Form 10-Q FREYR Battery For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
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TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Quarterly Report on Form 10-Q (this “Report”) and in documents incorporated herein by reference. All statements, other than statements of present or historical fact included in or incorporated by reference in this Report, regarding FREYR Battery’s future financial performance, as well as our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives of management are forward-looking statements. When used in this Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would”, the negative of such terms, and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions, and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to our business.
These forward-looking statements are based on information available as of the date of this Report, and current expectations, forecasts, and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements in this Report and in any document incorporated herein by reference should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
| ● | Changes adversely affecting the battery industry and the development of existing or new technologies; |
| ● | The effect of the COVID-19 pandemic on our business; |
| ● | The failure of 24M Technologies, Inc. (“24M”) technology or our batteries to perform as expected; |
| ● | Our ability to commercialize 24M and other technology for our licensing business model and business plans; |
| ● | Our ability to manufacture battery cells and to develop and increase our production capacity in a cost-effective manner; |
| ● | The electrification of energy sources does not develop as expected, or develops more slowly than expected; |
| ● | Technological developments in existing technologies or new developments in competitive technologies that could adversely affect the demand for our battery cells; |
| ● | General economic and geopolitical conditions; |
| ● | Increases in the cost of electricity or raw materials and components; |
| ● | Our ability to protect our intellectual property; |
| ● | Changes in applicable laws or regulations, including environmental and export control laws; |
| ● | Our ability to attract and retain key employees; |
| ● | Our ability to execute and realize our business strategy and plans; |
| ● | Our ability to target and retain customers and suppliers; |
| ● | The failure to build our finance infrastructure and improve our accounting systems and controls; |
| ● | Our ability to assert, enforce and otherwise protect against unauthorized use of intellectual property rights licensed from 24M, which could result in our competitors using the intellectual property to offer products; |
| ● | The outcome of any legal proceedings relating to our products and services, including intellectual property or product liability claims; |
ii
| ● | Whether and when we might pay dividends; |
| ● | Our ability to source materials from an ethically and sustainably sourced supply chain and 24M-qualified suppliers in sufficient quantities; |
| ● | The result of future financing efforts; |
| ● | The cost-competitiveness, carbon footprint, energy density and charge-rates of our batteries; |
| ● | The timing, capacity, configurations and locations of our battery factories and production lines; |
| ● | The planned construction and production dates for the customer qualification plant (“CQP”) and the planned construction period for each of our Gigafactories; |
| ● | The cost to build the CQP and the Gigafactories; |
| ● | Our expectations for our general and administrative expenses; |
| ● | Our expectations about market supply, demand, and other dynamics, including the number of industrial-scale battery manufacturing facilities in Norway, supply costs, regulatory developments, increased globalization, and consolidation in the automotive and energy industries; |
| ● | The use and mix of lithium-nickel-manganese-oxide and lithium-iron-phosphate battery chemistries, including shifts in the battery chemistry mix due to conversations with potential customers; |
| ● | The market segments that we will initially target; |
| ● | Whether we will successfully enter into or obtain, and the impact of failing to sign or obtain, customer offtake agreements, necessary consents, other commercial agreements, permits or licenses in a timely manner or at all; and |
| ● | Our ability to enter successful joint venture partnerships and licensing arrangements. |
Other risks and uncertainties set forth in this Report, including risk factors discussed in Item 1A under the heading, “Risk Factors”.
iii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FREYR BATTERY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Prepaid assets | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Convertible note | ||||||||
| Equity method investments | ||||||||
| Right-of-use asset under operating leases | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and other | ||||||||
| Accounts payable and accrued liabilities - related party | ||||||||
| Deferred income | ||||||||
| Share-based compensation liability | ||||||||
| Total current liabilities | ||||||||
| Warrant liability | ||||||||
| Operating lease liability | — | |||||||
| Long-term share-based compensation liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Ordinary share capital, par value, | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock | ( | ) | ||||||
| Accumulated other comprehensive (loss) income | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
FREYR BATTERY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In Thousands, Except per Share Amounts)
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Operating expenses: | |||||||||||||||
| General and administrative | $ | $ | $ | $ | |||||||||||
| Research and development | |||||||||||||||
| Equity in losses from investee | |||||||||||||||
| Total operating expenses | |||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
| Other income (expense): | |||||||||||||||
| Warrant liability fair value adjustment | |||||||||||||||
| Redeemable preferred shares fair value adjustment | |||||||||||||||
| Convertible notes fair value adjustment | |||||||||||||||
| Interest income | |||||||||||||||
| Interest expense | ( | ) | ( | ) | |||||||||||
| Foreign currency transaction gain (loss) | ( | ) | ( | ) | |||||||||||
| Other income, net | |||||||||||||||
| Total other income (expense) | |||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | |||||||||
| Income tax expense | |||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted average ordinary shares outstanding: | |||||||||||||||
| Basic | |||||||||||||||
| Diluted | |||||||||||||||
| Net income (loss) per share: | |||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Diluted | ( | ) | ( | ) | ( | ) | |||||||||
| Other comprehensive income (loss): | |||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Foreign currency translation adjustments | ( | ) | ( | ) | |||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
FREYR BATTERY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(In Thousands)
(Unaudited)
| Ordinary Shares | Additional Paid-in | Accumulated Other Comprehensive | Treasury | Accumulated | Total Shareholders’ Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Stock | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | | $ | $ | ( | ) | $ | |||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Ordinary Shares | Additional Paid-in | Accumulated Other Comprehensive | Treasury | Accumulated | Total Shareholders’ Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Stock | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Repurchase of shares | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
FREYR BATTERY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Share-based compensation expense | ||||||||
| Depreciation | ||||||||
| Reduction in the carrying amount of right-of-use assets | ||||||||
| Warrant liability fair value adjustment | ( | ) | ||||||
| Redeemable preferred shares fair value adjustment | ( | ) | ||||||
| Convertible note fair value adjustment | ( | ) | — | |||||
| Equity in losses from investee | ||||||||
| Foreign currency transaction net unrealized gain | ( | ) | ||||||
| Other | ||||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid assets | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Accounts payable and accrued liabilities – related party | ||||||||
| Other current liabilities | ( | ) | ||||||
| Deferred income | ||||||||
| Operating lease liability | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from property related grants | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Investments in equity method investee | ( | ) | ||||||
| Purchases of other long-term assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repurchase of treasury shares | ( | ) | ||||||
| Proceeds from issuance of redeemable preferred shares | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of changes in foreign exchange rates on cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Significant non-cash investing and financing activities: | ||||||||
| Accrued purchases of property and equipment | $ | $ | ||||||
| Settlement of accrued liabilities through the issuance of non-employee warrants | ||||||||
| Reconciliation to consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
Description of the Business
FREYR Battery (“FREYR,” the “Company”, “we”, or “us”) is a developer of clean, next-generation battery cell production capacity. Our mission and vision are to accelerate the decarbonization of global energy and transportation systems by producing clean, cost-competitive batteries. We are in the design and testing phase related to our battery production process and we have initiated construction of our Customer Qualification Plant (“CQP”) and groundworks and foundation structures for our inaugural gigafactory (“Giga Arctic”), both located in Mo i Rana, Norway. As of June 30, 2022, we have not yet initiated manufacturing or derived revenue from our principal business activities.
Business Combination
On January 29, 2021, FREYR AS, a private limited liability company organized under the laws of Norway (“FREYR Legacy”) and Alussa Energy Acquisition Corp., a Cayman Islands exempted company (“Alussa”), among others, entered into the Business Combination Agreement (the “BCA”) to effect a merger between the companies (the “Business Combination”). FREYR, a Luxembourg public limited liability company was formed to complete the Business Combination and related transactions and carry on the business of FREYR Legacy. FREYR serves as the successor entity to FREYR Legacy, the predecessor entity.
The merger was completed in multiple stages, pursuant to the terms of the BCA, which included among other things, the transfer of FREYR Legacy’s wind farm business to Sjonfjellet Vindpark Holding AS (“SVPH”), resulting in SVPH shares being held by FREYR Legacy’s shareholders. On July 8, 2021, FREYR’s ordinary shares and warrants began trading on the New York Stock Exchange. On July 9, 2021, FREYR completed the Business Combination with FREYR Legacy and Alussa. In connection with the consummation of the transactions contemplated by the BCA, FREYR Legacy and Alussa became wholly owned subsidiaries of FREYR.
The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, Alussa was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the following factors: (i) FREYR Legacy’s existing operations comprised the ongoing operations of the combined company, (ii) FREYR Legacy’s senior management comprised the senior management of the combined company and (iii) no shareholder had control of the board of directors or a majority voting interest in the combined company. In accordance with guidance applicable to these circumstances, the Business Combination was treated as the equivalent of FREYR issuing shares for the net assets of Alussa, accompanied by a recapitalization. The net assets of Alussa were stated at historical cost, with no goodwill or other intangible assets recorded.
As a result, the condensed consolidated financial statements included herein reflect (i) the historical operating results of FREYR Legacy prior to the Business Combination, (ii) the combined results of FREYR, FREYR Legacy and Alussa following the closing of the Business Combination, (iii) the assets and liabilities of FREYR Legacy at their historical cost, (iv) the assets and liabilities of FREYR and Alussa at their historical cost, which approximates fair value, and (v) FREYR’s equity structure for all periods presented.
In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the closing date, to reflect the number of shares of FREYR’s ordinary shares issued to FREYR Legacy’s shareholders in connection with the recapitalization transaction. As such, the shares and corresponding capital amounts and earnings per share related to FREYR Legacy’s ordinary shares prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination.
Basis of Presentation
The unaudited condensed consolidated interim financial statements have been prepared in conformity with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of United States Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information required by GAAP for complete consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements for the year ended December 31, 2021 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments necessary for the fair presentation of the Company’s condensed consolidated financial statements for the periods presented. The results of operations for the six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. The condensed consolidated balance sheet as of December 31, 2021, was derived from the audited consolidated financial statements as of December 31, 2021. However, these interim condensed consolidated financial statements do not contain all of the footnote disclosures from the annual consolidated financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2022.
The condensed consolidated financial statements include the accounts of FREYR and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain prior period balances and amounts have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Estimates and assumptions include, but are not limited to, estimates related to the valuation of share-based compensation, warrant liability, and convertible note. We base these estimates on historical experiences and on various other assumptions that we believe are reasonable under the circumstances, however, actual results may differ materially from these estimates.
Risks and Uncertainties
We are subject to those risks common to our business and industry and also those risks common to early stage development companies. These risks include those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2022 and Part II, Item 1A, of our Quarterly Report on Form 10-Q for the period ended March 31, 2022. As of the date of this report, our existing cash resources, which were primarily provided as a result of the business combination, are sufficient to support our planned operations for at least the next 12 months. Therefore, our financial statements have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Supplemental accounting policy disclosures are included below.
Restricted Cash
Restricted cash consists of funds held in a restricted account for payment of upfront rental lease deposits and income tax withholdings to the Norwegian government, payable every other month.
Leases
A lease is a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease classification as short-term lease, operating lease or finance lease is made at the lease inception. The Company considers all relevant contractual provisions, including renewal and termination options, to determine the term of the lease. Renewal or termination options that are reasonably certain of exercise by the lessee and those controlled by the lessor are included in determining the lease term. The Company has made an accounting policy election to present the lease and associated non-lease operations as a single component based upon the predominant component.
The Company made an accounting policy election not to recognize a right-of-use asset and lease liability for short-term leases with an initial term of 12 months or less, therefore these leases are not recorded on the condensed consolidated balance sheets. Expenses for short-term leases are recognized on a straight-line basis over the lease term in the consolidated statements of operations and comprehensive loss.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recognizes lease liabilities and right-of-use assets for all operating and finance leases for which it is a lessee at the lease commencement date. Lease liabilities are initially recognized at the present value of the future lease payments during the expected lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, based on the information available at the lease commencement date, in determining the present value of lease payments. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The right-of-use asset is initially recognized at the amount of the initial measurement of the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, and any initial direct costs incurred by the Company. Right-of-use assets are recorded as other long-term assets in the consolidated balance sheets. Subsequent to initial recognition, the right-of-use asset is reflected net of amortization. Costs to get a leased asset to the condition and location necessary for its intended use are capitalized as leasehold improvements.
The Company remeasures its lease liabilities with a corresponding adjustment to the right-of-use asset due to an applicable change in lease payments such as those due to a lease modification not accounted for as a separate contract, certain changes in the expected term of the lease, and certain changes in assessments and contingencies. Subsequent to initial recognition, the operating lease liability is increased for the interest component of the lease liability and reduced by the lease payments made. Operating lease expenses are recognized as a single lease cost in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term, which includes the interest component of the measurement of the lease liability and amortization of the right-of-use asset.
Adoption of Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve the consistent application. We adopted this guidance as of January 1, 2022. Adoption of the standard did not have a material impact on the condensed consolidated financial statements.
In February 2016, the FASB
issued ASU No. 2016-02, Leases (ASC 842), as amended, which generally requires lessees to recognize operating and financing lease
liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing
and uncertainty of cash flows arising from leasing arrangements. We adopted this guidance as of January 1, 2022, on a modified retrospective
basis and thus did not restate comparative periods. As a result, the comparative financial information and the required disclosures prior
to the date of adoption have not been updated and continue to be reported under the accounting standards in effective for those periods.
We elected the package of practical expedients permitted under the transition guidance, which allows us to carry forward our historical
lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that existed
before the adoption of the new standard. A description of our accounting policy and accounting methods elected, is included under “Leases”
above. Our right-of-use assets and corresponding lease liabilities for operating lease liabilities at adoption were $
3. Business Combination
As discussed in Note 1 - Business and Basis of Presentation, we completed the Business Combination on July 9, 2021. Immediately before the closing of the Business Combination, all outstanding redeemable preferred shares of FREYR Legacy were converted into ordinary shares of FREYR. Upon the consummation of the Business Combination, each share of FREYR Legacy issued and outstanding was canceled and converted into the right to receive 0.179038 ordinary shares in FREYR (the “Exchange Ratio”).
Upon the closing of the Business
Combination, our articles of association were amended and restated to, among other things, increase the total number of authorized shares
to
In connection with the Business
Combination, on January 29, 2021, Alussa and FREYR entered into separate subscription agreements with a number of investors (each a “Subscriber”),
pursuant to which the Subscribers agreed to purchase, and FREYR agreed to sell to the Subscribers, an aggregate of
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Alussa was treated as the “acquired” company for financial reporting purposes. See Note 1 - Business and Basis of Presentation for further details. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of FREYR issuing shares for the net assets of Alussa, accompanied by a recapitalization. The net assets of Alussa were stated at historical cost, with no goodwill or other intangible assets recorded.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Construction in progress | $ | $ | ||||||
| Office equipment and other | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Construction in progress
primarily includes costs related to the construction of the CQP and Giga Arctic facilities and the related CQP production equipment in
Mo i Rana, Norway. Depreciation expense was $
5. Accrued Liabilities and other
Accrued liabilities and other consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued purchases | $ | $ | ||||||
| Accrued payroll and payroll related expenses | ||||||||
| Operating lease liabilities (Note 6) | ||||||||
| Accrued other operating costs | ||||||||
| Total | $ | $ | ||||||
6. Leases
We currently lease our corporate
headquarters, CQP, the land for the Giga Arctic facilities, as well as other properties. Our leases have remaining lease terms up to
The components of lease liabilities included in our condensed consolidated balance sheet consisted of the following (in thousands):
| June 30, 2022 | ||||
| Accrued liabilities and other (Note 5) | ||||
| Operating lease liability | ||||
| Total | $ | |||
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of lease expenses were as follows (in thousands):
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||
| Operating lease cost | | |||||||
| Variable lease cost | ||||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
The remaining minimum lease payments due on our long-term leases are as follows (in thousands):
| June 30, 2022 | ||||
| For the remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
Weighted average remaining lease term and discount rate are as follows:
| June 30, 2022 | ||||
| Weighted-average remaining lease term (in years) | ||||
| Weighted-average discount rate | % | |||
Supplemental cash flow information related to leases were as follows (in thousands):
| Six months ended June 30, 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||
| Operating cash flows | $ | |||
| Lease liabilities arising from obtaining right of use assets | ||||
7. Commitments and Contingencies
Legal Proceedings
From time to time, we may be subject to legal and regulatory actions that arise in the ordinary course of business. The assessment as to whether a loss is probable or reasonably possible, and as to whether such loss or a range of such loss is estimable, often involves significant judgment about future events. Management believes that any liability of ours that may arise out of or with respect to these matters will not materially, adversely affect our condensed consolidated financial position, results of operations, or liquidity.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Warrants
As of June 30, 2022 and December
31, 2021, we had
The Public and Private Warrants were exchanged for public and private warrants of Alussa as part of the Business Combination, as described in Note 3 – Business Combination. The Warrants are subject to the terms and conditions of the warrant agreement entered into between Alussa, Continental Stock Transfer & Trust Company, and FREYR (the “Amended and Restated Warrant Agreement”).
We may call the Public Warrants
for redemption once they become exercisable, in whole and not in part, at a price of $
The Private Warrants are identical to the Public Warrants, except that so long as they are held by the Sponsor or any of its permitted transferees, the Private Warrants: (i) may be exercised for cash or on a cashless basis and (ii) shall not be redeemable by FREYR. We determined that the Private Warrants are not considered indexed to our ordinary shares as the holder of the Private Warrants impacts the settlement amount and thus, they are liability classified. The Private Warrants are presented as warrant liability on the condensed consolidated balance sheets. See also Note 9 - Fair Value Measurement.
9. Fair Value Measurement
The following table sets forth, by level within the fair value hierarchy, the accounting of our financial assets and liabilities at fair value on a recurring basis according to the valuation techniques we use to determine their fair value (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Convertible Note | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Warrant Liabilities | ||||||||||||||||||||||||||||||||
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
We measured our Private Warrants and the Convertible Note as of June 30, 2022 and December 31, 2021 at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy. The valuation of the Private Warrants and the Convertible Note used assumptions and estimates that we believed would be made by a market participant in making the same valuation. Changes in the fair value of the Private Warrants related to updated assumptions and estimates were recognized as a warrant liability fair value adjustment within the condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the Convertible Note related to updated assumptions and estimates were recognized as a convertible note fair value adjustment within the condensed consolidated statement of operations and comprehensive loss.
As of June 30, 2022 and December 31, 2021, the carrying value of all other financial assets and liabilities approximated their respective fair values.
Private Warrants
The Private Warrants outstanding on June 30, 2022 and December 31, 2021, were valued using the Black-Scholes-Merton option pricing model. See Note 8 - Warrants above for further detail. Our use of the Black-Scholes-Merton option pricing model for the Private Warrants as of June 30, 2022 and December 31, 2021, required the use of subjective assumptions:
| ● | The risk-free interest rate assumption was based on the United States Treasury Rates, which was commensurate with the contractual terms of the Private Warrants, which expire on the earlier of (i) five years after the completion of the Business Combination or July 9, 2026 and (ii) redemption or liquidation. An increase in the risk-free interest rate, in isolation, would increase the fair value measurement of the Private Warrants and vice versa. |
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
| ● | The expected term was determined to be |
| ● | The expected volatility assumption was based on the implied volatility from a set of comparable publicly traded companies as determined based on the size and industry. An increase in expected volatility, in isolation, would increase the fair value measurement of the Private Warrants and vice versa. |
Using this approach, an exercise
price of $
Convertible Note
As of June 30, 2022 and December 31, 2021, we had an investment in a convertible note from 24M that was fair valued pursuant to the election of the fair value option under ASC 825, Financial Instruments. See Note 14 - Convertible Note for further detail. The Company considers this to provide a more accurate reflection of the current economic environment of the instrument. The Convertible Note was valued using a scenario-based framework. This analysis assumed various scenarios that were weighted based on the likelihood of occurrence. Within each scenario, an income approach, specifically the discounted cash flow approach, was utilized based on the expected payoffs upon the event, the discount rate, and the expected timing and then the expected probability of occurrence was applied, all of which management determined were significant assumptions. We noted that a change in the expected payoffs, discount rate, timing, or expected probability would result in a change to the fair value ascribed to the Convertible Note.
Redeemable Preferred Shares
On November 11, 2020,
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The changes in the Level 3 instruments measured at fair value were as follows (in thousands):
| For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | |||||||||||||||||||
| Asset | Liability | Asset | Liability | |||||||||||||||||
| Convertible Note | Private Warrants | Convertible Note | Private Warrants | Redeemable Preferred Shares | ||||||||||||||||
| Balance (beginning of period) | $ | $ | $ | $ | $ | |||||||||||||||
| Additions | ||||||||||||||||||||
| Fair value measurement adjustments | ( | ) | ( | ) | ||||||||||||||||
| Foreign currency exchange effects | ||||||||||||||||||||
| Settlements | ||||||||||||||||||||
| Balance (end of period) | $ | $ | $ | $ | $ | |||||||||||||||
10. Shareholders’ Equity
Ordinary Shares
As of June 30, 2022 and December
31, 2021,
Share Repurchase Program
In May 2022, the board of
directors approved a share repurchase program (the “Share Repurchase Program”). The shares purchased under the program are
to be used to settle the exercise of employee options granted under the Company’s equity compensation plans. We were authorized
to repurchase up to
Employee Awards – 2019 Plan
FREYR Legacy had an Incentive
Stock Option Plan (the “2019 Plan”) issued on September 11, 2019. According to the 2019 Plan, options or warrants could be
granted to eligible employees, and a total of
As a result of the consummation of the Business Combination on July 9, 2021, the stock options and warrants and performance stock options and warrants already granted or earmarked for an employee’s first year of employment vested immediately. As such, on July 9, 2021, share-based compensation was recognized for the remaining unrecognized fair value of the 2019 Plan awards. Effective as of the close of the Business Combination, the 2019 Plan was modified to require cash-settlement after a lock-up period of either (i) one year for all non-executive employees or (ii) two years for all executive employees. The awards granted under the 2019 Plan are liability-classified awards, and as such, these awards are remeasured to fair value at each reporting date with changes to the fair value recognized as stock compensation expense in general and administrative expense or research and development expense within the consolidated statements of operations and comprehensive loss. Cumulative stock compensation expense cannot be reduced below the grant date fair value of the original award.
During the
six months ended June 30, 2022,
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Nonemployee Awards – Related Party
On March 1, 2019, FREYR Legacy
entered into a consulting agreement with EDGE Global LLC (“EDGE”) for FREYR Legacy’s CEO and Chief Commercial Officer
to be hired to perform certain services related to leadership, technology selection, and operational services (the “2019 EDGE Agreement”).
FREYR Legacy issued
On September 1, 2020, FREYR
Legacy amended the 2019 EDGE Agreement, effective as of July 1, 2020 (the “2020 EDGE Agreement”). FREYR Legacy issued an additional
Upon the consummation of the Business Combination on July 9, 2021, all unvested warrants under the 2019 and 2020 Edge Agreements vested immediately. As such, on July 9, 2021, compensation cost was recognized for the remaining unrecognized fair value of these awards.
Employee Awards – 2021 Plan
We have a Long-Term Incentive
Plan (the “2021 LTIP”) that was issued on July 9, 2021. According to the 2021 LTIP, at the discretion of our board of directors,
but at least on an annual basis, stock options may be granted to eligible employees and directors. The aggregate number of additional
shares authorized under the 2021 LTIP is not to exceed
All options and restricted
stock units (“RSUs”) granted under the 2021 LTIP vest annually in equal thirds and options can be exercised up to five years
after the grant date. There are no performance or market conditions for vesting. During the six
months ended June 30, 2022, 2.9 million options were granted to employees and directors,
CEO Option Awards
On June 16, 2021, our Chief
Executive Officer (“CEO”) entered into a stock option agreement, as an appendix to an employment agreement, effective upon
the consummation of the Business Combination. In accordance with the stock option agreement, on July 13, 2021 our CEO was granted
11. Government Grants
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Income Taxes
The provision for income taxes is recorded at the end of each interim
period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year.
There is no provision for income taxes because the Company has incurred operating losses in each year since inception. The Company’s
effective income tax rate was
13. Related Party Transactions
EDGE Agreements
The 2020 EDGE Agreement provided that FREYR Legacy should pay EDGE a monthly retainer fee. Additionally, FREYR Legacy agreed to make certain milestone payments to EDGE based on the closing of certain additional financing rounds as defined within the 2020 EDGE Agreement. See Note 10 - Shareholders’ Equity for further discussion on the warrant agreements between FREYR Legacy and EDGE. On January 18, 2021, the board resolved to terminate the 2020 EDGE Agreement and enter into an employment contract with the continuing CEO and a consulting contract with the prior Chief Commercial Officer, subject to the closing of the Business Combination. See below for further detail on the consulting agreement with the prior Chief Commercial Officer.
The expenses incurred in relation
to the consulting services provided for the three and six months ended June 30, 2021 were $
Consulting Agreement
Concurrent with the consummation
of the Business Combination, we agreed to a consulting agreement with the prior Chief Commercial Officer and current member of the board
of directors. Per the consulting agreement, the consultant will provide services related to scaling sustainable energy storage, as well
as any other services requested by us, for a term of three years. During this term, we will pay the consultant an annual fee of $
Metier
In 2020, we entered into a
framework agreement with Metier OEC, which provides primarily project management and administrative consulting services. The CEO of Metier
OEC is the brother of our current Executive Vice President Project Execution.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Equity Method Investment
We hold a
14. Convertible Note
On October 8, 2021, we invested
$
15. Net Income (Loss) Per Share
The Company’s basic net income (loss) per share attributable to ordinary shareholders for the three and six months ended June 30, 2022 was computed by dividing net income (loss) attributable to ordinary shareholders by the weighted-average ordinary shares outstanding.
For the three and six months ended June 30, 2021, we computed net loss per share using the two-class method required for participating securities. Under the two-class method, undistributed earnings for the period are allocated to participating securities, including the redeemable preferred shares that were settled as part of the Business Combination, based on the contractual participation rights of the security to share in the current earnings as if all current period earnings had been distributed. As there was no contractual obligation for the redeemable preferred shares to share in losses, our basic net loss per share attributable to ordinary shareholders for the three and six months ended June 30, 2021, was computed by dividing net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding.
No dividends were declared or paid for the six months ended June 30, 2022 and 2021.
Diluted net income (loss) per share attributable to ordinary shareholders adjusts basic net loss per share attributable to ordinary shareholders to give effect to all potential ordinary shares that were dilutive and outstanding during the period. For the six months ended June 30, 2022 and 2021, the treasury stock method was used to assess our warrants and share-based payment awards while the if-converted method was used to assess our redeemable preferred shares.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of our basic and diluted net income (loss) per share attributable to ordinary shareholders for the three and six months ended June 30, 2022 and 2021(in thousands, except per share data):
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) attributable to ordinary shareholders – basic and diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| Weighted average ordinary shares outstanding – basic | ||||||||||||||||
| Dilutive effect of EDGE Warrants and share-based compensation liability awards | ||||||||||||||||
| Weighted average ordinary shares outstanding – dilutive | ||||||||||||||||
| Net income (loss) per ordinary share: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The following table discloses the outstanding securities that could potentially dilute basic net loss per share in the future that were not included in the computation of diluted net loss per share as the impact would be anti-dilutive (in thousands):
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Public Warrants | ||||||||||||||||
| Private Warrants | ||||||||||||||||
| EDGE warrants | ||||||||||||||||
| Share-based compensation liability awards | ||||||||||||||||
| Employee awards | ||||||||||||||||
| RSUs | ||||||||||||||||
| CEO option awards | ||||||||||||||||
| Other nonemployee warrants | ||||||||||||||||
| Redeemable preferred shares | ||||||||||||||||
| Total | ||||||||||||||||
For the three and six months
ended June 30, 2022, the Company excluded
16
ITEM 2. FREYR BATTERY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This FREYR Battery’s “Management’s Discussion and Analysis” of FREYR Battery’s results operations and financial condition should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 and the unaudited interim condensed consolidated financial statements and the accompanying notes included as part of this Quarterly Report on Form 10-Q for the period ended June 30, 2022. The financial information contained herein is taken or derived from such audited annual consolidated financial statements and unaudited interim condensed consolidated financial statements, unless otherwise indicated. The following discussion contains forward-looking statements and actual results could differ materially from those that are discussed in these forward-looking statements. See also “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Form 10-Q and our December 31, 2021 Annual Report on Form 10-K for more information on factors that could cause or contribute to such differences. Unless the context otherwise requires, all references in this section to “FREYR” refer to FREYR Legacy prior to the closing of the Business Combination and to FREYR Battery following the closing of the Business Combination.
Overview
FREYR Battery (“FREYR,” the “Company”, “we”, or “us”) is a developer of clean, next-generation battery cell production capacity. Our mission and vision are to accelerate the decarbonization of global energy and transportation systems by producing clean, cost-competitive batteries. We are in the design and testing phase related to our battery production process and we have initiated construction of our Customer Qualification Plant (“CQP”) and groundworks and foundation structures for our inaugural gigafactory (“Giga Arctic”), both located in Mo i Rana, Norway. As of June 30, 2022, we have not yet initiated manufacturing or derived revenue from our principal business activities.
Our initial CQP production line is expected to be based on our licensed Semi-SolidTM technology and partnership with 24M and lithium-ion chemistry. Future development and expansion could incorporate alternative chemistry models and additional advances in battery technology both through our ongoing partnership with 24M, joint ventures, and licensing opportunities. We will initially target market opportunities in energy storage systems (“ESS”), marine applications, commercial vehicles, and electric vehicles (“EV”) with slower charge requirements, with plans to target additional markets, including faster charge battery cells for the broader consumer EV market.
We expect our capital and operating expenditures to increase significantly in the second half of 2022 and 2023 in connection with our ongoing activities and to prepare for growth, as we:
| ● | Construct manufacturing facilities and purchase related equipment; |
| ● | Commercialize products; |
| ● | Make additional investments in technology; |
| ● | Maintain and improve operational, financial, and management information systems; |
| ● | Hire additional personnel; and |
| ● | Operate as a public company. |
Recent Developments
| ● | In June 2022, FREYR’s Board of Directors sanctioned construction of Giga Arctic, a combination of our previously announced Gigafactory 1 & 2, the Company’s first full scale battery manufacturing facility currently under development in Mo i Rana, Norway. Giga Arctic is expected to have nameplate capacity of 29 Gigawatt hours (“GWh”) and a total estimated capital cost of $1.7 billion. |
| ● | In June 2022, FREYR announced it had identified $1.6 billion of total potential debt financing support based on visibility from export credit agencies, multilateral development finance institutions, and commercial banking partners. |
| ● | In June 2022, FREYR secured a conditional offtake agreement with a major European energy technology company for 25 GWh of battery cells from 2024 to 2028. |
17
| ● | In June 2022, FREYR announced it had entered into a reservation agreement with Changzhou Senior New Energy Materials Co., Ltd. and Senior Material (Europe) AB (“Changzhou”) to supply battery materials for its CQP and Giga Arctic facilities through 2028, with an optional extension until 2031. Subject to the terms and conditions of the reservation agreement, Changzhou has reserved the supply capacity of separator materials through 2028 to align with FREYR’s estimated demand. |
| ● | In May 2022, FREYR signed a binding Heads of Terms with Statkraft, Europe’s largest producer of renewable energy, which was finalized as a long-term physical supply agreement in June 2022. The agreement provides a supply of hydropower renewable energy to cover all of FREYR’s currently anticipated electricity needs for the period of 2024 to 2031 and ensures physical delivery of energy from the central grid in Mo i Rana to FREYR’s CQP and Giga Arctic facilities. The agreement will be effective upon our meeting certain requirements related to the status of our construction and financing activities. |
Comparability of Financial Information
Our results of operations and reported assets and liabilities may not be comparable between periods as a result of the Business Combination and becoming a public company. As a result of the Business Combination, we became a New York Stock Exchange (“NYSE”) listed company, which has required and will continue to require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees.
Share Repurchase Program
In May 2022, the board of directors approved a share repurchase program (the “Share Repurchase Program”). The shares purchased under the program are to be used to settle the exercise of employee options granted under the Company’s equity compensation plans. We were authorized to repurchase up to 150,000 of the Company’s Ordinary Shares, or approximately 0.13% of the current outstanding share capital. The Share Repurchase Program had no time limit and was able to be suspended or discontinued at any time. We purchased 150,000 ordinary shares at an average price of $6.97 per share, excluding fees, during the three and six months ended June 30, 2022 (no comparative amounts for the three and six months ended June 30, 2021). As of June 30, 2022, the authorized share repurchase was completed and no ordinary shares remain available for repurchase under the program.
Results of Operations
The following table sets forth FREYR Battery’s condensed consolidated results of operations data for the periods presented (in thousands except percentages):
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | Change (%) | 2022 | 2021 | Change (%) | |||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| General and administrative | $ | 28,150 | $ | 7,176 | 292 | % | $ | 52,764 | $ | 16,188 | 226 | % | ||||||||||||
| Research and development | 3,082 | 3,045 | 1 | % | 5,941 | 5,952 | 0 | % | ||||||||||||||||
| Equity in losses from investee | 296 | — | NM | 463 | — | NM | ||||||||||||||||||
| Total operating expenses | 31,528 | 10,221 | 208 | % | 59,168 | 22,140 | 167 | % | ||||||||||||||||
| Loss from operations | (31,528 | ) | (10,221 | ) | 208 | % | (59,168 | ) | (22,140 | ) | 167 | % | ||||||||||||
| Other income (expense) | 36,199 | 2,185 | NM | 28,932 | 2,217 | NM | ||||||||||||||||||
| Income (loss) before income taxes | 4,671 | (8,036 | ) | 158 | % | (30,236 | ) | (19,923 | ) | 52 | % | |||||||||||||
| Income tax expense | — | — | — | — | ||||||||||||||||||||
| Net income (loss) | $ | 4,671 | $ | (8,036 | ) | 158 | % | $ | (30,236 | ) | $ | (19,923 | ) | 52 | % | |||||||||
NM - Not meaningful
18
Operating expenses
General and administrative
General and administrative expenses consist of personnel and personnel-related expenses, including share-based compensation, fees paid for contractors and consultants assisting with growing the business, office space related costs, travel costs, public relations costs, legal, accounting, and audit fees, and depreciation expense.
General and administrative expenses increased by $21.0 million or 292%, to $28.2 million for the three months ended June 30, 2022, from $7.2 million for the three months ended June 30, 2021. General and administrative expenses increased by $36.6 million or 226%, to $52.8 million for the six months ended June 30, 2022, from $16.2 million for the six months ended June 30, 2021. General and administrative expenses increased primarily due to higher headcount and increased spending associated with the ramp up of activities as we continue to invest in building our business and move closer to start-up of manufacturing operations. Overhead costs also increased due to the professional fees and other costs related to operating as a public company.
We expect general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of increased expenses to operate as a public company, including compliance with the rules and regulations of the United States Securities and Exchange Commission, additional legal, audit, and insurance expenses, investor relations activities, and other administrative and professional services.
Research and development (“R&D”)
R&D expenses consists primarily of compensation to employees engaged in research and development activities, including share-based compensation, internal and external engineering, supplies and services, and contributions to research institutions. R&D expenses also include development costs related to our technology license with 24M.
R&D expenses increased slightly to $3.1 million for the three months ended June 30, 2022, from $3.0 million for the three months ended June 30, 2021. R&D expenses decreased slightly to $5.9 million for the six months ended June 30, 2022, from $6.0 million for the six months ended June 30, 2021.
We expect R&D expenses to increase in future periods as we increase our personnel and research activities.
Equity in losses from investee
Equity in losses from investee consists of our proportionate share of the net earnings or losses and other comprehensive income from FREYR Battery KSP JV LLC, which is accounted for under the equity method, as we exercise significant influence but not control, over its operating and financial policies.
Equity in losses from investee of $0.3 million and $0.5 million were recognized for the three and six months ended June 30, 2022, respectively. There was no equity in losses from investee for the corresponding periods in 2021.
Other income (expense)
Other income (expense) primarily consists of the fair value adjustments on our warrant liability, convertible note, and redeemable preferred shares, interest income and expense, net foreign currency transaction gains and losses, and grant proceeds received.
Other income increased by $34.0 million to $36.2 million for the three months ended June 30, 2022 from $2.2 million for the three months ended June 30, 2021. Other income increased by $26.7 million to $28.9 million for the six months ended June 30, 2022 from $2.2 million for the six months ended June 30, 2021. The increase in other income is primarily due to the $33.4 million gain on the revaluation of the warrant liability recorded during the second quarter of 2022 as a result of a decrease in our stock price.
Financial Condition, Liquidity and Capital Resources
Liquidity and Capital Resources
As of June 30, 2022, we had approximately $488.4 million of cash, cash equivalents, and restricted cash and current liabilities of approximately $45.7 million. To date, our principal sources of liquidity have been proceeds received from the Business Combination, issuance equity securities, and amounts received from government grants. Historically, these funds have been used for constructing and equipping our battery manufacturing facilities, including the CQP and Giga Arctic, technology licensing, R&D activities, and general corporate purposes.
19
Our future liquidity requirements depend on many factors, including the timing and extent of the following: capital expenditures for construction of our battery manufacturing facilities and purchase of related equipment, spending to support technology licensing and R&D efforts, spending on other growth initiatives or expansion into new geographies, our future revenue generating activities, including market acceptance of our products and services, and overall economic conditions.
Until we can generate sufficient revenue to adequately support our liquidity requirements, we expect to fund short-term cash needs through our existing cash balances. We believe that we have sufficient liquidity to meet our contractual obligations and commitments for at least the 12 months following June 30, 2022.
Our long-term operating needs and planned investments in our business and manufacturing footprint, as currently devised, will require significant financing. Such financing may not be available at terms acceptable to us, or at all. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing. If we are unable to raise substantial additional capital in the near term, our ability to invest in Giga Arctic and other gigafactories or development projects will be significantly delayed or curtailed which would have a material adverse impact on our business prospects and results of operations. If we raise funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of holders of our ordinary shares. The terms of debt securities or other borrowings could impose significant restrictions on our operations. If we raise funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of our ordinary shares.
Cash Flow Summary
The following table summarizes our cash flows (in thousands):
| Six months ended June 30, | ||||||||||||
| 2022 | 2021 | Change (%) | ||||||||||
| Net cash (used in) provided by: | ||||||||||||
| Operating activities | $ | (50,430 | ) | $ | (10,317 | ) | 389 | % | ||||
| Investing activities | (24,546 | ) | (119 | ) | NM | |||||||
| Financing activities | (1,052 | ) | 7,500 | (114 | %) | |||||||
NM - Not meaningful
Operating Activities
Net cash used in operating activities was $50.1 million for the six months ended June 30, 2022, compared to $10.3 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, the increase in cash used in operating activities was driven by a $38.0 million increase in net loss, adjusted for non-cash items. The increase in net loss, adjusted for non-cash items was primarily due to higher operating expenses from higher headcount and increased spending associated with the ramp up of activities as we continue to invest in building our business and move closer to the start-up of manufacturing operations.
Investing Activities
Net cash used in investing activities was $24.5 million for the six months ended June 30, 2022, compared to $0.1 million for the six months ended June 30, 2021. The change in cash used in investing activities was primarily driven by $26.4 million in purchases of property and equipment compared to $0.1 million for the six months ended June 30, 2022 and 2021, respectively. In addition, for the six months ended June 30, 2022, we used $3.0 million in cash for an investment in FREYR Battery KSP JV, LLC, our equity method investee and received proceeds of $4.9 million from grants funding our property and equipment construction.
20
Financing Activities
Net cash used in financing activities was $1.1 million for the six months ended June 30, 2022, compared to cash provided by financing activities of $7.5 million for the six months ended June 30, 2021. Net cash used during 2022 was related to the purchase of treasury shares during the second quarter. Net cash provided during 2021, consisted of $7.5 million in proceeds from the issuance of redeemable preferred shares.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are consistent with those described in the Management’s Discussion and Analysis section of our December 31, 2021 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies during the six months ended June 30, 2022.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements for information concerning new accounting standards and the impact of the implementation of these standards on our financial statements.
Emerging Growth Company Status
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable.
We qualify as an emerging growth company, as defined in the JOBS Act, and therefore intend to take advantage of certain exemptions from various public company reporting requirements, including delaying adoption of new or revised accounting standards until those standards apply to private companies. This may make a comparison of our condensed consolidated financial statements with another public company that is either not an emerging growth company or is an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
FREYR is exposed to market risks arising from adverse changes in inflation and changing prices. This market risk is described further below. In addition, refer to the section entitled “Risk Factors” in the prospectus filed by us pursuant to Rule 424(b)(3) on March 16, 2022 (the “Prospectus”), in the section entitled “Risk Factors” beginning on page 14, for additional discussion of these and other risks, including the potential risks associated with the supply chain and the COVID-19 pandemic.
Currency Exchange Risk
We are exposed to currency risk from potential changes in currency values of our non-United States dollar denominated expenses, assets, liabilities, and cash flows. Our most significant currency exposure relates to the Norwegian Krone.
Inflation Risk
Increases in raw material and building supply prices and increases in freight and logistics costs, including those from inflationary pressures or from supply chain constraints, may adversely impact FREYR’s costs and results of operations. Rising raw material costs, including steel and aluminum which saw significant price increases in 2021, may result in significant increases in costs from our suppliers and increased lead-times associated with our raw materials, particularly since we have not established fixed prices and volumes with a majority of our prospective suppliers. Increased costs of building supply costs may adversely impact the cost of construction of our buildings, equipment, and infrastructure for our CQP and Giga Arctic.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
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ITEM 4. CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and Procedures
We maintain disclosure controls and procedures (“Disclosure Controls”) within the meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our Disclosure Controls are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), during the three months ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising in the ordinary course of our business. To the knowledge of our management, there are no material litigation, claims, or actions currently pending or threatened against us, any of our officers, or directors in their capacity as such, or against any of our property.
ITEM 1A. RISK FACTORS
As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on March 9, 2022, except as discussed in Part II, Item IA, of our Quarterly Report on Form 10-Q for the period ended March 31, 2022. Additional risks not currently known to us or that we currently deem to be immaterial may also materially affect our consolidated financial position, results of operations, or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information related to our repurchases of ordinary shares during the three months ended June 30, 2022:
| Period | Total number of shares purchased (1) | Weighted average price paid per share | Total number of shares
purchased as part of publicly announced plans or programs (1) | Maximum number of shares that may yet be purchased under the plans or programs (1) | ||||||||||||
| Ordinary shares: | ||||||||||||||||
| April 1 – 30, 2022 | - | $ | - | - | - | |||||||||||
| May 1 – 31, 2022 | - | - | - | 150,000 | ||||||||||||
| June 1 – 30, 2022 | 150,000 | 6.97 | 150,000 | - | ||||||||||||
| Total | 150,000 | $ | 6.97 | 150,000 | - | |||||||||||
| (1) | As announced in the Company’s Current Report on Form 8-K filed with the SEC on June 13, 2022, in May 2022, the board of directors approved a share repurchase program (the “Share Repurchase Program”). The shares purchased under the program are to be used to settle the exercise of employee options granted under the Company’s equity compensation plans. We were authorized to repurchase up to 150,000 of the Company’s Ordinary Shares, or approximately 0.13% of the current outstanding share capital. As of June 30, 2022, the authorized share repurchase was completed and no ordinary shares remain available for repurchase under the program. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS
The documents listed below are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).
| Exhibit | ||
| Number | Exhibit Description | |
| 3.1 | Consolidated Articles of Association of FREYR as of November 26, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on December 16, 2021). | |
| 31.1* | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1‡,* | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2‡,* | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101* | Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 is formatted in Inline XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021; and (v) Notes to Condensed Consolidated Financial Statements. | |
| 104* | Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101 |
| * | Filed herewith |
| ‡ | The certifications attached as Exhibits 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FREYR BATTERY | ||
| Date: August 8, 2022 | By: | /s/ Tom Einar Jensen |
| Name: | Tom Einar Jensen | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 8, 2022 | By: | /s/ Oscar K. Brown |
| Name: | Oscar K. Brown | |
| Title: | Group Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) | |
25
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tom Einar Jensen, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of FREYR Battery; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2022 | By: | /s/ Tom Einar Jensen |
| Tom Einar Jensen | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Oscar K. Brown, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of FREYR Battery; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2022 | By: | /s/ Oscar K. Brown |
| Oscar K. Brown | ||
| Group Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FREYR Battery (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tom Einar Jensen, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: August 8, 2022 | By: | /s/ Tom Einar Jensen |
| Tom Einar Jensen | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of FREYR Battery (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Oscar K. Brown, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Date: August 8, 2022 | By: | /s/ Oscar K. Brown |
| Oscar K. Brown | ||
| Group Chief Financial Officer | ||
| (Principal Financial Officer) |
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