CHEREAU S.A.S, pepper motion GmbH, ALTRA S.p.A., Mitsubishi Heavy Industries Thermal Transport Europe GmbH, Hofbus GmbH and Stadtwerke Muenchen GmbH. This list includes purchase orders or contracts for both pilot installations of our Solar Bus Kit as well as for prototype projects in the refrigerated vehicle and e-transporter industries. While we intend to focus in 2024 on the bus industry and our Solar Bus Kit product, our solar technology allows for full solar integration in all kinds of vehicles, and we believe the other industries are valuable for long-term business opportunities. We intend to continue pursuing such other applications, and subject to the success of future capital raising efforts, we increase the time and resources devoted to such other solar integration projects in the medium- to long-term.

 

 

VBR Verkehrsbetriebe und Servicegesellschaft mbH is one of the largest fleet bus operators in Bavaria, Germany. We installed our Solar Bus Kit on two prototype buses to be used for finalizing and refining our product. The buses are part of the Munich Transport and Tariff Association bus fleet and currently drive through Munich on their daily routes.

 

 

In partnership with the Munich Transport Company, MVG (Münchner Verkehrsgesellschaft) we launched our Solar Bus Kit for public transport for the first time. The novel solar bus trailer has been in operation in the Munich metropolitan area since April 2022, testing the energy yields as well as the potential of the technology in daily operation with promising results.

 

 

On September 7, 2022, we announced that we started a project with Scania, a subsidiary of Volkswagen, and LLT, a Swedish public transport authority, to test the Solar Bus Kit in real-life conditions in the northern hemisphere. The objective of the project is to optimize the efficiency of the solar technology for buses in northern climates. The Solar Bus Kit has been installed on six buses since then and is successfully running on the streets.

 

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In June 2023, we installed our Solar Bus Kit on a Bus of HofBus GmbH, which to date has proved to be a well working product.

 

 

The Reefer Group is a global leader in refrigerated bodies. As part of our collaboration with The Reefer Group, we started to build a first trailer vehicle with the Reefer Group’s French subsidiary Jean CHEREAU S.A.S. for extensive testing to further evaluate the technical and economic feasibility of integrating a customized solar solution for a high volume series vehicle. The partially completed trailer was shown at the IAA Transportation 2022, and we currently plan to finalize the trailer together with the customer in the future.

 

 

Koegel Trailer GmbH was founded in 1934 and is one of the largest European manufacturers of commercial vehicles, including trailers and semi-trailers today. The partially completed trailer was shown at the IAA Transportation 2022, we currently plan to finalize the trailer together with the customer in the future.

 

Polymer Solar Modules - Vehicle Integrated Solutions

 

With respect to buses, our solar integration provides power that can be used to run auxiliary systems and charge low voltage and/or high voltage vehicle batteries (in case of a BEV), thereby helping bus operators to reduce CO2 emissions and total cost of ownership. For electric buses, power provided by our solar technology may also be used to charge high-voltage batteries. For refrigerated vehicles, our solar technology allows for longer operating hours and reduces the risk that cooled goods go to waste. In addition, we offer customers the option to benefit from our solar know-how and our project management skills as well as access to our MCU. For recreational vehicles, our technology can be used to generate power for auxiliary systems, increasing independence from traditional charging infrastructure. In addition to knowledge sharing and project management services, customers may benefit from our MCU and infotainment system. Vehicle manufacturers may leverage our solar technology to increase the range and grid independence of their vehicles, reduce total cost of ownership and provide their customers with a more convenient product. We mainly intend to license our technology to vehicle manufacturers.

 

Solar technology offers a broad variety of use cases and we have already received purchase orders or entered into several letters of intent for partnerships, including with manufacturers of trailers, autonomous electric shuttles, trucks and buses, all of whom may enter into agreements with us to use solar technology in their own products.

 

We believe our solar technology is the most efficient and most affordable solar technology currently available for consumer usage. According to our own data, it is the most efficient in terms of watts generated per square meter.

 

Although we intend to focus in the short- to medium-term on our Solar Bus Kit and similar retrofit solar products, we have several patents granted or within the filing-process protecting our proprietary technology and, subject to the success of future capital raising efforts, we currently intend to work in the long- term towards entering into co-development projects with established vehicle manufacturers or tier 1 suppliers, with a view to having our solar technology used in series production vehicles of established vehicle manufacturers.

 

Development

 

We believe that keeping pace with advances and changes in electric vehicle technology is and will be crucial to our success. Our development activities have historically focused on the finalization of the development of the Sion. Following our decision to terminate the Sion program and instead focus on our solar technology business, we have significantly reduced the personnel in our development department.

 

Our development strategy focuses on developing our key technologies and innovations in-house where we benefit from the expertise of our highly-qualified development team. This allows us to ensure that the key technologies and innovations reflect our core values and vision of sustainable and affordable electric mobility. We cooperate, or intend to cooperate, with renowned research institutions to combine our expertise in selected areas. For example, we are continuing our participation in public funding projects and collaborations with renowned research institutes like Fraunhofer and Tecnalia.

 

Manufacturing Concept

 

Production of the Solar Bus Kit will follow our lean approach with regards to capital expenditures. The semi-flexible solar modules will be supplied by selected suppliers that are closely involved in the development of the product to meet our specific needs. This approach aims to optimize both costs and performance. The low voltage MCU is produced by an external production manufacturer according to Sono Motor’s owned design. The development of and rights, including intellectual property rights, related to the Solar Bus Kit are fully owned by us.

 

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Marketing

 

We focus on providing multiple online and offline touchpoints with our customers. We want to maintain our thought leadership in the space of solar mobility. Through publishing whitepapers, blog posts, and case studies, we aim to educate our target groups of politicians, fleet operators and OEMs.

 

In addition, we will focus on public relations announcements concerning new customers, new patents granted and new funding secured. In the online marketing area, we will target business customers with industry specific videos on social media platforms.

 

To expand our reach, we plan to partner with other industry players to create new business opportunities. In addition, attending industry events, like IAA Transportation and BusWorld Brussels, proved to be successful in 2022 and 2023 as it led to several new customer leads and confirmed the interest in our solar technology. In April 2024, we showcased our Solar Bus Kit and solar power electronics at BUS2BUS, a popular mobility trade show in Berlin, Germany. Meeting with potential customers showcases our solutions and positions us to stay up-to-date with the latest trends and developments in the market.

 

Sales

 

We are focused in 2024 on sales of our Solar Bus Kit in the bus industry. We intend to sell our Solar Bus Kit directly to fleet operators and OEMs located primarily in Europe. In addition, we plan to organize a partnership program to scale up our solution more quickly. We intend to enable key, long-term partners to sell, install and service the Solar Bus Kit in specific regions - helping to reduce CO2 consumption on a larger scale and positioning us to grow our business more quickly. For example, in the beginning of 2024, we entered into an agreement with Nova-Papír Zrt, who will act as the first reseller for the Solar Bus Kit, that sets forth a sales target of 81 kits by the end of 2025. We expect the relationship with Nova-Papír Zrt to lead to market entry in Hungary and to open up Eastern Europe as a promising potential market for our solar technology. We intend to sign agreements with additional resellers in other European countries in the near future.

 

In addition, we intend to continue to offer our solar technology to the refrigerated vehicles, trucks and electric transporters industries. While we are focused in 2024 on the bus industry and our Solar Bus Kit, our solar technology allows for full solar integration in all kinds of vehicles, and we believe the refrigerated vehicles and electric transporters industries are valuable for long- term business opportunities. We intend to continue pursuing such other applications, subject to the success of future capital raising efforts.

 

The following graphic presents our current focus and provides an overview of potential products and additional business opportunities, our full pursuit of which remains subject to the success of future capital raising efforts past 2024:

 

https://cdn.kscope.io/c4d43a50f67c338d94c8b7f3407f779c-buses.jpg

 

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Information Technology

 

We use a number of standard software programs for our business operations. In addition, we deploy our own proprietary software and applications. To help secure data that we handle and protect against outages, we have implemented a number of protective measures, including duplicate systems, firewalls, antivirus software, patches, data encryption, log monitors, routine backups, system audits, data partitioning, routine password modifications and disaster recovery procedures. See “Item 16K. Cybersecurity”.

 

Seasonality

 

We generally experience the same effects of seasonality as other companies in our sector in Germany, realizing a slow down of business activities during the summer holiday season in August, at year end and the start of the new year as a result of holidays.

 

Competition

 

While there are a large number of providers of solar technology solutions for all kinds of stationary applications, the competitive landscape for vehicle solar solutions is less competitive. Based on a survey conducted by our business intelligence team, we have identified a few competitors particularly relevant to us, including, KRSolar B.V. (d/b/a wattlab), Im Efficiency B.V., Green Energy Solutions and TRAILAR, with regards to retrofit solutions like our Solar Bus Kit, and Victron Energy B.V., with regards to our solar power electronics.

 

We believe that the following factors differentiate us and our product from these competitors:

 

 

The high efficiency of our solar integration product, which results from our in-house developed maximum power point tracker solution and our reliance on cell technology that provides high energy density at a reasonable cost and allows our technology to harvest a high amount of solar yield in relation to installed power; and

 

 

The convenience and safety of our solar integration product, which result from a standardized, low-effort street approval procedure, the product’s modular and flexible system, our installation service that eliminates the need for customer self-installation, the system’s predictive maintenance capabilities and our over-the-air-update capabilities.

 

Intellectual Property

 

Our intellectual property, including trade secrets, patents, trademarks and copyright, is important to our business. We hold several patents in different jurisdictions relating to our solar module technology, ventilation system and energy management system for vehicles, have filed several patent applications, including relating to our solar technology. We have registered trademarks in the EU or other relevant jurisdictions for “Sono Motors”. Our intellectual property portfolio includes domain names for websites that we use in our business.

 

We control access to, use and distribution of our intellectual property through confidentiality procedures, non-disclosure agreements with third parties and our employment and contractor agreements. Under the German Employee Invention Act (Arbeitnehmererfindungsgesetz) we generally have a claim on work-related inventions by our employees. We rely on contractual provisions with our business partners to protect our intellectual property and proprietary technology, brand and creative assets. We seek to maintain and protect our intellectual property portfolio, including by pursuing any infringements by third parties.

 

The following graphic provides an overview of our granted patents and filed patent applications as of April 30, 2024:

 

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https://cdn.kscope.io/c4d43a50f67c338d94c8b7f3407f779c-ipcategory.jpg

 

(1) Patent Cooperation Treaty – the international patent system

(2) Integrated photovoltaic
(3) Solar electric vehicle systems
(4) Vehicle applied photovoltaic

 

There are 45 patent families (i.e. independent inventions) which include six granted patents and two patents with intention to grant confirmed by the EPO, 24 international (PCT) applications and 57 regional or national applications.

 

The content of the patent families can be categorized by integrated photovoltaic components or manufacturing processes (IPV), Solar electric vehicle systems (SEV), MPPT charging central unit (MCU), Vehicle applied PV and Sion-related non-PV inventions. As presented above, most of the applications are related to IPV and SEV.

 

Due to the cost-intensive nature of the patent application process and in accordance with the change in our business model to focusing exclusively on integrating our solar technology into third-party vehicles, we plan to terminate and/or discontinue patents and patent applications that do not address our core products and markets and instead focus on our most promising applications and markets (mainly Europe). See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Operations—We depend on the adequate protection of our intellectual property, which can be difficult and costly”.

 

Insurance Coverage

 

We have taken out insurance policies that we believe to be customary in our industry. We believe that our insurance policies contain market-standard exclusions and deductibles. We regularly review the adequacy of our insurance coverage and consider the scope of our insurance coverage to be customary in our industry.

 

Regulatory Environment

 

Overview

 

Our industry and business operations are subject to various laws, rules and regulations at international, national, state and municipal levels, which may affect, directly or indirectly, our operations or our industry. Also taking into account the fact that we expect our prospective customers to be mainly fleet operators and automotives suppliers or manufacturers, such laws, rules and regulations include laws on vehicle approval and homologation, laws on vehicle road safety, environmental laws, laws on vehicle emissions and renewable energies, consumer protection laws, product warranty and product liability laws, intellectual property and copyright laws, labor and employment protection laws, export control regulations, trade and economic sanctions and embargoes on certain countries, persons, groups and/or entities, projects and/or activities, competition and antitrust laws, tax laws, and criminal laws (e.g. anti-money laundering and anti-corruption laws). Within the EU the legal environment is also characterized by a set of political initiatives and legal frameworks under the so-called European green deal, which seeks to serve the overarching goal of eliminating greenhouse gas emissions and reaching climate neutrality by 2050. These initiatives and legal frameworks have had and will continue to have a significant influence on our industry and business operations as well as the overall adoption rate of electric mobility within the EU.

 

An overview of the laws, rules and regulations that are or are expected to be most relevant for our business operations or industry, broken down by general category of regulation, is provided below. Any reference in this section to any legislation or regulation is deemed to refer to such legislation or regulation as amended, supplemented or otherwise modified, and all further rules and regulations promulgated thereunder, unless the context requires otherwise.

 

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Vehicle Approval/Road Safety

 

Depending on the exact use of our products and solutions by prospective customers, which we expect to consist primarily of fleet operators and automotive suppliers and/or manufacturers, our solar modules and other solar technology solutions may be covered by compliance requirements applicable to these customer groups under product-related regulatory frameworks and approval by the relevant government authorities. Vehicles and vehicle components are required to comply with substantial licensing, certification, approval, permit and other homologation requirements in all relevant markets in which they operate, as well as numerous and continually increasing technical product requirements.

 

General Product Safety Liability

 

Our solar modules and other solar technology solutions will also have to comply with product-specific or general, non-specific product safety and product liability legislation and associated regulations.

 

The EU has passed a directive on general product safety that applies in the absence of specific provisions among the EU regulations governing the safety of the products concerned or if legislation applicable to the sector is insufficient. Under this directive, manufacturers and distributors may only market products that comply with a general requirement of consumer safety. Taking into account certain points specified in the Directive, a product is considered to be safe if, under normal or reasonably foreseeable conditions of use, it does not present any risk or only the minimum risks compatible with the product’s use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons. In addition to compliance with the safety requirement, manufacturers and distributors must provide consumers with the information necessary to assess a product’s inherent risks and take the measures necessary to avoid such threats (for example, withdraw products from the market, inform consumers and recall products). Strict liability applies for defective products throughout the EU in addition to any consumer protections at the national level.

 

In Germany, the EU requirements have been implemented via the Product Safety Act (Produktsicherheitsgesetz) and the Product Liability Act (Produkthaftungsgesetz), which are accompanied by more general provisions under tort laws codified in the German Civil Code § 823 (Bürgerliches Gesetzbuch).

 

Vehicle Emissions and Regulatory Incentives

 

The protection of air quality and reduction of greenhouse gas emissions is a priority in the EU and vehicle manufacturers relying on internal combustion engines must comply with increasingly stringent standards on vehicle emissions. The current environment of the EU and regulatory initiatives strongly support the development, production and sale of alternative fuel vehicles and their overall market adoption. In line with the international climate agreement signed at the 2015 United Nations Framework Convention on Climate Change in Paris by nearly 200 nations (commonly referred to as the “Paris Agreement”), which became effective in November 2016 and consists of two elements (a commitment by each participating country to set a voluntary emissions reduction target (referred to as “nationally determined contributions” or “NDCs”), with a review of the NDCs that could lead to updates and enhancements every five years beginning in 2023, and a transparency commitment requiring participating countries to disclose their progress), as well as based on emission legislation, the EU is taking a progressive stance in reducing carbon dioxide emissions, thereby deliberately driving increasing demand for electric vehicles.

 

Furthermore, the EU has implemented mandatory CO2 emissions targets. At present, all car manufacturers must meet a fleet-wide average emission target of 95g CO2/km for their new passenger vehicles that are registered in the EU. Light commercial vehicles are subject to an EU fleet-wide target of 147g CO2/KM for average emissions. Car manufacturers are given additional incentives to produce zero- or low-emission cars emitting less than 50g CO2/km through a fleet-wide credits system. The regulation also provides for fleet-wide average CO2/km emissions targets for the years 2025, 2030 and 2035, which are defined as a percentage reduction from the current applicable values: cars are subject to fleet-wide CO2 reductions of 15% in 2025, 55% in 2030 and 100% in 2035, while vans are subject to fleet-wide reductions of 15% in 2025, 50% in 2030 and 100% in 2035. The regulation also allows for pooling arrangements among several manufacturers of passenger cars or vans, based on which these manufacturers will be treated as a single “pool” and their compliance with emission limits will be assessed on an aggregated basis at the pool level. Car manufacturers are subject to penalty payments if a car manufacturer’s fleet-wide average emission of CO2/km exceeds the defined target values in a given year. The monetary penalty is calculated based on a predetermined euro amount (currently €95) for each gram of CO2/km that exceeds the relevant target value multiplied by the number of vehicles produced by the car manufacturer.

 

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The adoption of electric mobility is further promoted on the national level within the EU. The vast majority of member states of the EU provide purchase grants, tax benefits or other incentive schemes to buyers of electric vehicles.

 

Renewable Energy Requirements

 

The laws and regulations within the EU and various other jurisdictions impose energy source requirements for the transportation sector, which also aim to reduce the emission of greenhouse gases and promote the adoption of alternative fuel or electric vehicles. A directive adopted in 2018, and amended in 2023, establishes a common system for the promotion of energy from renewable sources (such as wind, solar (both solar thermal and solar solar) and geothermal energy, tide, wave and other ocean energy, hydropower or biomass) in electricity, heating and cooling, and transport and provides a framework for the promotion of the use of renewable energy sources in the EU until 2030. The directive defines a binding overall target of at least 42.5% of energy from renewable sources for the EU’s gross final energy consumption by 2030 (calculated as the sum of the member states’ gross final consumption of electricity and energy in various sectors) and promotes the use of renewable energy in transport, particularly prioritizing electricity, with a target of at least 29% renewables in the final energy consumption mix by 2030 or a greenhouse gas intensity reduction of at least 14.5% by 2030. The directive envisages electric mobility to constitute a substantial part of the renewable energy mix in the transport sector by the year 2030 and is a cornerstone for the adoption and integration of electric mobility within the EU, as it also supports incentive schemes for the swift development of electric mobility with respect to the sector’s growth potential and role for the EU employment market. In addition, the directive seeks to boost the use of renewable electricity in the transport sector by applying augmented multipliers in the context of the calculation of the relevant energy mix under the directive.

 

Industrial Environmental Control

 

All member states of the EU control the manufacture, use and disposal of pollutants by means of regulations on air pollutants, chemicals, heavy metals, persistent organic pollutants, soil contamination and biocides. The operations of manufacturers, particularly production, logistics and transport processes, as well as end products, must comply with these regulations.

 

The most relevant legal frameworks are the Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”) and the Regulation on Classification, Labeling and Packaging of Substances and Mixtures (“CLP”). REACH requires manufacturers and importers of chemicals to identify and manage risks linked to the substances they manufacture and market. Companies need to register substances placed on the market in the EU in quantities of one tonne or more a year, and the type of information required for registration will depend on the amount manufactured or imported in the EU. There are information sharing obligations for different actors in the supply chain to ensure proper application and use of such substances. In addition, substances which are considered hazardous could be subject to authorization or restrictions in the future, any of which may delay or increase the costs of operations if there is a need to obtain authorization or find an alternative substance. CLP complements REACH by requiring suppliers of substances and mixtures, including manufacturers, downstream users and distributors, to apply harmonized criteria to their classification and labeling.

 

Substance restrictions under REACH in some cases prohibit the marketing in the EU of articles containing certain substances. This is particularly relevant in relation to spare parts for products, which were designed before a relevant restriction was adopted and which are no longer in mass production (“legacy parts”). Similar problems may arise if a substance is placed under an authorization requirement under REACH and may, therefore, not be used for the production of legacy parts without a corresponding authorization. REACH does not include general exemptions with regard to legacy parts (so-called “repair as produced” clauses).

 

Emissions from Production

 

Emissions from production, such as air pollutants, noise, odors, vibrations and greenhouse gasses (such as CO2), are governed by specific laws and regulations, and, if the operation of a facility is subject to a permit, by specific conditions set forth therein. Some laws and regulations require the submission of emission reports on a regular basis. Non-compliance with maximum emission levels may result in administrative fines.

 

International, as well as European and national regulations, may have repercussions on the operation of the relevant production facilities. For example, stricter regulation of CO2 emissions could cause manufacturers to incur significant capital expenditures to upgrade production plants by installing or improving technical equipment to comply with maximum emission levels that may become applicable in the future, which may also affect their ability to sell their products at predetermined price levels.

 

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Emission trading systems for emissions from industrial production exist on the European and national level. These systems are based on “cap and trade” principles designed to reduce carbon dioxide emissions by limiting the number of emission allowances (cap) required for certain facilities and allowing the purchase for shortfall or the sale of surplus emission allowances (trade). A new EU Carbon Border Adjustment Mechanism (“CBAM”) is being introduced gradually for imports of certain goods such as steel, iron, electricity and fertilizers seen as at most significant risk of carbon leakage. CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production to avoid any undermining of the EU’s climate objectives. Importers of in-scope goods are required, during this transitional period, to submit reports on direct and indirect greenhouse gas emissions; however, overtime the obligations will increase and require “CBAM certificates” to be purchased. It is intended that CBAM will extend to other sectors from 2026. The gradual introduction of CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonization of EU industry.

 

Reuse, Recycling and Recovery

 

Manufacturers may also be obligated to assist customers with the disposal, recovery and recycling of certain underlying components of their products once they have reached their end- of-life/disposal stage.

 

An EU directive on batteries (the “Batteries Directive”) governs the recovery of batteries within the EU. The Batteries Directive requires manufacturers and distributors of batteries to bear a significant amount of the costs associated with proper collection and disposal of end-of-life batteries.

 

The new EU regulation on batteries (the “Batteries Regulation”) will repeal and replace the Batteries Directive in 2025. The Batteries Regulation aims to ensure that batteries have a low carbon footprint, use minimal harmful substances, need less raw materials from non-EU countries, and are collected, reused and recycled to a high degree in Europe. Targets for recycling efficiency, material recovery and recycled content will be introduced gradually from 2025 onwards. All collected waste batteries will have to be recycled and high levels of recovery will have to be achieved, in particular of critical raw materials such as cobalt, lithium and nickel. In addition, under the new law’s due diligence obligations, companies must identify, prevent and address social and environmental risks linked to the sourcing, processing and trading of raw materials such as lithium, cobalt, nickel and natural graphite contained in their batteries.

 

Furthermore, an EU directive on end-of-life vehicles (the “ELV Directive”) and an EU directive on waste from electrical and electronic equipment (the “WEEE Directive”) each govern the recovery of motor vehicles and electrical and electronic equipment within the EU, providing for ambitious recovery, reuse and recycling rates. The directives require that manufacturers cover all, or a significant part, of the costs associated with recovery, reuse and recycling measures. The aforementioned directives, including the Batteries Directive, as well as an EU directive on the restrictions of the use of certain hazardous substances in electrical and electronic equipment and the Batteries Regulation, limit manufacturing options because they also contain prohibitions on the use of certain identified substances and materials. The Batteries Regulation also introduces performance classes and maximum limits on the carbon footprint of electric vehicles.

 

Cross-border Import and Export of Products

 

Sales of our products and solutions may be subject to export control and sanction regulations, as well as trade policy measures, such as tariffs. We may be required to comply with export control regulations, trade and economic sanctions restrictions and embargoes imposed by multiple authorities, such as the United Nations, the EU and the United States. In addition, the EU, United States and other applicable sanctions and embargo laws and regulations vary in their application (and may be inconsistent): they do not all apply to the same covered countries, persons, groups and/or entities, projects and/or activities, and such sanctions and embargo laws and regulations may be amended or strengthened from time to time.

 

Within our primary target market, the EU’s internal market, the principle of free movement of goods applies. When importing goods from, and exporting goods to, non-EU countries, we will have to comply with national and European foreign trade and customs regulations.

 

Data Protection and Privacy

 

The GDPR applies to the processing of personal data in the context of activities of establishments in the EEA, regardless of whether the processing takes place in the EEA or not. The GDPR and other data privacy laws regulate when and how personal data may be collected, for which purposes it may be processed, for how long such data may be stored and to whom and how it may be transferred. The GDPR contains strict requirements for obtaining the consent of data subjects (i.e., the persons to whom personal data relates) to the use and processing of their personal data. The GDPR also requires the implementation of appropriate technical and organizational measures, depending on the nature of the processing activities. It also imposes various obligations in the context of processing of data, including, among others, far-reaching transparency, data minimization, storage limitations, privacy by design and privacy by default obligations, data security, integrity and confidentiality obligations. In addition, it may require so-called data protection impact assessments, at least in cases where the data processing is likely to result in a high risk to the rights and freedoms of individuals. In Germany, operators of online platforms have to comply with the specific requirements of the German Tele Media Act (Telemediengesetz), which takes into consideration particular aspects of online communication. For example, the German Tele Media Act provides for additional information obligations which are stricter than the general requirements of the Data Protection Act (e.g., a requirement to include an imprint on websites and apps).

 

An EU directive on the processing of personal data and the protection of personal data in the electronic communications sector adopted in 2002 sets out rules to ensure security in the processing of personal data, the notification of personal data breaches and confidentiality of communications through public electronic communication services such as the internet and mobile telephony. Providers of such electronic communication services must, among others, ensure that personal data are accessed by authorized persons only, are protected from being destroyed, lost or accidentally altered and from other unlawful or unauthorized forms of processing and ensure the implementation of a security policy on the processing of personal data. The e-Privacy Directive also contains several provisions aimed at ensuring the confidentiality of electronic communications and sets forth strict (consent) requirements for the use of cookies and for unsolicited communication as part of direct marketing efforts. The e-Privacy Directive has been implemented in the Netherlands by the Dutch Telecommunications Act (Telecommunicatiewet) and in Germany by the German Telecommunications Act (Telekommunikationsgesetz). On January 10, 2017, the European Commission released a proposal for a regulation of the European Parliament and of the Council of the EU concerning the respect for private life and the protection of personal data in electronic communications (the e-Privacy Regulation), which would repeal the e-Privacy Directive. The proposal is still subject to legislative procedure and debate.

 

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In March 2021, the United Nations announced UN R155 – a regulation on cybersecurity and cybersecurity management systems. The regulation requires that, from July 2022, all new vehicle types and, from July 2024, all registered vehicles must prove that their product development is based on a systematic approach to risks associated with cyber threats to their cars. The regulations have been adopted by the EU as well as jurisdictions such as Japan and South Korea. The UN regulations are not expected to be adopted in the United States or China where similar regulations are expected to be adopted.

 

Antitrust Law

 

Competition and antitrust laws and regulations are designed to preserve free and open competition in the marketplace to enhance competitiveness and economic efficiency. Provisions on merger control, the prohibition of anticompetitive agreements, collusive behavior, the prohibition of abuse of a dominant position and the receipt of advantages in violation of state aid rules within the market are of particular relevance for manufacturers. National and supranational competition and antitrust authorities may initiate investigations and proceedings for alleged infringements of competition or antitrust laws, which may result in significant fines or other forms of liability or impose certain limitations or conditions regarding acquisitions and certain business practices.

 

Within the EU, compliance with applicable European and national competition laws is monitored by the European Commission and in some cases the national competition authorities. The EU’s antitrust rules are set out in Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”). Article 101(1) of the TFEU prohibits anticompetitive agreements to the extent they are not otherwise exempted by Article 101(3) of the TFEU. Article 102 TFEU prohibits the abuse of a dominant position. Article 107 (1) TFEU prohibits the granting of state aid.

 

Class Actions to Enforce Regulations

 

In the EU and certain of its member states, there is or has been an increasing prevalence of legislation governing class actions and their use to enforce regulations. As a result of these developments, consumers have increasingly powerful legal mechanisms at their disposal to collectively sue manufacturers of consumer products.

 

In the EU, under the banner of “A New Deal for Consumers,” the European Commission is facilitating a trend towards the increasing availability and use of collective redress mechanisms in areas in which EU law grants rights, including in particular consumer protection rules and regulations. The European Commission made a non-binding recommendation for EU member states to adopt collective redress procedures in June 2013, subsequently consulted on progress in 2017 and published a report on the subject in January 2018. A proposal for a new directive regarding “better enforcement and modernization of EU consumer protection rules” has been put forward by the European Commission. EU member states have also been developing their own rules in this regard. In Germany a law introducing a declaratory model action (Musterfeststellungsklage) came into force on November 1, 2018. With this new declaratory model action, certain persons are entitled to seek a legal declaration concerning factual or legal matters regarding consumer claims. Consumers can then opt in to be bound by a judgment (and under certain circumstances also a settlement) issued in the declaratory model proceedings.

 

In the Netherlands, in the event a third party is liable to a Dutch company, as a general principle only the company itself can bring a civil action against that party. The individual shareholders do not have a general right to bring an action on behalf of the company. However, in the event that the cause for the liability of a third party to the company also constitutes a tortious act directly against a shareholder, that shareholder may have an individual right of action against such third party in its own name. Dutch law provides for the possibility to initiate such actions collectively, in which a foundation or an association can act as a class representative and has standing to commence proceedings and claim damages if certain criteria are met. The court will first determine if those criteria are met. If so, the case will go forward as a class action on the merits after a period allowing class members to opt out from the case has lapsed. All members of the class who are residents of the Netherlands and who did not opt out will be bound to the outcome of the case. Residents of other countries must actively opt in in order to be able to benefit from the class action. The defendant is not required to file defenses on the merits prior to the merits phase having commenced. It is possible for the parties to reach a settlement during the merits phase. Such a settlement can be approved by the court, which approval will then bind the members of the class, subject to a second opt-out. This regime applies to claims brought after January 1, 2020 and which relate to certain events that occurred prior to that date. For other matters, the old Dutch class actions regime will apply. Under the old regime, no monetary damages can be sought. Also, a judgment rendered under the old regime will not bind individual class members. Even though Dutch law does not provide for derivative suits, directors and officers can still be subject to liability under U.S. securities laws.

 

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C.

Organizational Structure 

 

Sono Group N.V., or the Company, has a single, wholly-owned Subsidiary, Sono Motors GmbH. The Subsidiary became the wholly-owned subsidiary of the Company upon conclusion of a corporate reorganization that was completed on November 27, 2020. The Subsidiary has its country of residence and incorporation in Germany, with its company address in Waldmeisterstraße 93, 80935 Munich, Germany.

 

 

D.

Property, Plant and Equipment 

 

Our headquarters is located at Waldmeisterstraße 93, 80935 Munich, Germany. We have leased this 1,455-square meter property for use as office, workshop, electronics lab and warehouse space for a fixed term until April 30, 2026. We then have the option to extend this fixed term by five years.

 

In addition, in February 2024 we signed a lease for a 900-square foot property at 10101 Lantana Rd., Suite N, Lake Worth, Florida 33449 for use as an office space for a fixed term of one year until February 28, 2025. The lease will automatically renew for periods of one year unless either party to the lease agreement gives written notice of its intent to terminate the lease at least 90 days before the termination of the lease or any extension thereof.

 

Our former headquarters was located at Waldmeisterstraße 76, 80935 Munich, Germany. We leased this 2,547-square meter property as office space, show room and electronics lab for an initial fixed term until March 31, 2022. In connection with corporate measures implemented in connection with the Subsidiary’s exit from the Subsidiary Self-Administration Proceedings, we terminated this lease effective as of January 31, 2024.

 

We also previously leased a 1,095 square meter storage building at Waldmeisterstraße 99, 80935 Munich, Germany. The lease started on September 1, 2022, and runs for an indefinite period. In connection with our commitment to focus exclusively on our solar business for business customers, we terminated this lease at the end of February 2023, with such termination becoming effective on November 30, 2023.

 

As of the date of this Annual Report, we do not own any real estate property and only lease real estate property as described above.

 

ITEM 4A.         UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5.          OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion and analysis should be read in conjunction with the information included under “Item 4. Information on the Company” and “Item 18. Financial Statements.” The following discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in “Item 3. Key InformationD. Risk Factors.” Actual results could differ materially from those contained in any forward-looking statements. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

 

For a discussion of the year ended December 31, 2022 compared to December 31, 2021, refer to the section contained in our Annual Report on Form 20-F for the year ended December 31, 2022, “Item 5: Operating and financial review and prospects”. Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

 

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Overview

 

For an overview of our business, see Item 4. Information on the CompanyB. Business OverviewOverview”.

 

For the year ended December 31, 2023, we had a loss for the period of €53.6 million, compared to a loss for the period for the year ended December 31, 2022 of €183.7 million. We have incurred net losses since our inception in March 2016, resulting in an accumulated deficit of €384.3 million as of December 31, 2023 compared to an accumulated deficit of €330.8 million as of December 31, 2022.

 

Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and will likely entail significant changes to our consolidated balance sheet and consolidated statement of operations. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for the years ending December 31, 2022 and 2023 mainly include expenses related to the Sion project, which was terminated in February 2023. Accordingly, the financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.

 

Our Business Model

 

Following our emergence from the Self-Administration Proceedings, we expect to generate revenue from monetization of our solar technology in the future. The potential scope of application of our solar technology goes significantly beyond passenger cars. While our initial focus in the short- to medium-term is expected to be on our Solar Bus Kit and similar retrofit solar products, we believe that our solar technology has the potential to be used in existing markets, such as the truck and trailer markets. We may also produce and sell certain selected solar components, license our patents to third parties and seek to generate service revenue from providing engineering services to third parties. We have shipped prototypes or solar retrofits to customers, generating revenue of approximately €42 thousand in 2023.

 

Through February 2023, we also worked on, and incurred significant expenses for, the development of the Sion, which we had envisaged to become an affordable solar electric vehicle. Due to a lack of available funding, we decided to terminate the development of the Sion and focus on our solar technology. The Sion project is currently being offered for sale, potentially together with our car-sharing and ride-pooling application. Any proceeds from the sale of the Sion project will be used to satisfy claims of the Subsidiary’s creditors in the Subsidiary Self- Administration Proceedings.

 

Factors Affecting Our Financial Condition and Results of Operation

 

We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those set forth in “Item 3. Key InformationD. Risk Factors”.

 

Self-Administration Proceedings

 

Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and entailed significant changes to our consolidated balance sheet and consolidated statement of operations. In addition, due to the opening of the Self-Administration Proceedings, the Company lost control of the Subsidiary on May 19, 2023. The effect of this loss of control is that in 2023, the results of the Subsidiary are consolidated up until the loss of control and the assets and liabilities of the Subsidiary will be derecognized from the consolidated statement of financial position for the period following the loss of control in the consolidated financial statements. In accordance with IFRS, the Company derecognized the assets and liabilities of the Subsidiary from the consolidated statement of financial position, which led to significant movements in the assets and liabilities. The asset and liability balances that the Company had with the Subsidiary were previously intercompany and therefore eliminated on consolidation. These balances were reinstated. Due to a hard comfort letter between the Company and the Subsidiary, the Company. then recognized a parental guarantee provision. Control was regained when the Subsidiary exited the Subsidiary Self-Administration Proceedings on February 29, 2024 and was consolidated again with the Company. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for years ending December 31, 2022 and 2023 mainly include expenses related to the Sion project, which was terminated in February 2023. Accordingly, the financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.

 

Yorkville Investment

 

The financing provided by Yorkville in connection with the Yorkville Investment is in the form of interest-bearing convertible debentures. The new convertible debenture issued to Yorkville on February 5, 2024 in connection with the funding of the First Tranche will mature on July 1, 2025, and each subsequent new convertible debenture will mature on the earlier of (i) July 1, 2025 or (ii) 12 months from the issuance date of such new debenture. These instruments are similar to the Existing Convertible Debentures (as defined herein) issued to Yorkville in December 2022. In accordance with the applicable accounting standards, the new convertible debentures are likely to be fair valued upon recognition and have an impact on the profit and loss of the Company. It is expected that the instrument will be converted over time, resulting in the issuance of new shares of the Company.

 

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Reservations

 

Through February 2023, we worked on developing the Sion and accepted reservations and advance payments from customers for the Sion. Until we terminated the Sion passenger car program, an advance payment liability was recognized at the time the cash was collected by the Company. Given that the Sion will not be delivered, advance payments are due back to customers. On February 24, 2023, Sono Group proposed a payment plan to reimburse reservation holders for advance payments in three installments (May 2023, June 2024 and January 2025) over the next two years. Reservation holders who accepted the payment plan would have received a one-time bonus of 5% on the amount of the advance payment to be paid with the third installment. Reservation holders could also waive repayment. Approximately 2% of the total advance payments waived repayments. Upon applying for the Self-Administration Proceedings, we became generally prohibited from paying any pre-petition debt. As a result, the payment plan for reservation holders could not be implemented. Following the Subsidiary Self-Administration proceedings, the payment plan for reservation holders is no longer relevant and all outstanding advance payments will be handled in accordance with the Plan. For information on the accounting treatment of the advance payments for historical periods and following our decision to change our business model, see “Notes to the Consolidated Financial Statements4. Significant accounting policies4.8 Advance payments received from customers”.

 

Intellectual Property

 

As of April 30, 2024, we had 6 patents granted and 60 patents or patent/utility model applications filed, deriving from 45 patent families. Patents relating to the same technology, but filed in different jurisdictions, are counted separately. In addition 26 international (PCT) applications were filed as of April 30, 2024. Due to the cost-intensive nature of the patent application process and in accordance with the change in our business model to focusing exclusively on integrating our solar technology into third-party vehicles, we plan to terminate and/or discontinue patents and patent applications that do not address our core products and markets and instead focus on our most promising applications and markets (mainly Europe). See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Operations—We depend on the adequate protection of our intellectual property, which can be difficult and costly”.

 

Our patent applications mainly relate to our solar technology.

 

Ability to Control Cost of Sales

 

Provided we are able to launch the commercialization of our solar technology, we would expect that our cost of sales will be affected by fluctuations in certain raw material prices.

 

Development Expenses

 

Following our emergence from the Self-Administration Proceedings, we continue to incur expenses related to the refinement of our technology and our development expenses will constitute a substantial part of our expenses in future periods. We plan to only incur development expenses to the extent we believe that we are able to secure necessary financing, since we would expect to continue to depend on significant external financing for additional development activities. In addition, elevated inflation levels, should they persist, may lead to an increase in our development costs and financing needs.

 

Capital Expenditure

 

Prior to the change in our business model, our capital expenditure in the years ending December 31, 2022 and 2023 related to property, plant and equipment concerning the discontinued Sion program. Following our pivot to solar-only in February 2023, we operated on an asset-light basis, which meant that our capital expenditure was very limited, until we applied for Self-Administration Proceedings on May 15, 2023.

 

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Unused Tax Loss

 

We have substantial carried-forward tax losses resulting from our negative taxable income in 2023, 2022, 2021 and prior fiscal years. Given that our estimated taxable income for the foreseeable future will not be sufficient to recover these carried-forward losses we have not recognized deferred tax assets on the balance sheet as of December 31, 2021, December 31, 2022 or December 31, 2023. Our unused tax losses as of December 31, 2023, for which no tax asset has been recognized, were €32.7 million (corporate income tax) and €31.6 million (trade tax). Assuming a total tax rate of 32.98%, our unused corporate income and trade tax losses correspond to a potential undiscounted tax benefit of €10.6 million. Only up to 60% of our annual taxable income, to the extent such taxable income exceeds €1 million, may be offset against tax loss carry forwards. The remaining 40% of the taxable income is subject to corporate income and trade tax under the so-called minimum taxation rules. Annual taxable income for corporate income tax and trade tax purposes of up to €1 million could fully be offset against tax loss carry-forwards. However, due to the termination of the Sion program, existing tax loss carry forwards may be forfeited to the extent no built-in gains (stille Reserven) exist as of December 31, 2023. The built-in gains as of December 31, 2023 have not yet been determined. Therefore, it is currently unclear whether all tax losses can still be carried forward. For more information see “Notes to the Consolidated Financial Statements4. Significant accounting policies4.12.6. Recoverability of deferred tax assets in relation to loss carryforwards” and “Item 3. Key InformationD. Risk FactorsRisks Related to Our Companys StatusOur ability to use our net operating loss carryforwards and other tax attributes may be limited.

 

Conversion Stock Option Program (CSOP) and Employee Stock Option Program (ESOP)

 

In the first half of 2018, we established two similar employee participation programs for our staff members and selected managers of the Subsidiary based on virtual shares. In December 2020, we offered all participants of the aforementioned employee participation programs as well as six additional members of our staff to exchange their virtual shares for actual stock options under a newly organized employee participation program, our conversion stock option program (the “CSOP”), which is equity settled. As of December 31, 2023, 88 employees, including all those participating in the original employee participation program but one, have joined the CSOP. We recorded expenses in the amount of €0.1 million in 2023 and €0.7 million in 2022 for the CSOP.

 

In 2022, we intended to implement a new employee stock option program (the “ESOP”) for the years 2021, 2022 and 2023. In February 2023, we offered our employees, including those who will depart the Company in connection with our strategy shift towards a solar-only business model, the right to participate in the ESOP with a grant value of approximately 10% of their annual salary on a pro rata basis for their periods of employment during those years. We recorded incomes of €0.3 million in 2023 for the ESOP.

 

Following the restructuring of the Companies as a result of the Self-Administration Proceedings and the corporate measures implemented in connection therewith, there is uncertainty over the future of the remuneration based on shares (share-based payment) programs, which may result in share options not being formally granted or, in some cases, cancellation of unexercised options, which may be done without compensation. Further, the Reverse Share Split and the exchange ratio to be determined by our management board may have a significant impact on options or awards granted.

 

War in Ukraine and Conflict in the Middle East

 

In February 2022, the government of Russia invaded Ukraine across a broad front. In response to this aggression, governments around the world have imposed severe sanctions against Russia. These sanctions disrupted the manufacturing, delivery and overall supply chain of vehicle manufacturers and suppliers. We cannot yet foresee the full extent of the sanction’s impact on our business and operations and such impact will depend on future developments of the war, which is highly uncertain and unpredictable. The war has also negatively impacted suppliers located in the Ukraine, which negatively affected the availability of car components. The war could have a material impact on our results of operations, liquidity, and capital management. We will continue to monitor the situation and the effect of this development on our liquidity and capital management.

 

In addition, the Israel-Hamas conflict also has the potential to disrupt the world economy. An escalation of the conflict, including the involvement of other countries, could cause disruption, instability and volatility in global markets, supply chains and logistics operations. Any adverse impact on our current or potential customers in this region could adversely affect our operations or financial performance.

 

Components of Our Results of Operations

 

Following our emergence from the Self-Administration Proceedings, our business was restructured, which included the release of significant liabilities, and entailed significant changes to our consolidated balance sheet and consolidated statement of operations. In addition, due to the opening of the self-administration proceedings, the Company lost control of the Subsidiary on May 19, 2023. The effect of this loss of control is that in 2023, the results of the Subsidiary are consolidated up until the loss of control and the assets and liabilities of the Subsidiary is derecognized from the consolidated statement of financial position, which led to significant movements in the assets and liabilities. Control was obtained again when the Subsidiary exited the Subsidiary Self-Administration Proceedings on February 29, 2024 and was consolidated again with the Company. As a result, our financial information going forward may in many respects not be comparable to our historical financial information. In addition, the financial information for the years ending December 31, 2022 and 2023 mainly include expenses related to the Sion project, which was terminated in February 2023. Accordingly, the historical financial information contained in this Annual Report is likely not indicative of any future financial information and has only limited value for purposes of assessing our solar-only business.

 

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Revenues

 

We recognize revenues, which have historically been overall insignificant, primarily from the sale and installation of our Solar Bus Kit.

 

Cost of Sales

 

In 2021, 2022 and 2023, we recorded a marginal amount of cost of sales relating to monetization of our solar technology and launch of the Sono app.

 

Operating Expenses

 

Our operating expenses consist of research and development expenses and selling, general and administrative expenses.

 

There were no research expenses included in our profit and loss in 2021, 2022 and 2023, as we did not perform research. Our development expenses consist of (i) personnel expenses for our development staff, including salaries and bonuses and the relevant share of expenses relating to the CSOP, (ii) development cost for prototypes, our car-sharing and ride-pooling application and solar integration, (iii) professional services and (iv) other expenses. Development costs are expensed as incurred. As the recognition criteria for the capitalization of development cost have not been met, all development expenses were recognized in profit or loss as incurred in all periods.

 

Selling and Distribution Expenses

 

Our selling and distribution expenses consist of (i) employee compensation for employees responsible for marketing activities, such as social media, e-mail marketing, trade shows and other channels, including salaries and bonuses and the relevant share of expenses relating to the CSOP, (ii) marketing and promotional expenses, (iii) expenses for professional services and (iv) other expenses.

 

General and Administrative Expenses

 

Our general and administrative expenses consist of (i) personnel expenses for employees responsible for areas such as finance, human resources, business development, administration, including salaries and bonuses and the relevant share of expenses relating to the CSOP, (ii) expenses for professional services, such as accounting, tax, legal and other external services, (iii) expenses without sufficient supporting documentation, including underlying invoices, and (iv) other expenses.

 

Other Operating Income/Expenses