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Table of Contents
As filed with the Securities and Exchange Commission on June 3, 2022
Registration
No. 333-264427
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
AMENDMENT NO. 1
TO
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
FAST RADIUS, INC.
(Exact name of registrant as specified in its
charter)
 
 
 
Delaware
 
3559
 
85-3692788
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification No.)
113 N. May Street
Chicago, Illinois 60607
(888)
787-1629
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
Lou Rassey
Chief Executive Officer
c/o Fast Radius, Inc.
113 N. May Street
Chicago, Illinois 60607
(888)
787-1629
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies to:
Joshua M. Samek, Esq.
Drew M. Valentine, Esq.
DLA Piper LLP (US)
200 South Biscayne Boulevard, Suite 2500
Miami, Florida 33131

(305)
423-8500
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
 
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated
filer
 
  
Smaller reporting company
 
 
  
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
  
 
 
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

Table of Contents
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
Subject to Completion
Preliminary Prospectus dated June 3, 2022
PROSPECTUS
Fast Radius, Inc.
Up to 83,205,293 Shares of Common Stock
Up to 6,891,667 Warrants
 
 
The selling securityholders named in this prospectus may offer and sell from time to time (i) up to 6,891,667 warrants to purchase shares of our common stock, par value $0.0001 per share (“
Common Stock
”), consisting of (A) 6,266,667 warrants (the “
Private Placement Warrants
”) to purchase shares of Common Stock issued to ENNV Holdings, LLC (the “
Sponsor
”) and Goldman Sachs Asset Management, L.P., in its capacity as investment adviser on behalf of its clients (“
GSAM
”) in a private placement that closed concurrently with our initial public offering (the “
ENNV IPO
” or “
Initial Public Offering
”) on February 11, 2021 and (B) up to 625,000 warrants (the “
Forward Purchase Warrants
”, and together with the Private Placement Warrants, the “
Warrants
”) issued at Closing (as defined below) to GSAM based on that certain Forward Purchase Agreement, dated as of January 24, 2021, by and between the Fast Radius, Inc. (formerly known as ECP Environmental Growth Opportunities Corp. (the “
Company
”)), the Sponsor and GSAM (as amended, the “
Forward Purchase Agreement
”), and (ii) up to 83,205,293 shares of Common Stock consisting of:
 
 
 
up to 8,625,000 shares of Common Stock issued at approximately $0.003 per share to the Sponsor and GSAM prior to the ENNV IPO (the “
Founder Shares
”);
 
 
 
up to 6,266,667 shares of Common Stock that are issuable by us upon exercise of the Private Placement Warrants, which Private Placement Warrants were originally purchased at a price of $1.50 per Private Placement Warrant (the “
Private Warrant Shares
”);
 
 
 
up to 625,000 shares of Common Stock that are issuable by us upon exercise of the Forward Purchase Warrants, which Forward Purchase Warrants were purchased at a price of approximately $0.42 per Forward Purchase Warrant (the “
Forward Purchase Warrant Shares
”);
 
 
 
up to 8,624,972 shares (the “
Public Warrant Shares
,” and together with the Private Warrant Shares and the Forward Purchase Warrant Shares, the “
Warrant Shares
”) of Common Stock that are issuable by us upon exercise of the public warrants (the “
Public Warrants
”) that were sold as part of the units in the ENNV IPO and that were previously registered;
 
 
 
up to 125,000 shares (the “
Forward Purchase Shares
”) that were issued and sold under the Forward Purchase Agreement to GSAM at a price of $10.00 per share;
 
 
 
up to 755,461 shares (the “
ECP Notes Shares
”) that were issued upon conversion of certain convertible notes issued by Legacy Fast Radius (as defined below) to an affiliate of the Sponsor, which were issued pursuant to the Merger Agreement (as defined below) in connection with the Business Combination (as defined below) as merger consideration at an acquiror share value of $10.00 per share;
 
 
 
up to 7,500,000 shares of Common Stock (the “
PIPE Shares
”) issued to certain investors (the “
PIPE Investors
”) at a price of $10.00 per share in private placements that closed concurrently with the Business Combination;
 
 
 
up to 39,286,460 shares of outstanding Common Stock held by certain of our directors, officers and affiliates (collectively, the “
Insider Shares
”), which were issued pursuant to the Merger Agreement in connection with the Business Combination as merger consideration at an acquiror share value of $10.00 per share;
 
 
 
up to 7,196,224 shares of Common Stock (the “
Control Earnout Shares
”), which our directors, officers and affiliates have the contingent right to receive upon our stock achieving certain trading price milestones on or prior to February 4, 2027;
 
 
 
up to 2,661,465 shares of Common Stock issuable upon exercise of outstanding options (the “
Options
” and the shares issuable upon exercise thereof, the “
Option Shares
”), which were assumed by the Company and converted into options for Common Stock in connection with the Business Combination and have an average weighted exercise price of $0.70 per share;
 
 
 
up to 970,952 shares of Common Stock underlying nonvested RSUs (the “
Executive RSUs
” and the shares subject to vesting thereunder, the “
RSU Shares
”) held by certain of our directors and officers that are subject to certain time-based vesting conditions, which were assumed by the Company and converted into RSUs for Common Stock in connection with the Business Combination based on an acquiror share value of $10.00 per share; and
 
 
 
up to 568,092 shares of Common Stock underlying outstanding restricted stock awards (the “
Executive RSAs
” and the shares subject to vesting thereunder, the “
RSA Shares
” held by certain of our directors and officers that are subject to certain time-based vesting conditions, which were assumed by the Company and converted into restricted stock awards for Common Stock in connection with the Business Combination based on an acquiror share value of $10.00 per share.
We refer to the Insider Shares, the Control Earnout Shares, the Option Shares, the RSU Shares and the RSA Shares, collectively, as the “Control Shares.”
In connection with the Business Combination, holders of 31,512,573 shares of Common Stock, or 91.34% of the shares with redemption rights, exercised their right to redeem their shares for cash at a redemption price of approximately $10.01 per share, for an aggregate redemption amount of approximately $315.4 million. The shares of common stock being offered for resale pursuant to this prospectus by the selling securityholders represent approximately 74.8% of shares outstanding on a fully diluted basis as of June 1, 2022. Given the substantial number of shares of common stock being registered for potential resale by selling securityholders pursuant to this prospectus, the sale of shares by the selling securityholders, or the perception in the market that the selling securityholders of a large number of shares intend to sell shares, could increase the volatility of the market price of our common stock or result in a significant decline in the public trading price of our common stock. Even if our trading price is significantly below $10.00, the offering price for the units offered in the ENNV IPO, certain of the selling securityholders, including the Sponsor, may still have an incentive to sell shares of our common stock because they purchased the shares at prices lower than the public investors or the current trading price of our common stock. For example, based on the closing price of our common stock of $0.53 as of June 1, 2022, the Sponsor and other holders of the Founder Shares would experience a potential profit of up to approximately $0.527 per share, or approximately $4,545,375.00 million in the aggregate.
We are registering the shares of Common Stock and Warrants for resale pursuant to the selling securityholders’ registration rights under certain agreements between us and the selling securityholders. Our registration of the securities covered by this prospectus does not mean that the selling securityholders will offer or sell any of the shares of Common Stock or Warrants. The selling securityholders may offer, sell or distribute all or a portion of the securities hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from such sales of the shares of Common Stock or Warrants, except with respect to amounts received by us upon the exercise of the Warrants or Options. The exercise price of our Public Warrants and Private Placement Warrants is $11.50 per Warrant. We believe the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our common stock. If the trading price for our common stock is less than $11.50 per share, we believe holders of our Public Warrants and Private Placement Warrants will be unlikely to exercise their Warrants. We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The selling securityholders will bear all commissions and discounts, if any, attributable to their sale of shares of Common Stock or Warrants. See the section titled “
Plan of Distribution
” of this prospectus.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “
Securities Act
”), and are subject to reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.
Our Common Stock and Public Warrants are listed on The Nasdaq Stock Market LLC (“
NASDAQ
”) under the symbols “FSRD” and “FSRDW”, respectively. On June 1, 2022, the last reported sales price of our Common Stock was $0.53 per share and the last reported sales price of our Public Warrants was $0.07 per Public Warrant.
 
 
Investing in our securities involves a high degree or risk. These risks are described in the section titled “
” beginning on page 8 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is                     2022

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F-1
 
You should rely only on the information contained in this prospectus or any supplement to this prospectus filed with the Securities and Exchange Commission. Neither we nor the selling securityholders have authorized anyone to provide you with different or additional information. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: neither we nor the selling securityholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus outside the United States.
 
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form
S-1
that we filed with the U.S. Securities and Exchange Commission (the “
SEC
”), using a “shelf” registration process. By using a shelf registration statement, the selling securityholders may sell up to 83,205,293 shares of Common Stock and up to 6,891,667 warrants from time to time in one or more offerings as described in this prospectus. We will not receive any proceeds from the sale by such selling securityholders of the securities offered by them as described in this prospectus. This prospectus also relates to the issuance by us of the shares of Common Stock issuable upon the exercise of warrants, the issuance by us of the shares of Common Stock reserved for issuance upon the exercise of options held by certain of our employees and the vesting of the shares of Common Stock underlying nonvested RSUs and restricted stock awards held by certain of our employees. We will not receive any proceeds from the sale of shares of Common Stock underlying the Warrants, options, RSUs or restricted stock awards pursuant to this prospectus, except with respect to amounts received by us upon the exercise of the warrants or options for cash.
We may also file a prospectus supplement or post-effective amendment to the registration statement of which this prospectus forms a part that may contain material information relating to these offerings. The prospectus supplement or post-effective amendment may also add, update or change information contained in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement or post-effective amendment, you should rely on the prospectus supplement or post-effective amendment, as applicable. Before purchasing any securities, you should carefully read this prospectus, any post-effective amendment, and any applicable prospectus supplement, together with the additional information described under the heading “
Where You Can Find More Information
.”
Neither we nor the selling securityholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus, any post-effective amendment, or any applicable prospectus supplement prepared by or on behalf of us or to which we have referred you. We and the selling securityholders take no responsibility for and can provide no assurance as to the reliability of any other information that others may give you. We and the selling securityholders will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, any post-effective amendment and any applicable prospectus supplement to this prospectus is accurate only as of the date on its respective cover. Our business, financial condition, results of operations and prospects may have changed since those dates. This prospectus contains, and any post-effective amendment or any prospectus supplement may contain, market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. We believe this information is reliable as of the applicable date of its publication, however, we have not independently verified the accuracy or completeness of the information included in or assumptions relied on in these third-party publications. In addition, the market and industry data and forecasts that may be included in this prospectus, any post-effective amendment or any prospectus supplement may involve estimates, assumptions and other risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “
Risk Factors
” contained in this prospectus, any post-effective amendment and the applicable prospectus supplement. Accordingly, investors should not place undue reliance on this information.
We own or have rights to trademarks, trade names and service marks that we use in connection with the operation of our business. In addition, our name, logos and website name and address are our trademarks or service marks. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this prospectus are listed without the applicable
®
,
and SM symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.
On February 4, 2022 (the “
Closing Date
”), we consummated (the “
Closing
”) the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated as of July 18, 2021, as amended on December 26, 2021 and as further amended on January 31, 2022 (as amended, the “
Merger Agreement
”) by and among Fast Radius, Inc. (formerly known as ECP Environmental Growth Opportunities Corp.), ENNV Merger Sub,
 
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Inc., a Delaware corporation and a wholly owned direct subsidiary of ENNV (“
Merger Sub
”), and Fast Radius Operations, Inc., a Delaware corporation (formerly known as Fast Radius, Inc., “
Legacy Fast Radius
”), effected by the merger of Merger Sub with and into Legacy Fast Radius, with Legacy Fast Radius surviving the merger as a wholly owned subsidiary of the Company (the “
Merger
,” and, together with the other transactions contemplated by the Merger Agreement, the “
Business Combination
”). On the Closing Date, and in connection with the Closing, we changed our name from ECP Environmental Growth Opportunities Corp. to Fast Radius, Inc. Unless the context otherwise requires, the terms “we,” “us,” “our,” “Fast Radius,” and the “Company” refers to the registrant and its subsidiaries, including Legacy Fast Radius, after the Closing, and “ENNV” refers to the registrant prior to the Closing.
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”). All statements other than statements of historical facts contained in this prospectus, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that 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, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of important risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the section in this prospectus titled “Risk Factors” and the risks and uncertainties relating to:
 
   
the Company’s ability to execute its business strategy, including monetization of solutions and services provided;
 
   
the Company’s ability to scale and adapt existing technology, processes, and infrastructure to meet the needs of its business;
 
   
the Company’s ability to realize the benefits expected from the Business Combination;
 
   
the Company’s ability to continue to develop new solutions and innovations to meet constantly evolving customer demands;
 
   
the Company’s ability to acquire or make investments in other businesses, patents, technologies, solutions, or services to grow the business;
 
   
the Company’s ability to compete in the markets it serves;
 
   
the Company’s ability to increase brand awareness;
 
   
the Company’s ability to develop, design, and sell solutions that are differentiated from those of competitors;
 
   
the Company’s ability to anticipate the impact of the
COVID-19
pandemic and its effect on business and financial conditions;
 
   
the Company’s ability to manage risks associated with operational changes in response to the
COVID-19
pandemic;
 
   
the Company’s ability to retain and hire necessary employees;
 
   
the Company’s ability to attract, train, and retain effective officers, key employees or directors;
 
   
the Company’s ability to enhance future operating and financial results;
 
   
the Company’s ability to comply with laws and regulations applicable to its business;
 
   
the Company’s ability to stay abreast of modified or new laws and regulations applying to its business, including trade export and privacy regulations;
 
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the Company’s ability to anticipate the impact of, and response to, new accounting standards;
 
   
the Company’s ability to respond to fluctuations in foreign currency exchange rates and political unrest and regulatory changes in international markets from various events;
 
   
the Company’s ability to anticipate the significance and timing of contractual obligations;
 
   
the Company’s ability to maintain key strategic relationships with customers and suppliers;
 
   
the Company’s ability to respond to uncertainties associated with solution development and market acceptance;
 
   
the Company’s ability to successfully defend litigation;
 
   
the Company’s ability to upgrade and maintain information technology systems;
 
   
the Company’s ability to acquire and protect intellectual property;
 
   
the Company’s ability to anticipate rapid technological changes;
 
   
the Company’s ability to meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness;
 
   
the Company’s ability to maintain the listing of its securities on NASDAQ or another national securities exchange;
 
   
the Company’s ability to effectively respond to general economic and business conditions;
 
   
the Company’s ability to implement and maintain effective internal controls over financial reporting;
 
   
the Company’s ability to obtain additional capital, including through the use of the debt markets;
 
   
the Company’s ability to successfully deploy the proceeds from the Business Combination and the PIPE Investment (as defined below);
 
   
the Company’s ability to continue as a going concern;
 
   
the fluctuation of operating results from period to period due to a number of factors, including the pace of customer adoption of our solutions;
 
   
increasing competition in the advanced manufacturing industry;
 
   
the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, and demographic trends; and
 
   
any defects in new solutions or enhancements to existing solutions.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. Some of these risks and uncertainties may in the future be amplified by the
COVID-19
pandemic. Additionally, new risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, the forward-looking statements in this prospectus may not prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
You should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
 
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PROSPECTUS SUMMARY
This summary highlights, and is qualified in its entirety by, the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information that may be important to you in making your investment decision. You should read this entire prospectus carefully, especially the “Risk Factors” section and our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our Common Stock or Warrants.
Unless the context otherwise requires, references in this prospectus to “we,” “our,” “Fast Radius” and the “Company” refer to the business and operations of Legacy Fast Radius and its consolidated subsidiaries prior to the Business Combination and to Fast Radius, Inc. (formerly known as ECP Environmental Growth Opportunities Corp.) and its consolidated subsidiaries following the consummation of the Business Combination.
Our Mission
Our mission is to Make New Things Possible to advance the state of the world. We believe in the importance of
manufacturing-not
just for the things we make, but the things we make possible. We also believe that how the world currently makes and moves things is fundamentally broken and that traditional global supply chains are rigid, wasteful, and inaccessible. Our vision is to build a new infrastructure to design, make, and move physical products in the digital age.
Company Overview
Fast Radius is a leading cloud manufacturing and digital supply chain company. Founded in 2017, Fast Radius is headquartered in Chicago with offices in Atlanta, Louisville, and Singapore and microfactories in Chicago and at the United Parcel Service (“
UPS
”) Worldport facility in Louisville, Kentucky. Fast Radius has approximately 300 full-time employees and works with companies across industries and throughout the product design and manufacturing lifecycle.
Since 2017, we have served more than 2,800 customers, produced over 14 million parts, and our Cloud Manufacturing Platform has evaluated over 128,000 unique designs. We serve customers of all sizes and across industries, including early-stage
start-ups,
established
mid-size
companies, and larger firms, including over 45 of the Fortune 500.
We have built and our Cloud Manufacturing Platform which includes both physical infrastructure - Fast Radius microfactories and third-party supplier factories - and a proprietary digital infrastructure software layer. Our Cloud Manufacturing Platform supports engineers, product developers, and supply chain professionals across what we consider the three critical stages of product design and manufacturing: Design, Make, and Move:
 
   
Design
: Via an online experience, the platform provides engineers with real-time design insights and feedback across a range of manufacturing technologies and materials to help engineers optimize designs, improve yields, and select the right approach to manufacture their parts. Engineers also have the ability to compare technologies and materials. This machine-learning powered tool leverages proprietary data captured during the production of parts in our microfactories.
 
   
Make
: When customers are ready to order parts, the platform provides a modern
front-end
user experience to facilitate the ordering and procurement process for industrial-grade parts. Users also have access to a set of features that shows exactly where their part is in the production process, enhancing visibility into production and order status.
 
   
Move
: The platform allows engineers to store part designs in our Virtual Warehouse and eliminate the need for expensive and wasteful physical storage.
 
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We believe our Cloud Manufacturing Platform ultimately enables a new infrastructure to make and move physical
products-one
that is more flexible, sustainable, and accessible than current global supply chains.
We offer a wide range of manufacturing technologies including additive manufacturing (often referred to as 3D Printing), Computer Numerically Controlled (“
CNC
”) machining, injection molding, sheet metal, urethane casting, and other manufacturing methods. We offer these manufacturing capabilities through our own microfactories as well as a network of curated third-party suppliers.
As of March 2022, we had four microfactories leveraging the following manufacturing technologies: (1) CNC machining, (2) Carbon DLS, (3) HP
Multi-Jet
Fusion, and (4) Stratasys FDM. Our Chicago location was recognized in 2018 by the World Economic Forum as one of the nine most advanced factories in the world embracing the tools of Industry 4.0. In addition to our full microfactories, we also have a suite of other technologies that we offer for small scale application and development, including machines from Formlabs and Desktop Metal. We plan to continue expanding the breadth of our microfactories in the coming years across a wide range of manufacturing technologies. In December 2021, we launched a new solution that allows customers to partner with us to design and stand up customized advanced microfactories, which are owned and operated by Fast Radius but tailored to a customer’s production needs and manufacturing methods.
In addition to our own microfactories, we utilize a network of third-party suppliers to produce parts on behalf of our customers. These suppliers are curated and vetted for quality and key capabilities.
 
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We have grown our revenue at a compound annual growth rate (“
CAGR
”) of approximately 60% from 2017 through 2021. Since 2017, we have served more than 2,800 customers, produced over 14 million parts, and our Cloud Manufacturing Platform has evaluated over 128,000 unique designs. This growth has been driven by both an increase in revenue of existing customers and the
on-boarding
of new customers to our platform. Our Net Promoter Score (“
NPS
”) as of April 2022 was 81,
1
which exceeds the industry average NPS of 51% for manufacturing companies and is reflective of our commitment to providing a best in class customer service experience.
2
We are an early-stage company with a history of losses since our incorporation in 2017 and have funded our cash flow deficits primarily through the issuance of capital stock and debt. As of March 31, 2022, we had an accumulated deficit of approximately $192.9 million, including net losses of approximately $44.6 million and $12.8 million for the three months ended March 31, 2022 and 2021, respectively. We expect to continue to incur operating losses and negative cash flow as we continue to invest significantly in research and development efforts, sales and marketing and other aspects of our business. See the section entitled “
Risk Factors—Risks Related to Our Operating History
” for more information.
We are led by
Co-Founder
and CEO Lou Rassey, a manufacturing industry pioneer who helped architect and lead McKinsey & Company’s work in Industry 4.0. Our leadership team includes other experienced, visionary executives with proven track records across high-growth technology businesses. We believe the team we have assembled is uniquely suited to continue scaling our Cloud Manufacturing Platform.
Background
We were incorporated as ECP Environmental Growth Opportunities Corp. on October 29, 2020. On February 4, 2022, we consummated the Business Combination with Legacy Fast Radius and changed our name to Fast Radius, Inc. The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP (“
GAAP
”). Under this method of accounting, ENNV has been treated as the “accounting acquiree” and Legacy Fast Radius as the “accounting acquirer” for financial reporting purposes.
The Business Combination involved the consummation of the following transactions on the Closing Date:
 
   
Merger Sub merged with and into Legacy Fast Radius, with Legacy Fast Radius surviving as a wholly-owned subsidiary of the Company;
 
   
each share of Legacy Fast Radius capital stock that was issued and outstanding was cancelled and converted into the right to receive (i) approximately 2.1 shares of Common Stock and (ii) approximately 0.3 Merger Earnout Shares;
 
   
each outstanding and unexercised option to purchase Legacy Fast Radius common stock was assumed by the Company and converted into an option (each such option, an “
Exchanged Option
”) to purchase approximately 2.3 shares of Common Stock. Each Exchanged Option will continue to be governed by substantially the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding Legacy Fast Radius option immediately prior to the effective time of the Merger;
 
1
 
Our Net Promoter Score is a three-month rolling average of our NPS score derived through regular online surveys we send to customers after parts have been shipped to and/or received by the customer.
2
 
NPS is a score that measures the likelihood of users to recommend a company’s products or services to others, and ranges from a low of negative 100 to high of positive 100, and benchmark scores can vary significantly by industry. A score greater than zero represents a company having more promoters than detractors. Industry average NPS is based on survey data from Clearly Rated:
https://www.clearlyrated.com/solutions/2021-nps-benchmarks-for-b2b-service-industries/.
 
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each outstanding restricted stock award relating to shares of Legacy Fast Radius common stock converted into restricted stock awards (each such restricted stock award, an “
Exchanged Restricted Stock Award
”) representing an aggregate of 2.3 shares of Common Stock;
 
   
each restricted stock unit relating to Legacy Fast Radius common stock (each, a “
Legacy Fast Radius RSU
”) that, pursuant to its terms, vested upon the Closing subject to continued service of the applicable holder thereof through the Closing or that was vested but not settled as of the Closing (each, a “
Vested RSU
”), became fully vested immediately prior to the Effective Time and was canceled and automatically converted into the right to receive (i) approximately 2.1 shares of Common Stock and (ii) approximately 0.3 Merger Earnout Shares;
 
   
each outstanding Legacy Fast Radius RSU (other than Vested RSUs) converted into an award of restricted stock units (each such restricted stock unit, an “
Exchanged RSU
”) representing an aggregate of 2.3 shares of Common Stock. Each Exchanged RSU will continue to be governed by substantially the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding Legacy Fast Radius RSU immediately prior to the effective time of the Merger;
 
   
each share of common stock, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time was cancelled and automatically converted into one validly issued, fully paid and nonassessable share of Legacy Fast Radius common stock held by the Company;
 
   
all of the outstanding 8,625,000 shares of the Company’s Class B common stock, par value of $0.0001 per share (the “
Class
 B Common Stock
”), held by ENNV Holdings, LLC (the “
Sponsor
”), Goldman Sachs Asset Management, L.P., in its capacity as investment adviser on behalf of its clients (“
GSAM
”), and the Company’s independent directors prior to the Closing were converted into an aggregate 8,625,000 shares of Common Stock;
 
   
all of the ENNV units were separated into one share of Common Stock and
one-quarter
(1/4) of one Warrant to purchase one share of Common Stock at an exercise price of $11.50 per share; and
 
   
the Company issued an aggregate of 125,000 shares of Common Stock to GSAM pursuant to the Forward Purchase Agreement.
In connection with the Business Combination, ENNV entered into a series of separate subscription agreements with a number of accredited investors subscribing for shares of ENNV’s common stock, par value $0.0001 per share (“
ENNV Class
 A Common Stock
,” and such parties, the “
Subscribers
”), pursuant to which the Subscribers agreed to purchase, and ENNV agreed to sell to the Subscribers, an aggregate of up to 7,500,000 shares of ENNV Class A Common Stock, for a purchase price of $10.00 per share and at an aggregate purchase price of up to $75.0 million. Immediately prior to the Closing of the Business Combination, we issued and sold 7,500,000 shares of our Common Stock to the Subscribers for aggregate gross proceeds to us of $75.0 million (the “
PIPE Investment
”).
The rights of holders of our Common Stock and Warrants are governed by our Second Amended and Restated Certificate of Incorporation (the “
Charter
”), our amended and restated bylaws (the “
Bylaws
”), and the Delaware General Corporation Law (the “
DGCL
”), and, in the case of our Public Warrants, the Warrant Agreement, dated as of February 8, 2021, between the Company and American Transfer & Trust Company, LLC (the “
Warrant Agreement
”). See the section titled “
Description of Our Securities
.”
Risks Associated with Our Business
Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section titled “
Risk Factors
,” immediately following this prospectus summary. These risks relate to the following, among others:
 
   
We are an early-stage company with a history of losses. We have not been profitable historically and may not achieve or maintain profitability for any period in the future or sustain cash flow from operating activities.
 
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We have a relatively limited operating history and have experienced rapid growth, which makes evaluating our current business and future prospects difficult and may increase the risk of your investment.
 
   
We may not timely and effectively scale and adapt our existing technology, processes, and infrastructure to meet the needs of our business.
 
   
Our operating results may fluctuate significantly from
period-to-period
and may fall below expectations in any particular period, which could adversely affect the market price of our common stock.
 
   
The global
COVID-19
pandemic has significantly affected our business and operations.
 
   
We face intense and growing competition in the advanced manufacturing industry. Our inability to compete effectively with competitors could affect our ability to achieve our anticipated market penetration and achieve or sustain profitability.
 
   
The advanced manufacturing industry in which we operate is characterized by rapid technological change, requiring continual innovation and development of new solutions and innovations to meet constantly evolving customer demands.
 
   
Forecasts of our market and market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will serve a significant portion of the market or grow at similar rates, or at all.
 
   
We may experience significant delays in the design, production and launch of our advanced manufacturing solutions and enhancements to existing solutions, and we may be unable to successfully commercialize solutions on our planned timelines.
 
   
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all. If we fail to obtain additional capital on terms that are acceptable, we may not be able to implement such plans for business growth fully, if at all.
 
   
Without obtaining adequate capital funding or improving our financial performance, we may not be able to continue as a going concern.
 
   
If demand for our solutions does not grow as expected, or if market adoption of advanced manufacturing and our Cloud Manufacturing Platform does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected.
 
   
We rely on a limited number of third-party logistics providers for distribution of our products, and their failure to distribute products effectively would adversely affect our sales.
 
   
Our bookings might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenues reflected in bookings.
 
   
A real or perceived defect, security vulnerability, error or performance failure in our software or technical problems or disruptions caused by our third-party service providers could cause us to lose revenue, damage our reputation and expose us to liability.
 
   
We may not be able to adequately protect our proprietary and intellectual property rights in our data or technology.
 
   
If third parties claim that we infringe upon or otherwise violate their intellectual property rights, our business could be adversely affected.
 
   
Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes Oxley Act, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act could impair our ability to produce timely and accurate financial statements or comply with applicable regulations and have a material adverse effect on our business.
 
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We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or fail to maintain effective internal control over financial reporting, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
Corporate Information
We were incorporated in the State of Delaware on October 29, 2020 under the name ECP Environmental Growth Opportunities Corp. for the purpose of effecting a transaction such as the Business Combination and completed the ENNV IPO in February 2021. On February 4, 2022, we completed the Business Combination, and changed our name to Fast Radius, Inc. Our principal executive offices are located at 113 N. May St., Chicago, Illinois 60607. Our telephone number is
(888) 787-1629.
Our website address is
 www.fastradius.com.
Information contained on our website or connected thereto does not constitute part of, and is not incorporated by reference into, this prospectus or the registration statement of which it forms a part.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an emerging growth company as defined in the JOBS Act. We will remain an emerging growth company until the earliest of (a) December 31, 2026, (b) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which requires at least $700.0 million in market value of outstanding securities held by
non-affiliates
measured on the last business day of our second fiscal quarter, or (d) the date on which we have issued more than $1.0 billion in
non-convertible debt
securities during the previous three years.
We are also a “smaller reporting company” as defined in the Securities and Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our Common Stock held by
non-affiliates is
less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our Common Stock held by
non-affiliates is
less than $700.0 million measured on the last business day of our second fiscal quarter.
As a result, the information in this prospectus and that we provide to our investors in the future may be different than what you might receive from other public reporting companies.
 
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THE OFFERING
 
Securities offered by the selling securityholders
We are registering the resale by the selling securityholders named in this prospectus, or their permitted transferees, of up to (i) 6,891,667
 
  Warrants consisting of (A) up to 6,266,667 Private Placement Warrants and (B) up to 625,000 Forward Purchase Warrants and (ii) up to an aggregate of 83,205,293 shares of Common Stock consisting of:
 
   
up to 8,625,000 Founder Shares (as defined below);
 
   
up to 15,516,639 Warrant Shares;
 
   
up to 755,461 ECP Notes Shares;
 
   
up to 125,000 Forward Purchase Shares;
 
   
up to 7,500,000 PIPE Shares; and
 
   
up to 50,683,193 Control Shares.
 
Terms of the offering
The selling securityholders will determine if, when and how they will dispose of the securities registered pursuant to the registration statement of which this prospectus forms a part.
 
Shares of Common Stock outstanding prior to the offering
As of June 1, 2022, 74,820,884 shares of our Common Stock were issued and outstanding.
 
Shares of Common Stock outstanding after the offering
99,564,884 shares of Common Stock (assuming the exercise for cash of warrants to purchase 15,516,639 shares of our Common Stock, the purchase for cash of the 2,661,465 Option Shares, the full vesting of the 970,952 RSU Shares, and the issuance of 7,196,224 Control Earnout Shares to the selling securityholders)
 
Use of proceeds
We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the selling securityholders. We will receive the proceeds from any exercise for cash of any warrants and the Options, which we intend to use for general corporate and working capital purposes. See “
Use of Proceeds
” on page 55 for additional information. We believe the likelihood that Warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our common stock. If the trading price for our common stock is less than $11.50 per share, we believe holders of our Public Warrants and Private Placement Warrants will be unlikely to exercise their Warrants.
 
Risk factors
See “
Risk Factors
” beginning on page 8 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our securities.
 
NASDAQ symbol for our Common Stock
“FSRD”
 
 
NASDAQ symbol for our Public Warrants
“FSRDW”
 
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RISK FACTORS
You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our Common Stock or Warrants. Our business, financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our Common Stock and Warrants could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.
Risks Related to Our Business and Industry
Risks Related to Our Operating History
We are an early-stage company with a history of losses. We have not been profitable historically and may not achieve or maintain profitability for any period in the future or sustain cash flow from operating activities.
We have a history of losses since our incorporation in 2017 and have funded our cash flow deficits primarily through the issuance of capital stock and debt. As of March 31, 2022, we had an accumulated deficit of approximately $192.9 million, including net losses of approximately $44.6 million and $12.8 million for the three months ended March 31, 2022 and 2021, respectively. We expect to continue to incur operating losses and negative cash flow as we continue to invest significantly in research and development efforts, sales and marketing and other aspects of our business.
We cannot make any assurances that these investments will result in increased revenue or growth in our business. Additionally, as a public company, we expect our legal, accounting, and other expenses to be substantially higher than the expenses we incurred as a private company. Furthermore, we may encounter unforeseen issues that require us to incur additional costs. Any such increased expenditures make it harder for us to achieve and maintain future profitability. Revenue growth and growth in our bookings and customer base may not be sustainable, and we may not achieve sufficient revenue to achieve or maintain profitability. While we have a revenue history, we expect to bring new advanced manufacturing solutions to market that we anticipate will generate a substantial portion of our future revenue, and it is difficult for us to predict our future operating results. We may incur significant losses in the future for a number of reasons, including due to the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown events. As a result, our losses may exceed forecasts, we may incur significant losses for the foreseeable future, and we may not achieve profitability when expected, or at all, and even if we do, we may not be able to maintain or increase profitability. Accordingly, if we are not able to achieve or maintain profitability and we incur significant losses in the future, the market price of our common stock may decline, and you could lose part or all of your investment.
We have a relatively limited operating history and have experienced rapid growth, which makes evaluating our current business and future prospects difficult and may increase the risk of your investment.
Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly evolving industries, as we continue to grow our business. If our assumptions regarding these uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our business could suffer and the trading price of our stock may decline.
It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. If actual results differ from our estimates or we
 
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adjust our estimates in future periods, our operating results and financial position could be materially affected. The financial projections included our filings with the SEC are based on our estimates and assumptions as of the dates indicated in such filings concerning various factors, which are subject to significant risks and uncertainties, many of which are beyond our control, and therefore actual results may differ materially. These estimates and assumptions include, among others: the continuing effects of the
COVID-19
pandemic, projections of the size and growth of the overall advanced manufacturing industry, revenue growth for our existing solutions, our available cash and cash requirements, our ability to develop and successfully commercialize new solutions and services, including new software applications and services, and the mix and gross margins of internal and outsourced production revenue. These estimates and assumptions require the exercise of judgment and may not occur and are subject to various economic, business, competitive, regulatory, legislative, political and other factors beyond our control, including, for example, changes in customer demand, increased costs in our supply chain or raw materials, and market acceptance of our solutions and services. There can be no assurance that the prospective results will be realized or that actual results will not be significantly higher or lower than estimated. Our failure to achieve our projected results could harm the trading price of the Company’s securities and the Company’s financial position.
We may not timely and effectively scale and adapt our existing technology, processes, and infrastructure to meet the needs of our business.
A key element to our continued growth is the ability to quickly and efficiently quote an increasing number of product developer and engineer submissions across geographic regions and to manufacture the related parts. This will require us to timely and effectively scale and adapt our existing technology, processes, and infrastructure to meet the needs of our business. With respect to our Cloud Manufacturing Platform and quoting technology, it may become increasingly difficult to maintain and improve their performance, especially during periods of heavy usage and as our solutions become more complex and our user traffic increases across geographic regions. Similarly, our Cloud Manufacturing Platform may not enable us to process the large numbers of unique designs and efficiently manufacture the related parts in a timely fashion to meet the needs of product developers and engineers as our business continues to grow. Any failure in our ability to timely and effectively scale and adapt our existing technology, processes and infrastructure could negatively impact our ability to retain existing customers and attract new customers, damage our reputation and brand, result in lost revenue, and otherwise substantially harm our business and results of operations.
Our operating results may fluctuate significantly from
period-to-period
and may fall below expectations in any particular period, which could adversely affect the market price of our common stock.
Our quarterly results of operations may fluctuate significantly from
period-to-period.
Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. If our revenue or operating results fall below the expectations of investors or any securities analysts that follow our company in any period, the price of our common stock would likely decline. Each of the risks described in this section, as well as other factors, may affect our operating results. For example, factors that may cause our operating results to fluctuate include:
 
   
the degree of market acceptance of our Cloud Manufacturing Platform and related solutions;
 
   
our ability to compete with competitors and new entrants into our markets;
 
   
changes in our pricing policies or those of our competitors, including our response to price competition;
 
   
the effectiveness of our securing new orders and fulfilling existing orders;
 
   
the adoption and capital expenditure cycles of our customers’ sales cycle, and seasonality among our customers;
 
   
the impact of the
COVID-19
pandemic on our customers, suppliers, manufacturers, and operations;
 
   
the mix of products that we sell and the cost of manufacturing during any period;
 
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the cost to acquire new customers through our various customer acquisition channels, including digital marketing, inside sales, and business development;
 
   
The financial position of our customers;
 
   
the retention rates and average revenue and gross margins of existing and new customers;
 
   
the timing of our sales and deliveries of products to customers;
 
   
changes in the amount that we spend to develop and manufacture new solutions or technologies;
 
   
timing of expenditures to develop and bring to market new or enhanced solutions and the generation of revenue from those solutions;
 
   
changes in the cost of satisfying our warranty obligations and servicing products;
 
   
litigation-related expenses and/or liabilities;
 
   
the effectiveness of our internal controls and ability to remediate the material weaknesses in our internal control over financial reporting;
 
   
unforeseen liabilities or difficulties in integrating our acquisitions or newly acquired businesses;
 
   
our ability to collect against our accounts receivables balances from our customers in a timely manner, or at all;
 
   
disruptions to our internal and third-party supplier facilities and processes;
 
   
disruptions to our information technology systems or our third-party suppliers;
 
   
disruptions to our global supply chain, including raw materials availability;
 
   
the geographic distribution of our sales;
 
   
general economic and industry conditions that affect customer demand; and
 
   
changes in accounting rules and tax laws.
In addition, for our more complex solutions, which may require additional facilities investment and installation support, potential customers may spend a substantial amount of time performing internal assessments prior to making a purchase decision. This may cause us to devote significant effort in advance of a potential sale without any guarantee of receiving any related revenues. As a result, revenues and operating results for future periods are difficult to predict with any significant degree of certainty, which could lead to adverse effects on our inventory levels and overall financial condition. Accordingly, you should not rely on quarter-over-quarter and year-over-year comparisons of our results as an indicator of our future performance.
The global
COVID-19
pandemic has significantly affected our business and operations.
The
COVID-19
pandemic and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide. In light of the uncertain situation relating to the spread of
COVID-19,
we have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers, and the communities in which we operate. These measures include substantial modifications to employee travel policies, office closures as employees are advised to work from home, and cancelled or shifted conferences and other events to virtual-only.
The
COVID-19
pandemic has also created many negative headwinds that present risks to our business and results of operations. For example, it has generally disrupted the operations of our customers and prospective customers, and may continue to disrupt their operations, including as a result of travel restrictions and/or business shutdowns, uncertainty in the financial markets or other harm to their business and financial results. These disruptions caused us to reduce marketing and planned capital expenditures during the second quarter of 2020. Further, in May 2020, we conducted a reduction in force as a result of reduced demand for our solutions and uncertainty about future revenues.
Because the future effects of the
COVID-19
pandemic are unpredictable, the impact could be more prolonged and significant in the future. These disruptions could result in further reductions to capital expenditure budgets,
 
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delayed purchasing decisions, longer sales cycles, extended payment terms or missed payments, and postponed or canceled projects, any of which would negatively impact our business and operating results, including sales and cash flows. We cannot predict the long-term impact that the
COVID-19
pandemic may have on our business and cannot guarantee that it will not be materially negative. Although vaccines have become available to the public and states, including Illinois where our headquarters is located, have begun to ease certain restrictions, we continue to monitor the situation and may adjust our current policies as more information and public health guidance become available. The ongoing effects of the
COVID-19
pandemic and/or the precautionary measures that we have adopted may create operational and other challenges, any of which could harm our business and results of operations.
Historically, a significant portion of our field sales, customer training events and other application services have been conducted in person, and the rollout of our new solutions has historically been supported by our participation at industry conferences. Currently, as a result of the work and travel restrictions related to the
COVID-19
pandemic, and the precautionary measures that we have adopted, most of our field sales and professional services activities are being conducted remotely, which has resulted in a decrease in our travel expenditures. However, we have begun
in-person
interactions at trade shows and other customer events where permitted. We expect our travel expenditures to increase in the future, which could negatively impact our financial condition and results of operations. As of the date of this prospectus, we do not yet know the extent of the negative impact of such restrictions and precautionary measures on our ability to attract new customers or retain and expand our relationships with existing customers over the near and long term.
In addition, many of our suppliers may experience operational challenges as a result of
COVID-19,
which in turn may destabilize our supply chain or otherwise have an adverse effect on our ability to provide products to our customers. Our suppliers may have to temporarily close a facility for disinfecting after employees test positive for
COVID-19,
face staffing shortages from employees who are sick or apprehensive about coming to work or be overwhelmed by unexpected demand. To date, certain of our suppliers have experienced delays in equipment fulfillment and other logistics related to reduced operational capacity of warehouses and shipping vessel backlogs, which has caused delays in shipping products to our customers; if these trends continue, it may negatively affect our inventory and delay delivery to our customers, which in turn will adversely affect our revenue and results of operations. If our suppliers are unable to deliver the materials we require on a timely basis, we cannot guarantee that we will be able to locate alternative sources of supply for our products on acceptable terms, or at all. If we are unable to adequately purchase appropriate amounts of inventory, our business and results of operations may be materially and adversely affected.
Additionally, the
COVID-19
pandemic has impacted, and may continue to impact, our headquarters, which is our primary corporate office, sales and marketing center and has also impacted our microfactories, including through the effects of facility closures, reductions in operating hours and other social distancing efforts. For example, if even a small number of our employees who work in clusters relating to critical functions such as manufacturing, procurement, supply chain, and research and development, test positive for
COVID-19,
the entire business function could be temporarily shut down to ensure the safety of our employees and the effectiveness of business would be severely impacted. Additionally, while Illinois and other states have begun to ease restrictions on
in-person
operations, we cannot predict whether these conditions and concerns will continue or whether we will experience more significant or frequent disruptions in the future, including the complete closure of one or more of our facilities. Furthermore, as a result of the
COVID-19
pandemic, we have encouraged all employees who are able to do so to work remotely on a full-time or partial basis. It is possible that widespread remote work arrangements may have a negative impact on our operations, the execution of our business plans, the productivity and availability of key personnel and other employees necessary to conduct our business, and on third-party service providers who perform critical services for us, or otherwise cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions. If a natural disaster, power outage, connectivity issue or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The increase in remote working may also result in increased consumer privacy, data security and fraud risks, and
 
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our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the
COVID-19
pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.
More generally, the
COVID-19
pandemic has had, and may continue to have, adverse effects on economies and financial markets globally, leading to an economic downturn, which may decrease technology spending generally and could adversely affect demand for our Cloud Manufacturing Platform and services. It is not possible at this time to estimate the full impact that
COVID-19
will have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.
To the extent the
COVID-19
pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “
Risk Factors
” section, including but not limited to, those related to our ability to increase sales to existing and new customers, continue to perform on existing contracts, develop and deploy new technologies, expand our marketing capabilities and sales organization, generate sufficient cash flow to service our indebtedness, and comply with the covenants in the agreements that govern our indebtedness.
Risks Related to the Advanced Manufacturing Industry
We face intense and growing competition in the advanced manufacturing industry. Our inability to compete effectively with our competitors could affect our ability to achieve our anticipated market penetration and achieve or sustain profitability.
The advanced manufacturing industry in which we operate is highly competitive. We compete for customers with a wide variety of manufacturers of custom parts and software providers. Some of our existing and potential competitors are researching, designing, developing, and marketing other types of solutions and services that may render our existing or future solutions obsolete, uneconomical, or less competitive. Existing and potential competitors may also have substantially greater financial, technical, marketing and sales, manufacturing, distribution and other resources than us, including name recognition, as well as experience and expertise in intellectual property rights and operating within certain international markets or industry verticals, any of which may enable them to compete effectively against us. Moreover, many of our competitors have more extensive customer and partner relationships than we do, and may therefore be in a better position to identify and respond to market developments or changes in customer demands, including successfully developing technologies that outperform our technologies. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features.
Future competition may arise from the development of allied or related techniques for equipment, materials, software and services that are not encompassed by our patents, from the issuance of patents to other companies that may inhibit our ability to develop certain solutions and from improvements to existing technologies.
We intend to continue to follow a strategy of continuing product development and microfactory network expansion to enhance our competitive position to the extent practicable. But we cannot assure you that we will be able to maintain our current position or continue to compete successfully against current and future sources of competition. If we do not keep pace with technological change and introduce new solutions, services, software, and technologies, demand for our solutions may decline, and our operating results may suffer.
Increased consolidation among our customers, suppliers and competitors in the advanced manufacturing industry may have an adverse effect on our business and results of operations.
Increased consolidation in the advanced manufacturing industry among our customers, suppliers and competitors may adversely affect our business and results of operations. Customer consolidation could lead to changes in buying patterns, slowdowns in spending, and impact our distribution channels. Moreover, the significant
 
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purchasing power of these large companies can increase pricing and competitive pressures for us, including the potential for decreases in our average selling prices. If one of our customers is acquired by another company that does not rely on us to provide it with solutions or relies on another provider of similar products, we may lose that customer’s business. Any of the foregoing results will adversely affect our business, financial condition, and results of operations.
In addition, supplier consolidation may lead to increased prices of materials for our products, deployment delays and/or a disruption in output. In addition, such consolidation may exacerbate the risks relating to our dependence on a small number of suppliers for certain materials that are required to manufacture our products.
The advanced manufacturing industry in which we operate is characterized by rapid technological change, requiring continual innovation and development of new solutions and innovations to meet constantly evolving customer demands.
Our revenues are primarily derived from the sale of manufactured parts and related materials and services. The advanced manufacturing market is subject to rapid innovation and technological change and our customers’ needs are rapidly evolving. While we intend to invest substantial resources to remain on the forefront of technological development, continuing advances in advanced manufacturing technology, changes in customer requirements and preferences and the emergence of new standards, regulations and certifications could adversely affect adoption of our solutions. Our ability to compete in the advanced manufacturing market depends, in large part, on our success in developing and introducing new manufacturing capabilities, new solutions, new features and functionality within our Cloud Manufacturing Platform, and in improving our existing solutions and technology and qualifying new materials which our systems can support. We believe that we must continuously enhance and expand the functionality and features of our solutions and technologies in order to remain competitive. However, we may not be able to:
 
   
predict future customer demand;
 
   
develop cost effective new solutions and technologies that address the increasingly complex needs of prospective customers;
 
   
enhance our existing solutions and technologies;
 
   
respond to technological advances and emerging industry standards and certifications on a cost-effective and timely basis;
 
   
adequately protect our intellectual property as we develop new solutions and technologies;
 
   
identify the appropriate technology or solutions to which to devote our resources; or
 
   
ensure the availability of cash resources to fund research and development.
Even if we successfully introduce new advanced manufacturing solutions and technologies and enhance our existing solutions and technologies, it is possible that these will eventually supplant our existing solutions or that our competitors will develop new solutions and technologies that will replace our own. As a result, any of our solutions may be rendered obsolete or uneconomical by our or our competitors’ technological advances, leading to a loss in market share, decline in revenue and adverse effects to our business and prospects.
Forecasts of our market and market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will serve a significant portion of the market or grow at similar rates, or at all.
Market opportunity estimates and growth forecasts included in this prospectus, including the expected size and growth of the markets for various manufacturing technologies and other markets in which we participate, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate.
 
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Our ability to serve a significant portion of this estimated market is subject to many factors, including competitive constraints, capital expenditure requirements, and our success in implementing our business strategy, which is subject to many risks and uncertainties. Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our future growth is subject to many factors, including market adoption of our solutions, which is subject to many risks and uncertainties. Accordingly, the forecasts and estimates of market size and growth described in this prospectus, including internally generated estimates, should not be taken as indicative of our future growth. In addition, these forecasts may not adequately consider the impact of the current global
COVID-19
pandemic, and we cannot assure you that these forecasts will not be materially and adversely affected as a result.
Declines in the prices of our solutions and services, or in our volume of sales, together with our relatively inflexible cost structure, may adversely affect our financial results.
Our business is subject to price competition. Such price competition may adversely affect our results of operations, especially during periods of decreased demand. Decreased demand also adversely impacts the volume of our sales. If our business is not able to offset price reductions resulting from these pressures, or decreased volume of sales due to contractions in the market, by improved operating efficiencies and reduced expenditures, then our operating results will be adversely affected.
Certain of our operating costs, including certain of our software costs and costs to lease manufacturing equipment, are fixed, and cannot readily be reduced, which has an impact on our operating results. To the extent the demand for our solutions slows, or the advanced manufacturing market contracts, we may be faced with excess manufacturing capacity and related costs that cannot readily be reduced, which will adversely impact our financial condition and results of operations. Conversely, because we generally do not have long-term supply agreements, we are subject to the risk of significant cost increases by our suppliers.
We may experience significant delays in the design, production and launch of our advanced manufacturing solutions and enhancements to existing solutions, and we may be unable to successfully commercialize solutions on our planned timelines.
We have several advanced manufacturing solutions and enhancements to existing solutions that are still under development. There are often delays in the design, testing, manufacture and commercial release of new solutions, and any delay in the launch of our solutions could materially damage our brand, business, growth prospects, financial condition, and operating results. Even if we successfully complete the design, testing and manufacture for one or all of our solutions or enhancements under development, we may fail to develop a commercially successful solution on the timeline we expect for a number of reasons, including:
 
   
misalignment between the solutions and customer needs;
 
   
length of sales cycles;
 
   
insufficient solution innovation;
 
   
solution quality and performance issues;
 
   
insufficient resources or qualified personnel to develop the solution;
 
   
failure of the solution to perform in accordance with the customer’s expectations and industry standards;
 
   
inability to procure parts of adequate quality needed to build a product on commercially acceptable terms, or at all;
 
   
insufficient labor or process stability to build the product to required specifications;
 
   
ineffective distribution, sales, and marketing;
 
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delay in obtaining any required regulatory approvals;
 
   
the impact of the
COVID-19
pandemic on production and demand for our solutions;
 
   
unexpected production costs and delays; or
 
   
release of competitive solutions.
Our success in the market for the new solutions we develop will depend in part on our ability to prove our new solutions’ capabilities in a timely manner. Until demonstration, our customers may not believe that our solutions and/or technology have the capabilities they were designed to have or that we believe they have. Furthermore, even if we do successfully demonstrate our solutions’ capabilities, potential customers may be more comfortable doing business with a competitor, including larger and more established companies, may take longer than expected to make the decision to order our solutions, or may not have the budget or decision making authority to purchase the solution. Significant revenue from new solution investments may not be achieved for a number of years, if at all. If the timing of our launch of new solutions and/or of our customers’ acceptance of such solutions is different than our assumptions, our revenue and results of operations may be adversely affected.
Changes in our solutions mix may impact our gross margins and financial performance.
Our financial performance may be affected by the mix of solutions and services we sell during a given period, and our gross margin may fluctuate from period to period as a result of changes in solution pricing, manufacturing costs and solutions mix. We also expect to continue to offer solutions at a variety of price points. Sales of certain of our solutions have, or are expected to have, higher gross margin contributions than others. If our solution mix shifts too far into lower gross margin solutions, or we are unable to maintain or increase gross margins, and we are not able to sufficiently reduce the engineering, production and other costs associated with those solutions or substantially increase the sales of our higher gross margin solutions, our profitability could be reduced. Additionally, the introduction of new solutions or services may further heighten quarterly fluctuations in gross profit and gross profit margins due to manufacturing
ramp-up
and
start-up
costs. Relatedly, if our solution mix shifts such that our production rates decrease, our costs and margins may be negatively impacted. We may experience significant quarterly fluctuations in gross profit margins or operating income or loss due to the impact of the mix of solutions, channels, or geographic areas in which we sell our solutions from period to period.
Risks Related to Our Business Operations
We expect to continue to experience rapid growth and organizational change. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or attract new employees and customers.
We expect to continue to experience growth in our number of customers, sales, revenues, and headcount. We expect to continue to make significant investments in our business, including investments in our infrastructure, software, technology, personnel headcount, facilities, marketing, and sales efforts. If our business does not generate the level of revenue required to support our investment, our net sales and profitability will be adversely affected.
To manage growth in our operations and personnel, we will need to continue to scale and improve our operational, financial, and management controls, and our reporting systems and procedures, which will require significant capital expenditures, increasing our cost of operations and the reallocation of valuable management resources. As we scale, it may become more difficult and will require additional capital expenditures to maintain and increase the productivity of our employees, expand production to address the needs of our actual and prospective customers, to further develop and enhance our solutions, and remain competitive against our competitors’ solutions. These enhancements and improvements will require significant capital expenditures, investments in additional headcount and other operating expenditures and allocation of valuable management and
 
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employee resources. Our future financial performance and our ability to execute on our business plan will depend, in part, on our ability to effectively manage any future growth and expansion. There are no guarantees we will be able to do so in an efficient or timely manner, or at all.
We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all. If we fail to obtain additional capital on terms that are acceptable, we may not be able to implement such plans for business growth fully, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges and opportunities, including the need to develop new features or enhance our solutions, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds if our existing sources of cash and any funds generated from operations do not provide us with sufficient capital.
If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges and opportunities could be significantly impaired, and our business may be adversely affected.
Without obtaining adequate capital funding or improving our financial performance, we may not be able to continue as a going concern.
Our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern without additional capital raising activities. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. Similarly, Legacy Fast Radius’ independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of, and for the year ended, December 31, 2021, describing the existence of substantial doubt about our ability to continue as a going concern. We do not believe that the funds raised through the Business Combination will enable us to fund our expansion plans, realize our business objectives and to continue as a going concern for the next twelve months. Failure to secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, financial condition, and ability to achieve our intended business objectives.
We are dependent on the continued services and performance of our senior management and other key employees, as well as on our ability to successfully hire, train, manage and retain qualified personnel.
Our future performance depends on the continued services and contributions of our executive team, founders, and other key employees, including, in particular, our
co-founder
and chief executive officer, Lou Rassey, to execute on our business plan and to identify and pursue new opportunities and solution innovations.
Such persons may resign at any time and the loss of their services could delay or prevent the successful implementation of our strategy, commercialization of new applications for our systems or other solutions, or could otherwise adversely affect our ability to manage our company effectively and carry out our business plan. There is no assurance that if any senior executive, founder, or other key employee leaves in the future, we will be able to rapidly replace him or her and transition smoothly towards his or her successor, without any adverse impact on our operations.
 
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Our ability to successfully pursue our growth strategy will also depend on our ability to attract, motivate, and retain existing and new personnel. We experience intense competition for qualified senior management and other key personnel (including scientific, technical, manufacturing, engineering, financial and sales personnel) in the advanced manufacturing industry, especially in the greater Chicago area. Our personnel are generally employed on an
at-will
basis, which means that they could terminate their employment with us at any time. There can be no assurance that we will be able to retain our current key personnel or attract new persons to join our organization in the future. Some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. These pressures could result in increased costs in order to provide competitive compensation packages to attract and retain key personnel. Moreover, new employees may not be as productive as we expect since we may face challenges in adequately integrating them into our workforce and culture. If we cannot attract and retain sufficiently qualified technical employees for our research and development activities, as well as experienced sales and marketing personnel, we may be unable to develop and commercialize new solutions and enhancements to existing solutions.
If demand for our solutions does not grow as expected, or if market adoption of advanced manufacturing and our Cloud Manufacturing Platform does not continue to develop, or develops more slowly than expected, our revenues may stagnate or decline, and our business may be adversely affected.
We believe that the industrial manufacturing market, which today is dominated by conventional manufacturing processes that do not involve advanced manufacturing technology, is undergoing a shift towards advanced manufacturing. We may not be able to develop effective strategies to raise awareness among potential customers of the benefits of advanced manufacturing technologies or our Cloud Manufacturing Platform, or our solutions may not address the specific needs or provide the level of functionality required by potential customers to encourage the continuation of this shift towards advanced manufacturing and our Cloud Manufacturing Platform. We must anticipate, sometimes several years in advance, the direction that the industrial manufacturing market is taking. We may not correctly anticipate the direction, which may lead us to invest in the wrong solutions, which may adversely affect our results of operations and financial condition. If advanced manufacturing technology does not continue to gain broader market acceptance as an alternative to more traditional, less advanced, and less automated manufacturing processes, or if the marketplace adopts advanced manufacturing technologies that differ from our technologies, we may not be able to increase or sustain the level of sales of our solutions, and our operating results would be adversely affected as a result.
Our success also depends in part on the widespread adoption by customers of our Cloud Manufacturing Platform as an alternative to traditional methods of communication, such as
e-mail,
phone and
in-person
communications. Currently our customers engage with us through both our Cloud Manufacturing Platform and via traditional methods of communication, such as email, phone, and
in-person
communications with our Account Executives. Existing and potential customers may need further education on the value of online platforms in general and our Cloud Manufacturing Platform in particular, and on how to integrate them into current operations. A lack of education as to how our platform operates may cause customers to prefer more traditional forms of communication or to have difficulty integrating our platform into their business. Accordingly, the adoption of our Cloud Manufacturing Platform may be slower than we anticipate. In order to attain the level of profitability we are forecasting, our customers will need to continue adopting our Cloud Manufacturing Platform to reduce our costs to serve customers. If we are unable to drive adoption of our Cloud Manufacturing Platform and customers instead prefer to rely on traditional forms of communication, we may experience slower than projected growth and our profitability will be impaired.
Our failure to meet our customers’ price expectations would adversely affect our business and results of operations.
Demand for our cloud-based solutions is sensitive to price. We believe our competitive pricing has been an important factor in our results to date. Therefore, changes in our pricing strategies can have a significant impact on our business and ability to generate revenue. Many factors, including our production and personnel costs, our
 
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competitors’ pricing and marketing strategies, our customers’ budgets, and the value our cloud-based solutions bring to our customers can significantly impact our pricing strategies. If we fail to meet our customers’ price expectations in any given period, demand for our cloud-based solutions could be negatively impacted and our business, results of operations and brand could suffer.
Our revenue model is also evolving, and we may introduce new revenue models or avenues that may not be accepted by our customers and as such will not materialize.
We rely on a limited number of third-party logistics providers for distribution of our products, and their failure to distribute our products effectively would adversely affect our sales.
We rely on a limited number of third-party logistics providers for shipping our products. Some third-party logistics providers store our products in a limited number of warehouses where they prepare and ship our products based on digital instructions. The use of a limited number of third-party logistics providers increases the risk that a fire or damage from another type of disaster at any of the warehouses may result in a disruption of our commercialization efforts. Additionally, because we use a limited number of third-party logistics providers, if there is a disruption in the distribution channels of such third-party logistics providers, our business and financial condition could be adversely impacted.
If our third-party logistics providers do not fulfill their contractual obligations to us, or refuse or fail to adequately distribute our products, such as by shipping our products to the incorrect recipient, or the agreements are terminated without adequate notice, shipments of our products, and associated revenues, would be adversely affected. In addition, we expect that it may take a significant amount of time if we were required to change our third-party logistics providers and would require significant efforts to provide the systems support required for a new provider to effectively support our operations.
Defects in new products or in enhancements to our existing products that give rise to product returns or warranty or other claims could result in material expenses, diversion of management time and attention and damage to our reputation.
Our manufacturing solutions are complex and may contain undetected defects or errors when first introduced or as enhancements are released that, despite testing, are not discovered until after a product has been used. We may not know which products are affected by defects. These defects could be systemic and could affect all of the products we shipped prior to discovery thereof. It may not be economically feasible to identify, replace or repair all affected products. In the event that the defect is severe enough or impacts customer safety, a product recall may be required. This could result in delayed market acceptance of our products or claims from customers or others, which may result in litigation, increased customer warranty, support and repair or replacement costs, damage to our reputation and business, or significant costs and diversion of support, management and engineering personnel to correct the defect or error.
We may from time to time become subject to warranty or product liability claims related to product quality issues that may require us to take remedial action and could, regardless of merit, lead us to incur significant expenses, result in diversion of management time and attention, damage to our business and reputation and brand, and cause us to fail to retain existing customers or fail to attract new customers. We generally attempt to include provisions in our agreements with customers that are designed to manage our exposure to potential liability for damages arising from defects or errors in our products. However, it is possible that these provisions may not be effective as a result of unfavorable judicial decisions or laws enacted in the future. Moreover, when such warranties are included in our agreements with customers, they generally have a service life of four years beginning from the date of product purchase and, in the event of a failure of products covered under the warranties, we may be required to repair or replace the products at the customers’ discretion.
 
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We may be unable to consistently manufacture our products to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance level.
Our products are sometimes integrated solutions with many different components that work together. As such, a quality defect in a single component can compromise the performance of the entire solution. As we continue to grow and introduce new products, and as our products incorporate increasingly sophisticated technology, it will be increasingly difficult to ensure our products are produced in the necessary quantities without sacrificing quality. There is no assurance that we or our third-party manufacturers and any component suppliers will be able to continue to manufacture our products so that they consistently achieve the product specifications and quality that our customers expect. Relatedly, certain of our materials are sourced by a single supplier and, if the supply became disrupted as a result of insufficient quality, service delays or any other factor, our manufacturing efforts may be adversely affected. Any future design issues, unforeseen manufacturing problems, such as contamination of our or such third-party facilities, equipment malfunctions, aging components, component obsolescence, business continuity issues, quality issues with components and materials sourced from third-party suppliers, or failures to strictly follow procedures or meet specifications, may have a material adverse effect on our brand, business, financial condition and operating results. Furthermore, we or our third-party manufacturers may not be able to increase manufacturing to meet anticipated demand or may experience downtime.
In order to meet our customers’ needs, we attempt to forecast demand for our products and components used for the manufacture of our products. If we fail to accurately forecast this demand, we could incur additional costs or experience manufacturing delays and may experience lost sales or significant inventory carrying costs.
The risk of manufacturing defects or quality control issues is generally higher for new products, whether produced by us or a third-party manufacturer, products that are transitioned from one manufacturer to another, particularly if manufacturing is transitioned or initiated with a manufacturer we have not worked with in the past, and products that are transferred from one manufacturing facility to another. There can be no assurance that we and our third-party manufacturers will be able to launch new products on time, transition manufacturing of existing products to new manufacturers, transition our manufacturing capabilities to a new location or transition manufacturing of any additional materials
in-house
without manufacturing defects. An inability to manufacture products and components that consistently meet specifications, in necessary quantities and at commercially acceptable costs will have a negative impact and may have a material adverse effect on our brand, business, financial condition and results of operations.
Our commercial contracts generally contain limitations on liability, and we carry liability insurance in amounts that we believe are adequate for our risk exposure and commensurate with industry norms. However, commercial terms and our insurance coverage may not be adequate or available to protect our company in all circumstances, and we might not be able to maintain adequate insurance coverage for our business in the future at an acceptable cost. Any liability claim against us that is not covered by adequate insurance could adversely affect our consolidated results of operations and financial condition. Finally, any liability claim against us may cause harm to our brand, reputation and adversely impact our business.
As manufacturing is a core part of our operations, we are exposed to accompanying risks and liabilities.
In-house
and outsourced manufacturing has been and continues to be a significant part of our business. As a result, we expect to continue to be subject to various risks associated with the manufacturing and supply of products, including the following:
 
   
If we fail to supply products in accordance with contractual terms, including terms related to time of delivery and performance specifications, we may be required to repair or replace defective products and may become liable for direct, special, consequential and other damages, even if manufacturing or delivery was outsourced;
 
   
Raw materials used in the manufacturing process, labor and other key inputs may become scarce, obsolete, and expensive, causing our costs to exceed cost projections and associated revenues;
 
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Manufacturing processes typically involve large machinery, fuels, and chemicals, any or all of which may lead to accidents involving bodily harm, destruction of facilities and environmental contamination and associated liabilities;
 
   
As our manufacturing operations expand, we expect that a portion of our manufacturing will be done in regions outside the United States, either by third-party contractors or in a factory owned by us. Any manufacturing done in such locations presents risks associated with quality control, currency exchange rates, foreign laws and customs, timing and loss risks associated with international transportation and potential adverse changes in the political, legal, and social environment in the host county;
 
   
We have made, and may be required to make, representations as to our right to supply and/or license intellectual property and to our compliance with laws. Such representations are usually supported by indemnification provisions requiring us to defend our customers and otherwise make them whole if we license or supply products that infringe on third-party technologies or violate government regulations;
 
   
As our manufacturing operations scale, so will our dependence on skilled labor at both
in-house
and third-party manufacturing facilities. If we are unable to obtain and maintain skilled labor resources, we may unable to meet customer production demands; and
 
   
With scaling production volume, demand for our products may make up a significant percentage of global volume in select categories or commodities. Such commodities could be subject to large pricing swings due to the global political, legal, and social environment and could cause our costs to exceed production and associated revenues.
Any failure to adequately manage risks associated with the manufacture and supply of materials and products could adversely affect profits from that segment of our business and/or lead to significant liabilities, which would harm our brand, business, operations, and financial condition.
As we acquire and invest in companies or technologies, we may not realize expected business, technological or financial benefits and the acquisitions or investments could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our business, results of operations, and financial condition.
As part of our business strategy, we may evaluate and make investments in, or acquisitions of, complementary companies, solutions, software, and technologies, to further grow and augment our business and solution offerings. The success of any attempts to grow our business through acquisitions to complement our business depends in part on the availability of, our ability to identify, and our ability to engage and pursue suitable acquisition candidates. We may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all.
If we do complete future acquisitions, we cannot assure you that they will ultimately strengthen our competitive position or that they will be viewed positively by customers, financial markets, or investors. Furthermore, future acquisitions could pose numerous additional risks to our operations, including:
 
   
diversion of management’s attention from existing operations;
 
   
unanticipated costs or liabilities associated with the acquisition, including risks associated with acquired intellectual property and/or technologies;
 
   
difficulties in, and the cost of, integrating personnel and cultures, operations, technologies, solutions, and services which may lead to failure to achieve the expected benefits on a timely basis or at all;
 
   
challenges in achieving strategic objectives, cost savings and other anticipated benefits;
 
   
inability to maintain relationships with key customers, suppliers, vendors and other third parties on which the purchased business relies;
 
   
the difficulty of incorporating acquired technology and rights into our solutions and solution portfolio and of maintaining quality and security standards consistent with our brand;
 
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ineffective controls, procedures and policies inherited from the acquired company or during the transition and integration;
 
   
inability to generate sufficient revenue to offset acquisition and/or investment costs;
 
   
negative impact to our results of operations because of the amortization and depreciation of amounts related to acquired intangible assets and fixed assets;
 
   
requirements to record certain acquisition-related costs and other items as current period expenses, which would have the effect of reducing our reported earnings in the period in which an acquisition is consummated;
 
   
the loss of acquired unearned revenue and unbilled unearned revenue;
 
   
recording goodwill or other long-lived asset impairment charges (if any) in the periods in which they occur, which could result in a significant charge to our earnings in any such period;
 
   
use of substantial portions of our available cash, issuance of dilutive equity or the incurrence of debt to consummate the acquisition;
 
   
potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers;
 
   
tax effects and costs of any such acquisitions, including the related integration into our tax structure and assessment of the impact on the realizability of our future tax assets or liabilities;
 
   
the potential entry into new markets in which we have little or no experience or where competitors may have stronger market positions; and
 
   
currency and regulatory risks associated with conducting operations in foreign countries.
In addition, acquired technologies and intellectual property may be rendered obsolete or uneconomical by our own or our competitors’ technological advances. Management resources may also be diverted from operating our existing businesses to certain acquisition integration challenges. If we are unable to successfully integrate acquired businesses, our anticipated revenues and profits may be lower. Our profit margins may also be lower, or diluted, following the acquisition of companies whose profit margins are less than those of our existing businesses.
We have in the past and may in the future depend on certain key customers for a significant portion of our revenues. The loss of any of these key customers or the loss of any contracted volumes could have a material adverse effect on our business.
We have historically relied on a limited number of customers for a significant portion of our revenues. For example, our largest customer for the year ended December 31, 2020 accounted for approximately 21.6% of our revenue. Although no single customer represented greater than 10% of revenue for 2021, sales to a limited number of customers may in the future account for a high percentage of our revenues in any given period, and the loss of any of these customers, or a significant reduction in sales to our existing customer base, could have a material adverse effect on our business.
Our bookings might not accurately predict our future revenue, and we might not realize all or any part of the anticipated revenues reflected in our bookings.
Our bookings represent the anticipated contract value of goods and services to be delivered in the future under contracts (or purchase orders) which have been executed as well as contracts under negotiation that are priced, fully scoped, verbally awarded, and expected to be executed shortly. Bookings vary from period to period depending on numerous factors, including the overall health of the manufacturing industry, industry consolidation, and sales performance. We expect that the majority of purchase orders included in bookings for a
 
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given fiscal quarter will be earned as revenues within the quarter or subsequent four fiscal quarters, with the specific timing determined by the nature and scope of each purchase order, but generally not to exceed one fiscal year. However, in some cases, larger than average, long-term purchase orders may have a delivery schedule that spans beyond four quarters. Executed purchase orders also may be terminated or delayed at any time by our customers for reasons beyond our control. To the extent projects are delayed, the anticipated timing of our revenues could be materially adversely affected.
In the event a customer terminates a contract or purchase order, we are generally entitled to be paid for performance rendered through the termination date and for performance provided in winding down the project. However, we are generally not entitled to receive the full amount of revenues reflected in our bookings in the event of a contract or purchase order termination. A number of factors may affect bookings and the revenues generated from our bookings, including:
 
   
the size, complexity and duration of the products being manufactured;
 
   
changes in delivery schedules; and
 
   
the cancellation or delay of a contract or purchase order.
Although we expect an increase in bookings will generally result in an increase in future revenues to be recognized over time (depending on future contract modifications, contract cancellations and other adjustments), an increase in bookings over a particular period in time does not necessarily correspond to an increase in revenues during a particular period. The timing and extent to which bookings will result in revenues depends on many factors, including the timing of commencement of work, the rate at which we perform services, schedule changes, cancellations and delays, and the nature, duration, size and complexity of the products being manufactured. As a result of these factors, bookings are not necessarily a reliable indicator of future revenues and we might not realize all or any part of the revenues from the authorizations in bookings as of any point in time.
Risks associated with our labor force could have a significant adverse effect on our business.
We had approximately 300 employees as of March 31, 2022. Various national, federal, and state labor laws govern our relationships with our employees and affect our operating costs. These laws include employee classifications as exempt or
non-exempt,
minimum wage requirements, unemployment tax rates, workers’ compensation rates, overtime, family leave, anti-discrimination laws, safety standards, payroll taxes, employment agreements, citizenship requirements and other wage and benefit requirements for employees classified as
non-exempt.
As our employees may be paid at rates that relate to the applicable minimum wage, further increases in the minimum wage could increase our labor costs. Employees may make claims against us under national, federal, or state laws, which could result in significant costs. Significant additional government regulations could materially affect our business, financial condition, and results of operations.
None of our U.S. employees are currently covered by collective bargaining or other similar labor agreements. However, if a large number of our U.S. employees were to unionize, including in the wake of any future legislation that makes it easier for employees to unionize, our business could be negatively affected. Any inability by us to negotiate collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if other employees become represented by a union, we could experience a disruption of our operations and higher labor costs.
In addition, certain of our suppliers and logistics providers may have unionized work forces. Strikes, work stoppages or slowdowns could result in slowdowns or closures of facilities where the products that we sell are manufactured or could affect the ability of our suppliers to deliver such products to us. Any interruption in the production or delivery of these products could delay or reduce availability of these products and increase our costs.
 
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Under applicable employment laws, we may not be able to enforce covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We generally enter into
non-competition
agreements with our employees. These agreements prohibit our employees from competing directly with us or working for our competitors or clients for a limited period after they cease working for us. We may be unable to enforce these agreements under the current or future laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefiting from the expertise that our former employees or consultants developed while working for us. For example, in Illinois, where most of our employees are based, applicable law imposes a number of requirements to enter into a valid
non-competition
agreement.
Regulations and evolving legislation governing issues involving climate change and sustainability could result in increased operating costs, which could have a material adverse effect on our business.
A number of international, federal, state or local governments or governmental bodies have introduced or are contemplating regulatory changes in response to the potential impact of climate change. For example, the United States Environmental Protection Agency (“
EPA
”) issued a notice of finding and determination that emissions of carbon dioxide, methane, and other greenhouse gases (“
GHGs
”) present an endangerment to human health and the environment, which allowed EPA to begin regulating emissions of GHGs under existing provisions of the Clean Air Act (“
CAA
”). Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas and countries not subject to such limitations. Given the political significance, regulatory or compliance obligations and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. These impacts may adversely impact the cost, production and financial performance of our operations.
Risks Related to Third-Parties
We rely on our software and information technology systems to manage numerous aspects of our business, including our Cloud Manufacturing Platform, and a disruption of these systems could adversely affect our business.
We rely on our information technology systems to manage numerous aspects of our business, including our Cloud Manufacturing Platform, as well as to efficiently purchase products from our suppliers, provide procurement and logistic services, ship products to our customers, receive orders from our customers, manage our accounting and financial functions, including our internal controls, and maintain our research and development data. Our information technology systems are an essential component of our business and any disruption could significantly limit our ability to manage and operate our business efficiently. A failure of our information technology systems to perform properly could disrupt our supply chain, product development and customer experience, which may lead to increased overhead costs and decreased sales and have an adverse effect on our reputation and our financial condition. In particular, our Cloud Manufacturing Platform is an essential system that virtually all of our customers depend on for their design needs. If our Cloud Manufacturing Platform were to fail, we could face adverse consequences to our results of operations, financial condition, and business reputation. In addition, during the
COVID-19
pandemic, a substantial portion of our employees have conducted work remotely, making us more dependent on potentially vulnerable communications systems and making us more vulnerable to cyberattacks.
Although we take steps and incur significant costs to secure our information technology systems, including our computer systems, intranet and internet sites, email and other telecommunications and data networks, our security measures may not be effective and our systems may be vulnerable to damage or interruption. Disruption to our information technology systems could result from power outages, computer and telecommunications
 
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failures, computer viruses, cyberattacks, ransomware attacks, phishing schemes, malware or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war, terrorism and usage errors by our employees.
Our reputation and financial condition could be adversely affected if, as a result of a significant cyber-event or otherwise:
 
   
our operations are disrupted or shut down;
 
   
our confidential, proprietary information is stolen or disclosed;
 
   
we incur costs or are required to pay fines in connection with stolen customer, employee, or other confidential information; or
 
   
we must dedicate significant resources to system repairs or increase cyber security protection.
In addition, any unauthorized access, disclosure or other loss or unauthorized use of information or data could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines. In addition, although we seek to detect and investigate all data security incidents, security breaches and other incidents of unauthorized access to our information technology systems and data can be difficult to detect and any delay in identifying such breaches or incidents may lead to increased harm and legal exposure.
The cost of investigating, mitigating, and responding to potential data security breaches and complying with applicable breach notification obligations to individuals, regulators, partners, and others can be significant. Our insurance policies may not be adequate to compensate us for the potential costs and other losses arising from such disruptions, failures, or security breaches. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, defending a suit, regardless of its merit, could be costly, divert management attention and harm our reputation.
If our computer systems are damaged or cease to function properly, or, if we do not replace or upgrade certain systems, we may incur substantial costs to repair or replace them and may experience an interruption of our normal business activities or loss of critical data. Any such disruption could adversely affect our reputation and financial condition.
We also rely on information technology systems maintained by third parties, including third-party cloud computing services and the computer systems of our suppliers for both our internal operations and our customer-facing infrastructure related to our advanced manufacturing solutions. These systems are also vulnerable to the types of interruption and damage described above but we have less ability to take measures to protect against such disruptions or to resolve them if they were to occur. Information technology problems faced by third parties on which we rely could adversely impact our business and financial condition as well as negatively impact our brand reputation.
A real or perceived defect, security vulnerability, error or performance failure in our software or technical problems or disruptions caused by our third-party service providers could cause us to lose revenue, damage our reputation and expose us to liability.
The products we manufacture, and our manufacturing operations, rely upon complementary software, which is inherently complex and, despite extensive testing and quality control, has in the past and may in the future contain defects or errors, especially when first introduced, or otherwise not perform as contemplated. As the use of our products, including products that were recently acquired or developed, expands to more sensitive, secure or mission critical uses by our customers, we may be subject to increased scrutiny, potential reputational risk or potential liability should our software fail to perform as contemplated in such deployments. We have in the past
 
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and may in the future need to issue corrective releases of our software to fix these defects, errors or performance failures and we may encounter technical problems when we attempt to perform routine maintenance or enhance our software, internal applications, and systems, which could require us to allocate significant research and development and customer support resources to address these problems and divert the focus of our management and research and development teams. In addition, our Cloud Manufacturing Platform may be negatively impacted by technical issues experienced by our third-party service providers.
Our business, brands, reputation, and ability to attract and retain customers depend upon the satisfactory performance, reliability and availability of our software solutions, which in turn depend upon the availability of the internet and our third-party service providers. For example, we outsource our software hosting to Amazon Web Services (“
AWS
”), our hosting provider. Our hosting provider runs its own platforms upon which our solutions depend, and we are, therefore, vulnerable to service interruptions at the hosting provider level. We do not control the operation of any of AWS’ data center hosting facilities, and they may be subject to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures, terrorist attacks and similar events. They may also be subject to interruptions due to system failures, computer viruses, software errors or subject to breaches of computer hardware and software security,
break-ins,
sabotage, intentional acts of vandalism and similar misconduct. And while we rely on service level agreements with our hosting provider, if they do not properly maintain their infrastructure or if they incur unplanned outages, our customers may experience performance issues or unexpected interruptions and we may not meet our service level agreement terms with our customers. We have experienced, and expect that in the future we may experience interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints.
Any inefficiencies, security vulnerabilities, errors, defects, technical problems or performance failures with our software, internal applications and systems could reduce the quality of our solutions or interfere with our customers’ (and their users’) use of our solutions, which could negatively impact our brand and reputation, reduce demand, lead to a loss of customers or revenue, adversely affect our results of operations and financial condition, increase our costs to resolve such issues and subject us to financial penalties and liabilities under our service level agreements. Any limitation of liability provisions that may be contained in our customer agreements may not be effective as a result of existing or future applicable law or unfavorable judicial decisions. The sale and support of our solutions entail the risk of liability claims, which could be substantial in light of the use of our solutions in enterprise-wide environments. In addition, our insurance against this liability may not be adequate to cover a potential claim.
If we experience a significant cybersecurity breach or disruption in our information systems or any of our partners’ information systems, our business could be adversely affected.
Malicious actors may be able to penetrate our network and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Malicious actors also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. While we employ a number of protective measures, including firewalls, network infrastructure vulnerability scanning, anti-virus and endpoint detection and response technologies, these measures may fail to prevent or detect attacks on our systems due to the frequent evolving nature of cybersecurity attacks. Although these measures are designed to ensure the confidentiality, integrity and availability of our information and technology systems, there is no assurance that these measures will detect all threats or prevent a cybersecurity attack in the future, which could adversely affect our business, reputation, operations or products.
In addition, our hardware and software or third party components and software that we utilize in our products may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation or security of the products. The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be
 
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significant and, if our efforts to address these problems are not successful, could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.
To the extent we experience cybersecurity incidents in the future, our relationships with our partners, suppliers and customers may be materially impacted, our brand and reputation may be harmed and we could incur substantial costs in investigating, responding to and remediating the incidents, and in resolving any regulatory investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be adversely affected. In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant.
We depend on a limited number of suppliers for a portion of our manufacturing needs and any delay, disruption or quality control problems in their operations, including due to the
COVID-19
pandemic, could cause harm to our operations, including loss of market share and damage to our brand.
We depend on suppliers for the components and raw materials used in our products. While there are several potential suppliers for most of these products, all of our products are manufactured, assembled, tested, and generally packaged by a limited number of suppliers and several single source providers of certain supplies. In most cases, we rely on these suppliers to procure components and, in some cases, subcontract engineering work. Our reliance on a limited number of suppliers involves a number of risks, including:
 
   
unexpected increases in manufacturing and repair costs;
 
   
inability to control the quality and reliability of products or materials;
 
   
inability to control delivery schedules;
 
   
potential liability for expenses incurred by third-party suppliers in reliance on our forecasts that later prove to be inaccurate;
 
   
potential lack of adequate capacity to manufacture all or a part of the products we require;
 
   
potential labor unrest affecting the ability of the third-party suppliers to produce our products; and
 
   
unexpected component or process obsolescence making key components unavailable.
If any of our suppliers experience a delay, disruption or quality control problems in their operations, including due to the
COVID-19
pandemic, or if a primary third-party supplier does not renew its agreement with us, our operations could be significantly disrupted and our product shipments could be delayed. Qualifying a new supplier and commencing volume production is expensive and time consuming. Ensuring that a supplier is qualified to manufacture our products to our standards is time consuming. In addition, there is no assurance that a supplier can scale its production of our products at the volumes and in the quality that we require. If a supplier is unable to do these things, we may have to move production for the products to a new or existing third-party supplier, which would take significant effort and our brand, business, results of operations and financial condition could be materially adversely affected. Finally, if a supplier producing a highly specified product changes its materials or is unable to meet our production demands, it could lead to specification changes, increased lead time or cancellation of the product.
As we contemplate moving manufacturing into different jurisdictions, we may be subject to additional significant challenges in ensuring that quality, processes, and costs, among other issues, are consistent with our expectations.
In addition, because we use a limited number of third-party suppliers, increases in the prices charged may have an adverse effect on our results of operations, as we may be unable to find a supplier who can supply us at a lower price. As a result, the loss of a limited source supplier could adversely affect our relationships with our customers and our results of operations and financial condition.
 
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All of our products must satisfy safety and regulatory standards and some of our products must also receive government certifications. We rely on third-party providers to conduct the tests that support our applications for most regulatory approvals for our products. As part of the certification process, our third-party suppliers are subject to audit and must receive approvals from third-parties providing such certifications. Failure to meet these certifications by our third-party suppliers could adversely impact our business. Moreover, if our third-party suppliers fail to timely and accurately conduct the tests supporting our applications for regulatory approvals, we may be unable to obtain the necessary domestic or foreign regulatory approvals or certifications to sell our products in certain jurisdictions. As a result, we would be unable to sell our products and our sales and profitability could be reduced, our relationships with our sales channel could be harmed and our reputation and brand would suffer.
If our suppliers become unavailable or inadequate, our customer relationships, results of operations and financial condition may be adversely affected.
We acquire certain of our materials, which are critical to the ongoing operation and future growth of our business, from several third parties. We rely on our suppliers to manage their supply chains. If one of our suppliers has supply chain disruption, or our relationship with our supplier terminates, we could experience delay. While most manufacturing equipment and materials for our products are available from multiple suppliers, certain of those items are only available from limited sources. Should any of these suppliers become unavailable or inadequate, or impose terms unacceptable to us, such as increased pricing terms, we could be required to spend a significant amount of time and expense to develop alternate sources of supply, and we may not be successful in doing so on terms acceptable to us, or at all. As a result, the loss of a limited source supplier could adversely affect our brand and relationship with our customers as well as our results of operations and financial condition.
In the case of certain materials, we have specified a certain grade of a product to be used in our manufacturing process. While there are several potential suppliers of most of these component materials that we use, we currently choose to use only one or a limited number of suppliers for several of these components and materials. For those materials, we could be impacted by any changes our suppliers make to such materials, which could include specification changes, lead time or cancellation of the material. If there is not an alternate product available, replacement thereof would require significant engineering and manufacturing efforts by us to qualify a replacement. Additionally, if a supplier of such materials decided to terminate their relationship with us, we may face delays in our production as we seek out a replacement supplier. Our reliance on a single or limited number of suppliers involves a number of risks, including:
 
   
potential shortages of some key components;
 
   
product performance shortfalls, if traceable to particular product components, since the supplier of the faulty component cannot readily be replaced;
 
   
discontinuation of a product or certain materials on which we rely;
 
   
potential insolvency of these vendors; and
 
   
reduced control over delivery schedules, manufacturing capabilities, quality, and costs.
In addition, we evaluate new suppliers pursuant to our internal procedures. This process involves evaluations of varying durations, which may cause production delays if we were required to qualify a new supplier unexpectedly. We generally assemble our systems and parts based on our internal forecasts and the availability of raw materials, assemblies, components, and finished goods that are supplied to us by third parties, which are subject to various lead times. If certain suppliers were to decide to discontinue production of an assembly, component or raw material that we use, the unanticipated change in the availability of supplies, or unanticipated supply limitations, could cause delays in, or loss of, sales, increased production or related costs and consequently reduced margins, and damage to our reputation. If we were unable to find a suitable supplier for a particular component, material, or compound, we could be required to modify our existing products or the
end-parts
that we
 
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offer to accommodate substitute components, material, or compounds. While we monitor risk internally related to our sourcing (particularly concerning raw materials), there is no guarantee that will sufficiently protect us if we suddenly lose access to supplies unexpectedly.
The manufacture and distribution of our products is subject to the risks of doing business in China, which could affect our ability to obtain products from suppliers or control the costs of our products.
The possibility of adverse changes in trade or political relations with China, political instability, increases in labor costs, or the continuation of the COVID-19 pandemic or the outbreak of another pandemic disease in China could severely interfere with the manufacturing and/or shipment of our products and would have a material adverse effect on our operations. Our business operations may be adversely affected by the current and future political environment in China. Our ability to source supplies and products from China may be adversely affected by changes in Chinese laws and regulations (or the interpretation thereof), including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under its current leadership, China’s Communist Party has been pursuing economic reform policies; however, there is no assurance that China’s government will continue to pursue these policies, or that it will not significantly alter these policies without notice. Policy changes could adversely affect our interests through, among other factors: changes in laws and regulations, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. In addition, electrical shortages, labor shortages or work stoppages may extend the production time necessary to produce our orders. There may be circumstances in the future where we may have to incur higher freight charges to expedite the delivery of product to our customers which could negatively affect our gross profit if we are unable to pass on those charges to our customers.
Our manufacturing facilities and those of our suppliers, as well as our customers’ facilities and our third-party logistics providers, are vulnerable to disruption due to natural or other disasters, strikes and other events beyond our control.
A major earthquake, fire, tsunami, hurricane, cyclone or other disaster, such as a major flood, seasonal storms, nuclear event or terrorist attack affecting our facilities or the areas in which they are located, or affecting those of our customers or suppliers or fulfillment centers, could significantly disrupt our or their operations and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our or their damaged manufacturing facilities. These delays could be lengthy and costly. If any of our facilities, or those of our suppliers, third-party logistics providers or customers are negatively impacted by such a disaster, production, shipment and installation of our advanced manufacturing machines could be delayed, which can impact the period in which we recognize the revenue related to that advanced manufacturing machine sale. Additionally, customers may delay purchases of our products until operations return to normal. Even if we are able to respond quickly to a disaster, the continued effects of the disaster could create uncertainty in our business operations. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, labor strikes, war or the outbreak of epidemic or pandemic diseases (including the outbreak of the coronavirus disease
COVID-19)
could have a negative effect on our operations and sales.
Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs.
The price and availability of key raw materials and components used to manufacture our products may fluctuate significantly. Additionally, the cost of logistics and transportation fluctuates in large part due to the price of oil, currency fluctuations, and global demand trends. Any fluctuations in the cost and availability of any of our raw materials or other sourcing or transportation costs related to our raw materials or products could harm our gross margins and our ability to meet customer demand. If we are unable to successfully mitigate a significant portion of these product cost increases or fluctuations, our results of operations could be harmed.
 
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Risks Related to International Operations
Our existing and planned global operations subject us to a variety of risks and uncertainties that could adversely affect our business and operating results. Our business is subject to risks associated with selling custom parts and other products in
non-United
States locations.
For the year ended December 31, 2021, our products and services were distributed in over 25 countries around the world, and we derived approximately 5% of our revenue from these international markets. Accordingly, we face operational risks from doing business internationally.
Our operating results may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transaction risks. Although we currently invoice customers in United States dollars, increases in the value of the dollar relative to foreign currencies may make our products less attractive to foreign customers. We may also incur currency transaction risks when we enter into either a purchase or a sale transaction using a different currency than United States dollars. In such cases, we may suffer an exchange loss because we do not currently engage in currency swaps or other currency hedging strategies to address this risk. As we realize our strategy to expand internationally, our exposure to currency risks may increase. Given the volatility of exchange rates, we can give no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have an adverse effect on our results of operations.
The shipments of our products to foreign customers and/or
end-users
may be subject to tariffs and other restrictions imposed by the destination countries. As we procure equipment and materials from foreign suppliers, we may be required to pay import duties and comply with regulations imposed by the CBP. Both the U.S. and foreign tariff rates and import restrictions may change from time to time, which could adversely impact our global operations, for example, by decreasing the price competitiveness of our products in foreign markets and/or by increasing our manufacturing costs.
Other risks and uncertainties we face from our global operations include:
 
   
difficulties in staffing and managing foreign operations;
 
   
limited protection for the enforcement of contract and intellectual property rights in certain countries where we may sell our products or work with suppliers or other third parties;
 
   
potentially longer sales and payment cycles and potentially greater difficulties in collecting accounts receivable;
 
   
costs and difficulties of customizing products for foreign countries;
 
   
challenges in providing solutions across a significant distance, in different languages and among different cultures;
 
   
laws and business practices favoring local competition;
 
   
being subject to a wide variety of complex foreign laws, treaties and regulations and adjusting to any unexpected changes in such laws, treaties, and regulations, including local labor laws;
 
   
strict laws and regulations governing privacy and data security, including the European Union’s General Data Protection Regulation;
 
   
uncertainty and resultant political, financial and market instability arising from the United Kingdom’s exit from the European Union;
 
   
compliance with U.S. laws affecting activities of U.S. companies abroad, including the U.S. Foreign Corrupt Practices Act;
 
   
tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;
 
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operating in countries with a higher incidence of corruption and fraudulent business practices;
 
   
changes in regulatory requirements, including export controls, tariffs and embargoes, other trade restrictions, competition, corporate practices, and data privacy concerns;
 
   
failure by our distribution partners to comply with local laws or regulations, export controls, tariffs and embargoes or other trade restrictions;
 
   
potential adverse tax consequences arising from global operations;
 
   
seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe and at year end globally;
 
   
rapid changes in government, economic and political policies, and conditions; and
 
   
political or civil unrest or instability, terrorism, war or epidemics and other similar outbreaks or events.
In October 2021, based on an internal review, we became aware of certain additional customs duties likely owed to CBP. We initiated a voluntary prior disclosure to CBP in late 2021 of certain possible errors in the declaration of imported products relating to value, classification, and other matters. As part of our disclosure, we conducted a comprehensive review of our import practices and in March 2022 made a further submission to CBP providing details regarding the possible errors. Based on currently known information, we recognized a $1.0 million charge within “Cost of revenues” in our Consolidated Statement of Operations for the year ended December 31, 2021, included in the Legacy Fast Radius financial statements included in this prospectus. The information we submitted will be reviewed by CBP and we may be liable to CBP for additional unpaid duties and interest. The resolution of this prior disclosure could be material to our cash flows in a future period and to our results of operations for any period.
In addition, additive manufacturing has been identified by the U.S. government as an emerging technology and is currently being further evaluated for national security impacts. We expect additional regulatory changes to be implemented that will result in increased and/or new export controls related to additive manufacturing technologies, components and related materials and software. These changes, if implemented, may result in our being required to obtain additional approvals and/or licenses to sell products in the global market.
Our failure to effectively manage the risks and uncertainties associated with our global operations could limit the future growth of our business and adversely affect our business and operating results.
Global economic, political, and social conditions and uncertainties in the market that we serve may adversely impact our business.
Our performance depends on the financial health and strength of our customers, which in turn is dependent on the economic conditions of the markets in which we and our customers operate. Declines in the global economy, difficulties in the financial services sector and credit markets, continuing geopolitical uncertainties and other macroeconomic factors all affect the spending behavior of potential customers. Economic uncertainty in Europe, the United States, India, Japan, China, and other countries may cause customers and potential customers to further delay or reduce technology purchases.
We also face risks from financial difficulties or other uncertainties experienced by our suppliers, distributors or other third parties on which we rely. If third parties are unable to supply us with required materials or components or otherwise assist us in operating our business, our business could be harmed.
For example, the possibility of an ongoing trade war between the United States and China may impact the cost of raw materials, finished products or components used in our products. Other changes in U.S. social, political, regulatory, and economic conditions or in laws and policies governing foreign trade, manufacturing, development, and investment could also adversely affect our business. In particular, on June 23, 2016, the U.K. held a referendum in which a majority of the eligible members of the electorate voted to leave the EU, commonly
 
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referred to as Brexit. Pursuant to Article 50 of the Treaty on EU, the U.K. ceased being a member state of the EU on January 31, 2020. The implementation period began February 1, 2020 and continued until December 31, 2020, during which U.K. continued to follow all of the EU’s rules and the U.K.’s trading relationship remained the same. The U.K. and the EU have signed an
EU-UK
Trade and Cooperation Agreement, or TCA, which became effective on May 1, 2021. This agreement provides details on how some aspects of the U.K. and EU’s relationship will operate going forwards however there are still many uncertainties and how the TCA will take effect in practice is still largely unknown. Additionally, there is a risk that other countries may decide to leave the European Union. This uncertainty surrounding this transition may have an effect on global economic conditions and the stability of global financial markets, which in turn could have a material adverse effect on our business, financial condition and results of operations. If global economic conditions remain volatile for a prolonged period or if European economies experience further disruptions, our results of operations could be adversely affected.
Uncertainty and instability resulting from the conflict between Russia and Ukraine could negatively impact our business, financial condition and operations.
Russia’s recent invasion of Ukraine and the uncertainty surrounding the escalating conflict could negatively impact global and regional financial markets which could result in businesses postponing spending in response to tighter credit, higher unemployment, financial market volatility, negative financial news, and other factors. In addition, our suppliers and contractors may have staff, operations, materials or equipment located in the Ukraine or Russia which could impact our supply chain or services being provided to us. Poor relations between the United States and Russia, sanctions by the United States and the European Union against Russia, and any escalation of political tensions or economic instability in the area could have an adverse impact on our suppliers and contractors. In particular, Russia’s invasion of Ukraine and the increased tensions among the United States, the North Atlantic Treaty Organization and Russia could increase the threat of armed conflict, cyberwarfare and economic instability that could disrupt or delay the operations of these resources in Russia and/or Ukraine, disrupt or delay communication with such resources or the flow of funds to support their operations, or otherwise render our resources unavailable.
The effects of regulations relating to conflict minerals may adversely affect our business.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements require companies to research, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of such minerals if they are found to be used in the manufacture of our products or materials. In addition, we expect to continue to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.
Risks Related to Sales of Products to the U.S. Government
We are subject to audits by the U.S. government which could adversely affect our business.
U.S. government agencies routinely audit and investigate government contractors to monitor performance, cost allocations, cost accounting and compliance with applicable laws, regulations, and standards. Since some of our contracts provide for cost reimbursement, the U.S. government has the right to audit our costs even after job completion and after we have billed and recognized the corresponding revenue. The U.S. government also may
 
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review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation, and management information systems. Any costs found to be improperly allowed or improperly allocated to a specific contract will not be reimbursed, and any such costs that have already been reimbursed must be refunded, which would affect associated revenue that had already been recognized. While we intend to implement uniform procurement and compliance programs for all of our business, we may be subject to more risks from these audits until we are able to implement such a program effectively.
Responding to governmental audits, inquiries or investigations may involve significant expense and divert the attention of our management. If a government review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, damages, fines and suspension or debarment from doing business with U.S. government agencies. In addition, our reputation could be seriously harmed by allegations of impropriety, even if unfounded. Our internal controls may not prevent or detect all improper or illegal activities.
Our business is subject to laws and regulations that are more restrictive because we are a contractor and subcontractor to the U.S. government.
As a contractor and subcontractor to the U.S. government, we are subject to various laws and regulations that are more restrictive than those applicable to
non-government
contractors, including the Federal Acquisition Regulations and its supplements, which comprehensively regulate the formation, administration and performance of U.S. government contracts, and the Truth in Negotiations Act and various other laws, which require certain certifications and disclosures. These laws and regulations, among other things:
 
   
require that we obtain and maintain material governmental authorizations and approvals to conduct our business as it is currently conducted;
 
   
require certification and disclosure of cost and pricing data in connection with certain contract negotiations;
 
   
impose rules that define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. government contracts;
 
   
may require certain products that the U.S. government purchases to be manufactured in the U.S. and other relatively high-cost manufacturing locations under Buy American Act or other regulations, and we may not manufacture all products in locations that meet these requirements, which may preclude our ability to sell some solutions or services;
 
   
restrict the use and dissemination of information classified for national security purposes and the export of certain products and technical data; and
 
   
impose requirements relating to ethics and business practices, which carry penalties for noncompliance ranging from monetary fines and damages to loss of the ability to do business with the U.S. government as a prime contractor or subcontractor.
In addition, we may be subject to industrial security regulations of the U.S. Department of Defense and other federal agencies that are designed to safeguard against unauthorized access by foreigners and others to classified and other sensitive U.S. government information. If we were to come under foreign ownership, control or influence, our U.S. government customers could terminate, or decide not to renew, our contracts, or we may be subjected to burdensome industrial security compliance measures. Such a situation could impair our ability to obtain new contracts and subcontracts. The government may also change its procurement practices or adopt new contracting rules and regulations that could be costly to satisfy or that could impair our ability to obtain new contracts.
 
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Risks Related to Litigation and Liability
We may face litigation and other risks as a result of the material weaknesses in our internal control over financial reporting.
We have restated our financial statements for the nine months ended September 30, 2021, in the financial statements included in our Current Report on Form 8-K/A filed with the SEC on March 30, 2022. As a result of material weaknesses that we have identified in our internal control over financial reporting, the restatement, the adjustments relating to the overstatement of revenue and overstatement and understatement of certain expenses, and other matters raised or that may in the future be raised by the SEC or others, we may be subject to potential litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in our internal control over financial reporting and the preparation of our financial statements. We can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition.
We could be subject to personal injury, property damage, product liability, warranty and other claims involving allegedly defective products that we supply.
The products we supply are sometimes used in potentially hazardous or critical applications, such as the assembled parts of an aircraft, medical device, or motor vehicles. The sale of our products and the provision of related services in general, and to customers in the foregoing industries in particular, exposes us to possible claims for property damage and personal injury or death, which may result from the use of these
end-use
parts. While we have not experienced any such claims to date, actual or claimed defects in the products we supply could result in our being named as a defendant in lawsuits asserting potentially large claims. We may be potentially liable, in significant amounts, and face significant harm to our reputation if an aircraft, medical or vehicular part, component or accessory or any other aviation, medical or vehicular product that we have sold, produced or repaired fails due to our fault, in whole or in part, or if an aircraft or motor vehicle for which we have provided services or in which their parts are installed crashes, and the cause can be linked to those parts or cannot be determined. A similar risk arises in connection with sales of our products to customers in the aerospace industry to the extent that the parts produced by those products do not function properly and are responsible for damages. Our commercial contracts generally contain limitations on liability, and we carry liability insurance in amounts that we believe are adequate for our risk exposure and commensurate with industry norms. While we intend to monitor our insurance coverage as our business continues to grow, claims may arise in the future, and that insurance coverage may not be adequate or available to protect our consolidated company in all circumstances. Additionally, we might not be able to maintain adequate insurance coverage for our business in the future at an acceptable cost. Any liability claim against us that is not covered by adequate insurance could adversely affect our consolidated results of operations and financial condition. Finally, any liability claim against us may cause harm to our brand, reputation and adversely impact our business.
Failure of our global operations to comply with anti-corruption laws and various trade restrictions, such as sanctions and export controls, could have an adverse effect on our business.
We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. Doing business on a global basis requires us to comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, as well as the laws of the countries where we do business.
We are also subject to various trade restrictions, including trade and economic sanctions and export controls, imposed by governments around the world with jurisdiction over our operations. For example, in accordance with trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce, we are prohibited from engaging in transactions involving certain persons and certain designated countries or territories, including Cuba, Iran, Syria, North Korea, Russia and the Crimea Region of Ukraine. In addition, our products are subject to export regulations that can involve significant compliance time and may add
 
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additional overhead cost to our products. In recent years the United States government has a renewed focus on export matters. For example, the Export Control Reform Act of 2018 and regulatory guidance thereunder have imposed additional controls, and may result in the imposition of further additional controls, on the export of certain “emerging and foundational technologies.” Our current and future products may be subject to these heightened regulations, which could increase our compliance costs. For instance, recent amendments to the U.S. Export Administration Regulations (“
EAR
”) increased restrictions on exports to certain “military
end-users”
and for “military
end-uses”
by certain persons in China, Russia, or Venezuela, which requires us to perform due diligence on customers and
end-users
in those countries for potential military connections.
We also need to monitor the changes in export-related laws and regulations, such as International Traffic in Arms Regulations (“
ITAR
”), and their applicability to our products and services. If our products or services become subject to the ITAR, we may be required to obtain licenses, clearances, or authorizations from various regulatory entities. If we are not allowed to export our products or services, or if the clearance process is burdensome, our ability to generate revenue would be adversely affected and our operating costs could increase.
In addition, international sales of certain of our products may be subject to local laws and regulations in foreign jurisdictions which we may not be familiar with. We may not be allowed to ship our products to certain countries without meeting their local laws and regulations. The failure to comply with any of these laws or regulations could adversely affect our ability to conduct our business and generate revenues.
We are committed to doing business in accordance with applicable anti-corruption laws and regulations and with applicable trade restrictions. We are subject, however, to the risk that our affiliated entities or our and our affiliates’ respective officers, directors, employees, and agents (including distributors of our products) may take action determined to be in violation of such laws and regulations. Any violation by us or by any of these persons could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our operating results. In addition, actual or alleged violations could damage our reputation and ability to do business.
Although we take precautions to prevent violations of applicable anti-corruption laws and regulations and applicable trade restrictions, we cannot guarantee that the precautions we take will prevent violations of such laws. If we are found to be in violation of U.S. anti-corruption, sanctions, or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets or otherwise.
We are subject to environmental, health and safety laws and regulations related to our operations, which could subject us to compliance costs and/or potential liability.
We are subject to domestic and foreign environmental, health and safety laws and regulations governing our operations. A certain risk of environmental liability is inherent in our production activities. These laws and regulations govern, among other things, the generation, use, storage, registration, handling, transport and disposal of chemicals and waste materials, the presence of specified substances in electrical products; the emission and discharge of hazardous materials into the ground, air or water; the investigation and cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals and other waste materials and the health and safety of our employees. As such, our operations, including our production activities, carry an inherent risk of environmental, health and safety liabilities. Under these laws and regulations, we could be subject to liability for improper disposal of chemicals and waste materials, including those resulting from the use of our systems and accompanying materials by
end-users.
Accidents or other incidents that occur at our facilities or involve our personnel or operations could result in claims for damages against us. In the event we are found to be financially responsible, as a result of environmental or other laws or by court order, for environmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages or undertake expensive remedial obligations. If our operations fail to comply with such laws or regulations, we may be subject to fines and other civil, administrative
 
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or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities, or may be required to make significant expenditures to achieve compliance. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances that we generate, use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental laws allow for strict, joint and several liabilities for remediation costs, regardless of fault. We may be identified as a potentially responsible party under such laws. The amount of any costs, including fines or damages payments that we might incur under such circumstances could substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect on our business, financial condition and results of operations and could adversely affect our reputation.
We may be subject to environmental laws and regulations concerning the import and export of chemicals and hazardous substances including, without limitation, the United States Toxic Substances Control Act (“
TSCA
”) and the Registration, Evaluation, Authorization and Restriction of Chemical Substances (“
REACH
”). These laws and regulations require the testing and registration of some chemicals that we ship along with, or that form a part of, our systems and other products. If we fail to comply with these or similar laws and regulations, we may be required to make significant expenditures to reformulate the chemicals that we use in our products and materials or incur costs to register such chemicals to gain and/or regain compliance. Additionally, we could be subject to significant fines or other civil and criminal penalties should we not achieve such compliance.
The cost of complying with current and future environmental, health and safety laws applicable to our operations, or the liabilities arising from releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments, alone or in combination, could have an adverse effect on our business, financial condition, and results of operations.
Aspects of our business are subject to laws and regulations governing privacy and data security. Changes in laws, regulations, and public perception concerning data protection and privacy, or changes in the interpretation or patterns of enforcement of existing laws and regulations, could impair our efforts to maintain and expand our customer base or the ability of our customers to use our services. Breaches of laws and regulations concerning data protection and privacy could expose us to significant fines and other penalties.
We hold personal information about a variety of individuals, such as our employees, prospects, and our customers. Processing of personal information is increasingly subject to legislation and regulation in numerous jurisdictions around the world.
For example, relevant applicable laws and regulations governing the collection, use, disclosure or other processing of personal information include, in the United States, rules and regulations promulgated under the authority of the Federal Trade Commission, the California Consumer Privacy Act of 2018 (the “
CCPA
”) and state breach notification laws. In particular, the CCPA, among other things, requires covered “Businesses” to provide new disclosures to California consumers and afford such consumers new rights with respect to their personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation.
The CCPA has prompted a number of proposals for new federal and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
Moreover, we have customers in the EU and the United Kingdom. Accordingly, we are subject to the General Data Protection Regulation (EU) 2016/679 (the “
GDPR
”), and related member state implementing legislation,
 
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and to the UK’s Data Protection Act 2018 (collectively, “
European Data Protection Law
”). European Data Protection Law places obligations on controllers and processors of personal data, while establishing rights for individuals with respect to their personal data. European Data Protection Law is also explicitly extraterritorial in its application, and could affect our business activities in jurisdictions outside the EU and the UK. Additionally, European Data Protection Law imposes strict rules on the transfer of personal data outside of the EU to countries that do not ensure an adequate level of protection, like the United States. These transfers are prohibited unless an appropriate safeguard specified by the GDPR is implemented, such as the Standard Contractual Clauses (SCCs) or binding corporate rules. The Court of Justice of the European Union (the “
CJEU
”) recently deemed that these transfers need to be analyzed on a
case-by-case
basis to ensure EU standards of data protection are met in the jurisdiction where the data importer is based. European regulators have issued recent guidance following the CJEU case that imposes significant new diligence requirements on transferring data outside the EU. Complying with this guidance is and will continue to be expensive and time consuming and may ultimately prevent us from transferring personal data outside the EU, which would cause significant business disruption. The GDPR imposes sanctions for violations up to the greater of €20 million and 4% of worldwide gross annual revenue, enables individuals to claim damages for violations and introduces the right for
non-profit
organizations to bring claims on behalf of data subjects.
The regulatory framework governing the collection, processing, storage, use and sharing of personal information is rapidly evolving and is likely to continue to be subject to uncertainty and varying interpretations. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform capabilities. We cannot yet fully determine the impact these or future laws, rules, regulations, and industry standards may have on our business or operations. Additionally, our customers may be subject to differing privacy laws, rules, and legislation, which may mean that they require us to be bound by varying contractual requirements applicable to certain other jurisdictions.
Adherence to such contractual requirements may impact our collection, use, processing, storage, sharing and disclosure of personal information and may mean we become bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters that may further change as laws, rules and regulations evolve. We have incurred, and may continue to incur, significant expenses to comply with evolving mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, shifting merchant and customer expectations, or contractual obligations, and we may not be able to respond quickly or effectively to regulatory, legislative and other developments. These changes may in turn impair our ability to offer our existing or planned features, solutions, and services and/or increase our cost of doing business.
We publicly post documentation regarding our privacy practices. Although we endeavor to comply with our published policies and documentation, we may at times fail to do so or be alleged to have failed to do so. Any failure or perceived failure by us to comply with our privacy policies or any applicable privacy, security or data protection, information security or consumer-protection related laws, regulations, orders or industry standards could expose us to costly litigation, significant awards, fines or judgments, civil and/or criminal penalties or negative publicity, and could materially and adversely affect our business, financial condition and results of operations. The publication of our privacy policy and other documentation that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices, which could, individually or in the aggregate, materially and adversely affect our business, financial condition and results of operations.
Our business has risks that may not be adequately covered by insurance or indemnity.
We may face unanticipated risks of legal liability for damages caused by the actual or alleged failure of our products. While we have attempted to secure liability insurance coverage at an appropriate cost, it is impossible to adequately insure against all risks inherent in our industry, nor can we assure you that our insurers will pay a particular claim, or that we will be able to maintain coverage at reasonable rates in the future. Our insurance policies also contain deductibles, limitations, and exclusions, which increase our costs in the event of a claim.
 
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Even a partially uninsured claim of significant size, if successful, could have an adverse effect on our financial condition. In addition, we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, and our existing policies may be cancelled or otherwise terminated by the insurer. Maintaining adequate insurance and successfully accessing insurance coverage that may be due for a claim can require a significant amount of our management’s time, and we may be forced to spend a substantial amount of money in that process. Substantial claims in excess of or not otherwise covered by indemnity or insurance could harm our financial condition and operating results.
Risks Related to Intellectual Property
We may not be able to adequately protect our proprietary and intellectual property rights in our data or technology.
Our success is dependent, in part, upon protecting our proprietary information and technology. Our intellectual property portfolio primarily consists of patent applications, registered and unregistered trademarks, unregistered copyrights, domain names,
know-how,
and trade secrets. We may be unsuccessful in adequately protecting our intellectual property.
Our trade secrets,
know-how
and other unregistered proprietary rights are a key aspect of our intellectual property portfolio. While we take reasonable steps to protect our trade secrets and confidential information and enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficult and costly to enforce or may not provide adequate remedies if violated, and we may not have entered into such agreements with all relevant parties. Such agreements may be breached and trade secrets or confidential information may be willfully or unintentionally disclosed, including by employees who may leave our company and join our competitors, or our competitors or other parties may learn of the information in some other way. Additionally, certain unauthorized use of our intellectual property may go undetected, or we may face legal or practical barriers to enforcing our legal rights even where unauthorized use is detected. The disclosure to, or independent development by, a competitor of any of our trade secrets,
know-how
or other technology not protected by a patent or other intellectual property system could materially reduce or eliminate any competitive advantage that we may have over such competitor. This concern could manifest itself in particular with respect to our proprietary materials that are used with our systems. Portions of our proprietary materials may not be afforded patent protection.
Current laws may not provide for adequate protection of our solutions, especially in foreign jurisdictions which may have laws that provide insufficient protections to companies. In addition, legal standards relating to the validity, enforceability, and scope of protection of proprietary rights in internet-related businesses are uncertain and evolving, and changes in these standards may adversely impact the viability or value of our proprietary rights. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our solutions, or certain aspects of our solutions may be unenforceable under the laws of certain jurisdictions. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and the laws and mechanisms for protection and enforcement of intellectual property rights in some foreign countries may be inadequate. As we continue to operate in foreign countries and expand our international activities, we have encountered and may in the future encounter challenges in navigating the laws of foreign countries, which may adversely affect our ability to protect our proprietary rights. Further, competitors, foreign governments, foreign government-backed actors, criminals, or other third parties may gain unauthorized access to our proprietary information and technology. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property or claiming that we infringe upon or misappropriate their technology and intellectual property.
To protect our intellectual property rights, we may be required to spend significant resources to monitor, protect, and defend these rights, and we may or may not be able to detect infringement by our customers or third parties. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade
 
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secrets. Such litigation could be costly, time consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our Cloud Manufacturing Platform, impair the functionality of our Cloud Manufacturing Platform, delay introductions of new features, integrations, and capabilities, result in our substituting inferior or more costly technologies into our Cloud Manufacturing Platform, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new features, integrations, and capabilities, and we cannot be certain that we could license that technology on commercially reasonable terms or at all, and our inability to license this technology could harm our ability to compete.
If third parties claim that we infringe upon or otherwise violate their intellectual property rights, our business could be adversely affected.
We have in the past and may in the future be subject to claims that we have infringed or otherwise violated third parties’ intellectual property rights. There is patent, copyright, and other intellectual property development and enforcement activity in our industry and relating to the advanced manufacturing technology we use in our business. Our future success depends in part on not infringing upon or otherwise violating the intellectual property rights of others. From time to time, our competitors or other third parties (including
non-practicing
entities and patent holding companies) may claim that we are infringing upon or otherwise violating their intellectual property rights, and we may be found to be infringing upon or otherwise violating such rights. We may be unaware of the intellectual property rights of others that may cover some or all of our current or future technology or conflict with our rights, and the patent, copyright, and other intellectual property rights of others may limit our ability to improve our technology and compete effectively. Any claims of intellectual property infringement or other intellectual property violations, even those without merit, could:
 
   
be expensive and time consuming to defend;
 
   
cause us to cease making, licensing, or using our Cloud Manufacturing Platform or solutions that incorporate the challenged intellectual property;
 
   
require us to modify, redesign, reengineer or rebrand our Cloud Manufacturing Platform or solutions, if feasible;
 
   
divert management’s attention and resources; or
 
   
require us to enter into royalty or licensing agreements to obtain the right to use a third-party’s intellectual property.
Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly settlement agreements, or prevent us from offering our Cloud Manufacturing Platform or solutions, any of which could have a negative impact on our operating profits and harm our future prospects. We may also be obligated to indemnify our customers or business partners in connection with any such litigation and to obtain licenses, modify our Cloud Manufacturing Platform or solutions, or refund fees, which could further exhaust our resources. Such disputes could also disrupt our Cloud Manufacturing Platform or solutions, adversely affecting our customer satisfaction and ability to attract customers.
We may incur substantial costs enforcing and defending our intellectual property rights.
We may incur substantial expense costs in protecting, enforcing, and defending our intellectual property rights against third parties. Intellectual property disputes may be costly and can be disruptive to our business operations
 
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by diverting attention and energies of management and key technical personnel and by increasing our costs of doing business. Third-party intellectual property claims asserted against us could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from assembling or licensing certain of our products, subject us to injunctions restricting our sale of products, cause severe disruptions to our operations or the marketplaces in which we compete or require us to satisfy indemnification commitments with our customers, including contractual provisions under various license arrangements. In addition, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products. Any of these could have an adverse effect on our business and financial condition.
If we are unable to adequately protect or enforce our intellectual property rights, such information may be used by others to compete against us.
We have devoted substantial resources to the development of our technology and related intellectual property rights. Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We rely on a combination of registered and unregistered intellectual property and protect our rights using patents, licenses, trademarks, trade secrets, confidentiality and assignment of invention agreements and other methods.
Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our technologies, inventions, processes, or improvements. We cannot assure you that any of our existing or future patents or other intellectual property rights will not be challenged, invalidated, or circumvented, or will otherwise provide us with meaningful protection. Our pending patent applications may not be granted, and we may not be able to obtain foreign patents or pending applications corresponding to our U.S. patents. Even if foreign patents are granted, effective enforcement in foreign countries may not be available.
Our trade secrets,
know-how
and other unregistered proprietary rights are a key aspect of our intellectual property portfolio. While we take reasonable steps to protect our trade secrets and confidential information and enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficult and costly to enforce or may not provide adequate remedies if violated, and we may not have entered into such agreements with all relevant parties. Such agreements may be breached and trade secrets or confidential information may be willfully or unintentionally disclosed, including by employees who may leave our company and join our competitors, or our competitors or other parties may learn of the information in some other way. The disclosure to, or independent development by, a competitor of any of our trade secrets,
know-how
or other technology not protected by a patent or other intellectual property system could materially reduce or eliminate any competitive advantage that we may have over such competitor.
If our patents and other intellectual property do not adequately protect our technology, our competitors may be able to offer solutions similar to ours. Our competitors may also be able to develop similar technology independently or design around our patents and other intellectual property. Any of the foregoing events would lead to increased competition and reduce our revenue or gross margin, which would adversely affect our operating results.
If we attempt enforcement of our intellectual property rights, we may be subject or party to claims, negotiations or complex, protracted litigation. Intellectual property disputes and litigation, regardless of merit, can be costly and disruptive to our business operations by diverting attention and energies of management and key technical personnel and by increasing our costs of doing business. Any of the foregoing could adversely affect our business and financial condition.
As part of any settlement or other compromise to avoid complex, protracted litigation, we may agree not to pursue future claims against a third party, including related to alleged infringement of our intellectual property
 
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rights. Part of any settlement or other compromise with another party may resolve a potentially costly dispute but may also have future repercussions on our ability to defend and protect our intellectual property rights, which in turn could adversely affect our business.
Our Cloud Manufacturing Platform contains third-party open-source software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to commercialize our solutions.
Our Cloud Manufacturing Platform contains components that are licensed under
so-called
“open source,” “free” or other similar licenses. Open source software is made available to the general public on an
“as-is”
basis under the terms of a
non-negotiable
license. We currently combine our proprietary software with open source software and intend to continue doing so in the future. Additionally, we make some of our source code available under open source licenses, which may limit our ability to protect our intellectual property rights in our source code and prevent our competitors or others from using such source code. Our use and distribution of open source software may entail greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, if we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to disclose or make available the source code of our proprietary software to third parties. We may also face claims alleging noncompliance with open source license terms or infringement or misappropriation of third-party intellectual property rights in open source software. These claims could result in litigation, require us to purchase a costly license or remove the software. In addition, if the license terms for open source software that we use change, we may be forced to
re-engineer
our solutions, incur additional costs or discontinue the sale of our offerings if
re-engineering
could not be accomplished on a timely basis. Although we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our offerings. We cannot guarantee that we have incorporated open source software in our software in a manner that will not subject us to liability or in a manner that is consistent with our current policies and procedures.
We store confidential customer information in our systems that, if breached or otherwise subjected to unauthorized access, may harm our reputation, or brand or expose us to liability.
Our systems store, process, and transmit our customers’ confidential information, including the intellectual property in their part designs, credit card information, and other sensitive data. We rely on encryption, authentication, and other technologies licensed from third parties, as well as administrative and physical safeguards, to secure such confidential information. Any compromise of our information security could damage our reputation and brand and expose us to a risk of loss, costly litigation, and liability that would substantially harm our business and operating results. We may not have adequately assessed the internal and external risks posed to the security of our company’s systems and information and may not have implemented adequate preventative safeguards or take adequate reactionary measures in the event of a security incident. In addition, most states have enacted laws requiring companies to notify individuals and often state authorities of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our existing and prospective customers to lose confidence in the effectiveness of our data security measures. Any security breach, whether successful or not, would harm our reputation and brand and could cause the loss of customers.
General Risk Factors
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. In addition, the Sarbanes Oxley Act of 2002 and rules subsequently implemented by the
 
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SEC and The Nasdaq Global Market (“
NASDAQ
”) have imposed 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 will 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.
Pursuant to Section 404 of the Sarbanes Oxley Act of 2002 (the “
Sarbanes Oxley Act
”), we are required to furnish a report by our management on our internal control over financial reporting, including an attestation
report on internal control over financial reporting issued by our independent registered public accounting firm. However, 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. We could be an emerging growth company for up to five years. To achieve compliance with Section 404 of the Sarbanes Oxley Act within the prescribed period, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue 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 neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes Oxley Act. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. In addition, if we are not able to continue to meet these requirements, we may not be able to remain listed on NASDAQ.
Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes Oxley Act, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act could impair our ability to produce timely and accurate consolidated financial statements or comply with applicable regulations and have a material adverse effect on our business.
We have significant requirements for financial reporting and internal controls as a public company. The process of designing and implementing effective internal controls is a continuous effort that will require us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis or result in material misstatements in our consolidated financial statements, which could harm our operating results. In addition, we are required, pursuant to Section 404 of the Sarbanes Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert management’s attention from other matters that are important to our business. Our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting on an annual basis. However, 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. If we are not able to complete our initial assessment of our internal controls and otherwise implement the requirements of Section 404 of the Sarbanes Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the adequacy of our internal control over financial reporting.
 
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We intend to use
non-GAAP
financial measures in reporting our annual and quarterly results of operations.
As part of our reporting of our annual and quarterly results of operations, we intend to publish measures compiled in accordance with GAAP as well as
non-GAAP
financial measures, along with a reconciliation between the GAAP and
non-GAAP
financial measures. The reconciling items adjust amounts reported in accordance with GAAP for certain items which are described in detail in our published results of operations. Our consolidated financial statements themselves do not and will not contain any
non-GAAP
financial measures.
We believe that our
non-GAAP
financial measures are meaningful to investors when analyzing our results of operations as this is how our business is managed. The market price of our stock may fluctuate based on future non-GAAP results if investors base their investment decisions on such
non-GAAP
financial measures. If we decide to alter or curtail the use of
non-GAAP
financial measures in our quarterly earnings press releases, the market price of our stock could be adversely affected if investors analyze our performance in a different manner.
Further, any failure to accurately report and present our
non-GAAP
financial measures could cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.
We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate the material weaknesses, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
In connection with the audits of our consolidated financial statements for the years ended December 31, 2021 and 2020, our management identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate to the fact that we did not design or maintain an effective control environment commensurate with our financial reporting requirements, including (a) lack of a sufficient number of trained professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, and (b) lack of accounting processes, structures, reporting lines and appropriate authorities and responsibilities to achieve financial reporting objectives. These deficiencies in our control environment contributed to the following additional deficiencies (each of which individually represents a material weakness) in our internal control over financial reporting:
 
   
We did not design and maintain formal accounting policies, procedures, and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of account reconciliations, journal entries, and complex transactions; and
 
   
We did not design and maintain effective controls over segregation of duties for key financial processes and access within IT systems, which includes certain personnel having the ability to both prepare and post manual journal entries without an independent review by someone without the ability to prepare and post manual journal entries.
In addition, in the process of preparing our fourth quarter 2021 financial statements, management discovered misstatements related to the overstatement of revenue and overstatement and understatement of certain expenses related to the nine month period ended September 30, 2021. On March 28, 2022, the Audit Committee of our board of directors concluded that we would restate our previously issued financial statements for the nine months ended September 30, 2021. We concluded that material weaknesses over financial reporting contributed to the following accounting errors:
 
   
Revenue was recorded incorrectly for transactions which we could not assert that collection from the customer was probable under the requirements of Accounting Standard Codification (“ASC”) 606.
 
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Software capitalization costs and the associated amortization were incorrectly calculated and recorded due to errors in tracking the time period when the design, development and testing of the software occurs and is therefore capitalizable under ASC 350-40.
 
   
We incorrectly accrued certain transaction costs twice.
 
   
Certain transaction-related fees that were paid were incorrectly classified as operating cash flows on the condensed consolidated statement of cash flows
Please refer to Note 16 of the audited financial statements of Legacy Fast Radius included in Exhibit 99.1 to the Current Report on Form 8-K/A filed with the SEC on March 30, 2022 for additional information.
In addition, ENNV identified material weaknesses in its internal control over financial reporting as of December 31, 2021. On April 12, 2021, the staff of the SEC issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Statement”). In the Statement, the SEC staff, among other things, expressed its view that certain terms and conditions common to warrants issued by SPACs, such as ENNV, may require such warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. ENNV previously accounted for its outstanding warrants as components of equity instead of as derivative liabilities. Following the issuance of the Statement, ENNV’s management and audit committee concluded that in light of the Statement, it was appropriate to restate ENNV’s previously issued audited balance sheet as of February 11, 2021 included in the Current Report on Form 8-K filed with the SEC on February 19, 2021.
Additionally, ENNV reevaluated its application of ASC 480-10-S99-3A on the classification of redeemable shares of common stock that were issued as part of the Units sold in the ENNV IPO. Historically, a portion of our public shares was classified as permanent equity to maintain net tangible assets greater than $5,000,000 on the basis that ENNV would consummate its initial business combination only if it has net tangible assets of at least $5,000,001. Pursuant to such re-evaluation, ENNV’s management determined that the public shares include certain provisions that require classification of the public shares as temporary equity regardless of the minimum net tangible assets required to complete ENNV’s initial business combination. ENNV’s management and audit committee concluded that in light of this change it was appropriate to restate ENNV’s previously issued financial statements as of February 11, 2021, as restated in the Notes to Unaudited Condensed Financial Statements of ENNV’s Quarterly Report on Form 10-Q filed with the SEC on May 24, 2021, ENNV’s unaudited financial statements as of and for the period ended March 31, 2021 included in ENNV’s Quarterly Report on Form 10-Q filed with the SEC on May 24, 2021 and ENNV’s unaudited financial statements as of and for the period ended June 30, 2021 included in ENNV’s Quarterly Report on Form 10-Q filed with the SEC on August 20, 2021.
Moreover, the Company reassessed its application of ASC 718 to the 35,000 Founder Shares transferred by the
Sponsor to the Company’s independent directors. Under such guidance, compensation expense relating to the
shares transferred should be deferred. The Company corrected its accounting for these shares in its Annual
Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 15, 2022.
In connection with these restatements, ENNV identified material weaknesses in its internal controls over financial reporting due to the ability to apply the nuances of the complex accounting standards and preparation of financial statements in accordance with GAAP.
We have begun remediation and will continue to implement several measures, including, among others:
 
   
engaging a third party to assist with the development of a Sarbanes-Oxley program;
 
   
hiring additional competent and qualified accounting and reporting personnel with appropriate knowledge and experience of GAAP and SEC financial reporting requirements;
 
   
establishing and designing internal financial reporting structures and authorizing certain departments or capable and responsible persons to be in charge of the overall financial management and financial objectives of the Company;
 
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establishing an ongoing program to provide sufficient additional training to our accounting staff, especially training related to GAAP and SEC financial reporting requirements;
 
   
designing and preparing accounting policies in accordance with relevant rules, especially in relation to complex and major transactions; and
 
   
updating our policies and procedures to address segregation of duties for key financial processes.
Although we have begun to implement measures to address the material weaknesses above, including hiring a new Chief Financial Officer and Chief Accounting Officer, the implementation of these measures may not fully address the material weaknesses and deficiencies in our internal controls over financial reporting and there can be no assurance that the measures we have taken to date and actions we may take in the future will be sufficient to remediate these matters. Further, in the future we may determine that we have additional material weaknesses. Our failure to remediate the material weaknesses or failure to identify and address any other material weaknesses or control deficiencies could result in inaccuracies in our consolidated financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis, which could cause investors to lose confidence in our reported financial information. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing its remediation plan; however, these remediation measures will be time consuming, will result in the incurrence of significant costs, and will place significant demands on our financial and operational resources.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Changes in accounting rules and regulations, or interpretations thereof, could result in unfavorable accounting charges or require us to change our compensation policies.
Accounting methods and policies for public companies are subject to review, interpretation and guidance from relevant accounting authorities, including the SEC. Changes to accounting methods or policies, or interpretations thereof, may require us to reclassify, restate or otherwise change or revise our consolidated financial statements. Such changes could also impact the amount or timing of revenues or expenses in future periods and negatively impact our reported results of operations.
In order to satisfy our obligations as a public company, we need to hire qualified accounting and financial personnel with appropriate public company experience.
As a newly public company, we need to establish and maintain effective disclosure and financial controls and make changes in our corporate governance practices. We may need to hire additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and retain such personnel. Even if we are able to hire appropriate personnel, our existing operating expenses and operations will be impacted by the direct costs of their employment and the indirect consequences related to the diversion of management resources from research and development efforts.
 
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We are an “emerging growth company” and a “smaller reporting company” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company, we may follow reduced disclosure requirements and do not have to make all of the disclosures that public companies that are not emerging growth companies do. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (b) the last day of the fiscal year following the fifth anniversary of the date of the completion of the ENNV IPO; (c) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our common stock that is held by
non-affiliates
exceeds $700 million as of the prior June 30th. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
 
   
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act;
 
   
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);
 
   
reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements; and
 
   
exemptions from the requirements of holding a nonbinding advisory vote of stockholders on executive compensation, stockholder approval of any golden parachute payments not previously approved, and having to disclose the ratio of the compensation of our chief executive officer to the median compensation of our employees.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our consolidated financial statements may not be comparable to companies that comply with public company effective dates.
We may choose to take advantage of some, but not all, of the available exemptions for emerging growth companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.
So long as we remain an “emerging growth company,” we expect to take advantage of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes- Oxley Act. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 of the Sarbanes- Oxley Act will correspondingly increase. Moreover, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.