UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
Commission
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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Indicate
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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; |
ii
| ● | 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; | |
| ● | 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)
| As of March 31, | As of 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 | ||||||||
| Operating lease asset | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accounts payable and accrued liabilities - related party | ||||||||
| Deferred income | ||||||||
| Share-based compensation liability | ||||||||
| Other current liabilities | ||||||||
| 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 | ||||||||
| 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 Share and per Share Amounts)
(Unaudited)
| For the three months ended March 31, | ||||||||
| 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 note fair value adjustment | - | |||||||
| Interest income | ||||||||
| Interest expense | ( | ) | - | |||||
| Foreign currency transaction (loss) gain | ( | ) | ||||||
| Other income, net | - | |||||||
| Total other income (expense) | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustments | ||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted-average ordinary shares outstanding | ||||||||
| Basic and diluted net loss attributable to ordinary shareholders | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to condensed consolidated financial statements
2
FREYR BATTERY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(In Thousands, Except Share Amounts)
(Unaudited)
| Ordinary Shares | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Deficit | |||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | | $ | ( | ) | $ | ||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Ordinary Shares | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Shareholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Balance as of March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
3
FREYR BATTERY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| For the three months ended March 31, | ||||||||
| 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 | ||||||||
| Redeemable preferred shares fair value adjustment | ( | ) | ||||||
| Reduction in the carrying amount of lease assets | ||||||||
| Warrant liability fair value adjustment | ||||||||
| Convertible note fair value adjustment | ( | ) | ||||||
| Equity in losses from investee | ||||||||
| 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 | ||||||||
| 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 | ||||||||
| Proceeds from issuance of redeemable preferred shares | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of changes in foreign exchange rates on cash, cash equivalents, and restricted cash | ||||||||
| Net increase (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 noncash investing and financing activities | ||||||||
| Accrued purchases of property and equipment | $ | $ | ||||||
| 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
1. Business and Basis of Presentation
Description of the Business
FREYR Battery (“FREYR,” the “Company”, “we”, or “us”) is a battery manufacturing company. We are in the initial design and testing phase related to our battery production and have yet to bring a completed product to market.
Business Combination
Pursuant to the Business Combination Agreement (the “BCA”) entered into to effect a merger between Alussa Energy Acquisition Corp., a Cayman Islands exempted company (“Alussa”) and FREYR AS, a private limited liability company organized under the laws of Norway (“FREYR Legacy”) (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.
On July 9, 2021, FREYR consummated the Business Combination with FREYR Legacy and Alussa pursuant to the terms of the BCA dated January 29, 2021. Pursuant to the terms of the BCA, among other things, FREYR Legacy’s wind farm business was transferred to Sjonfjellet Vindpark Holding AS (“SVPH”), resulting in SVPH shares being held by FREYR Legacy’s shareholders. In connection with the consummation of the transactions contemplated by the BCA, FREYR Legacy and Alussa became wholly owned subsidiaries of FREYR. Following the First Closing on July 7, 2021, FREYR’s ordinary shares and warrants began trading on the New York Stock Exchange.
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 condensed consolidated financial statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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’s presentation in the condensed consolidated financial statements and the accompanying notes. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
5
Risks and Uncertainties
We are subject to those risks common in the renewable energy and manufacturing industries and also those risks common to early stage development companies, including, but not limited to, the possibility of not being able to successfully develop or market our products, the ability to obtain or maintain licenses and permits to support future business, competition, dependence on key personnel and key external alliances, loss of our grant contributor, the ability to maintain and establish relationships with current and future vendors and suppliers, the successful protection of our proprietary technologies, the possibility of the factory development being disrupted, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.
These financial statements have been prepared by management in accordance with U.S. GAAP and this basis assumes 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.
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 planned operations for the next 12 months. As a result, management believes that our existing financial resources are sufficient to continue operating activities for at least one year past the issuance date of the financial statements.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those critical accounting estimates related to the valuation of share-based compensation, our valuation of warrant liability and our valuation of the convertible note (the “Convertible Note”). We base these estimates on historical experiences and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
Unaudited Condensed Consolidated Financial Statements
The accompanying interim condensed consolidated balance sheet as of March 31, 2022, the interim condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the interim condensed consolidated statements of shareholders’ equity (deficit) for the three months ended March 31, 2022 and 2021, and the interim condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments necessary for the fair statement of the Company’s condensed consolidated financial statements for the periods presented. The financial data and other financial information disclosed in the notes to these condensed consolidated financial statements related to the three-month period are also unaudited. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. Although the consolidated balance sheet as of December 31, 2021 was derived from the audited annual consolidated financial statements as of December 31, 2021, these interim condensed consolidated financial statements do not contain all of the footnote disclosures from the annual consolidated financial statements.
These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s annual financial statements for the fiscal year ended December 31, 2021.
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.
6
Leases
We determine if an arrangement is a lease at inception. For leases with a lease term greater than 12 months, right of use assets and lease liabilities are recognized on the consolidated balance sheets at the commencement date based on the present value of the remaining fixed lease payments and includes only payments that are fixed and determinable at the time of commencement. Our lease agreements may also contain variable payments such as common area maintenance, insurance, payments affected by a price index or other costs. Such variable lease payments are expensed as incurred.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the 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.
Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. When determining the probability of exercising such options, we consider contract-based, asset-based, entity-based, and market-based factors.
Operating lease expense (excluding variable lease costs) is recognized on a straight-line basis over the lease term.
Adoption of Accounting Pronouncements
In December 2019, the FASB issued ASU 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 Accounting Standards Update No. 2016-02, Leases (ASC 842) (ASU 2016-02), 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 has not been updated 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 exist before the adoption of the new standard. We also elected to combine lease and non-lease components for all classes of assets and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the condensed consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term.
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 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
7
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 U.S. 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.
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
| As of March 31, | As of December 31, | |||||||
| 2022 | 2021 | |||||||
| Office equipment | $ | $ | ||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| Property and equipment, net | $ | $ | ||||||
Construction in progress primarily includes costs related to the construction of the CQP in Mo i Rana, Norway and the related production equipment.
5. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
| As of March 31, | As of December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued purchases | $ | $ | ||||||
| Accrued payroll and payroll related expenses | ||||||||
| Operating lease liabilities (Note 6) | ||||||||
| Accrued other operating costs | ||||||||
| Total accrued liabilities | $ | $ | ||||||
6. Leases
We currently lease our corporate headquarters, CQP 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):
| As of March 31, 2022 | ||||
| Liabilities: | ||||
| Accrued liabilities (Note 5) | ||||
| Operating lease liability | ||||
| Total lease liabilities | $ | |||
8
Components of lease expense were as follows (in thousands):
| For the three months ended March 31, 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):
| As of March 31, 2022 | ||||
| For the remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | ||||
| Less: Imputed interest | ||||
| Present value of lease liabilities | $ | |||
As of March 31, 2022, we
have entered into one new lease for the land of Gigafactory 1&2 in Mo i Rana, Norway that has not yet commenced with future lease
payments of $
Weighted average remaining lease term and discount rate are as follows:
| As of March 31, 2022 | ||||
| Weighted-average remaining lease term (in years) | ||||
| Weighted-average discount rate | % | |||
Supplemental cash flow information related to leases were as follows (in thousands):
| For the three months ended March 31, 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||
| Operating cash flows | $ | |||
| Lease liabilities arising from obtaining right of use assets | $ | |||
9
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.
8. Warrants
As of March
31, 2022, we have
The Warrants entitle the holder
thereof to purchase one of our ordinary shares 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 may call
the Public Warrants for redemption once they become exercisable, in whole and not in part, at a price of $
We determined that the Public Warrants are equity classified as they are indexed to our ordinary shares and qualify for classification within shareholders’ equity. As such, the Public Warrants are presented within additional paid-in capital on the condensed consolidated balance sheets herein. However, 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 within warrant liability on the condensed consolidated balance sheets herein. See Note 9 - Fair Value Measurement for further details.
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):
| As of March 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Convertible Note | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant Liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Convertible Note | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant Liabilities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
10
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 March 31, 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 March 31, 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 March 31, 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 March 31, 2022 and December 31, 2021, required the use of subjective assumptions:
| ● | The
risk-free interest rate assumption was based on the U.S. Treasury Rates, which was commensurate with the contractual terms of the Private
Warrants, which expire on the earlier of |
| ● | 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. |
11
Using this approach, an
exercise price of $
Convertible Note
As of March 31, 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. Using this approach, we determined that the
fair value of the Convertible Note as of March 31, 2022 and December 31, 2021 was $
Redeemable Preferred Shares
On November
11, 2020,
The following table presents changes in the Level 3 instruments measured at fair value for the three months ended March 31, 2022 and 2021, respectively (in thousands):
| For the three months ended March 31, 2022 | ||||||||||||
| Asset | Liability | |||||||||||
| 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) | $ | $ | $ | |||||||||
| For the three months ended March 31, 2021 | ||||||||||||
| Asset | Liability | |||||||||||
| Convertible Note | Private Warrants | Redeemable preferred shares | ||||||||||
| Balance (beginning of period) | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| Fair value measurement adjustments | ( | ) | ||||||||||
| Foreign currency exchange effects | ||||||||||||
| Balance (end of period) | $ | $ | $ | |||||||||
12
10. Shareholders’ Equity (Deficit)
Ordinary Shares
As of March 31, 2022,
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 employee 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. Share-based compensation expense, inclusive of the changes to the fair value of the share-based compensation liability, is recognized separately in general and administrative expense and research and development expense within the consolidated statements of operations and comprehensive loss.
The following table sets forth the activity relating to the employee options and warrants outstanding under the 2019 Plan for the three months ended March 31, 2022 (aggregate intrinsic value in thousands):
| For the Three Months Ended March 31, 2022 | Number | Weighted average exercise price | Weighted average remaining contractual life (years) | Aggregate intrinsic value | ||||||||||||
| Awards outstanding at beginning of period | $ | |||||||||||||||
| Awards granted | ||||||||||||||||
| Awards forfeited | ||||||||||||||||
| Awards outstanding at end of period | $ | $ | ||||||||||||||
| Awards exercisable at end of period | $ | $ | ||||||||||||||
13
Compensation expense
recorded for the employee awards in general and administrative for the three months ended March 31, 2022 and 2021 was $
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. The aggregate number of additional shares authorized under the 2021 LTIP plan will
not exceed
All options granted were determined to vest annually in equal thirds and can be exercised up to five years after the grant date. There are no performance or market conditions for vesting.
The following table sets forth the activity relating to the employee options outstanding under the 2021 LTIP for the three months ended March 31, 2022 (aggregate intrinsic value in thousands):
| For the Three Months Ended March 31, 2022 | Number | Weighted average exercise price | Weighted average remaining contractual life (years) | Aggregate intrinsic value | ||||||||||||
| Awards outstanding at beginning of period | $ | |||||||||||||||
| Awards granted | $ | |||||||||||||||
| Awards forfeited | $ | |||||||||||||||
| Awards outstanding at end of period | $ | $ | ||||||||||||||
| Awards exercisable at end of period | $ | $ | ||||||||||||||
Compensation expense
recorded for the employee awards in general and administrative for the three months ended March 31, 2022 and 2021 was $
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. Under the stock option agreement, our CEO was awarded
14
The CEO Option
Awards were determined to be granted on July 13, 2021. Compensation cost is recognized if we conclude that it is probable that the performance
condition will be achieved. Compensation expense recorded for the CEO option awards in general and administrative for the three months
ended March 31, 2022 and 2021 was $
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”). Per the 2019 EDGE Agreement, FREYR Legacy agreed to issue
On September 1, 2020, FREYR Legacy
amended the 2019 EDGE Agreement, effective as of July 1, 2020 (the “2020 EDGE Agreement”). Under the 2020 EDGE Agreement,
FREYR Legacy agreed to issue an additional
Compensation
expense recorded for the three months ended March 31, 2022 and 2021 for the warrants was and $
11. Government Grants
15
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 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. See Note 10 - Shareholders’ Equity (Deficit) for further discussion on the warrant agreements between FREYR Legacy and EDGE. Furthermore, 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. 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 months ended March 31, 2022 and 2021 were and $
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 $
16
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 Projects.
Equity Method Investment
We hold a
14. Convertible Note
On October 8, 2021, we invested
$
15. Net Loss Per Share
The Company’s basic net loss per share attributable to ordinary shareholders for the three months ended March 31, 2022 was computed by dividing net loss attributable to ordinary shareholders by the weighted-average ordinary shares outstanding. For the three months ended March 31, 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 months ended March 31, 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 three months ended March 31, 2022 and 2021.
Diluted net 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 three months ended March 31, 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; however, no instrument was determined to have a dilutive effect.
17
The following table sets forth the computation of our basic and diluted net loss per share attributable to ordinary shareholders for three months ended March 31, 2022 and 2021 (amounts in thousands, except share and per share amounts):
| For the three months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Numerator: | ||||||||
| Net loss attributable to ordinary shareholders - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average ordinary shares outstanding - basic and diluted | ||||||||
| Net loss per ordinary share: | ||||||||
| Basic and 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:
| As of March 31, | ||||||||
| 2022 | 2021 | |||||||
| EDGE warrants | ||||||||
| Other nonemployee warrants | ||||||||
| Employee awards | ||||||||
| CEO awards | ||||||||
| Share-based compensation liability | ||||||||
| Private Warrants | ||||||||
| Public Warrants | ||||||||
| Redeemable preferred shares | ||||||||
| Total | ||||||||
For the three months ended March 31, 2022, the
Company excluded
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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 the historical audited annual consolidated financial statements as of and for the year ended December 31, 2021 and the unaudited interim condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, and the related respective notes, which are included elsewhere in this Report. 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. FREYR Battery’s actual results could differ materially from those that are discussed in these forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Report, particularly under “Risk Factors.” 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
Our mission and vision are to accelerate the decarbonization of the transportation sector and energy systems by delivering some of the world’s cleanest and most cost-effective batteries. We aim to produce some of the most cost-competitive batteries with the lowest carbon footprints, which could further support the acceleration of the energy transition. Following the investment decision of the CQP, construction work is ongoing in Mo i Rana, Norway. The CQP production line will be based on our in-licensed technology from 24M. As of March 31, 2022, we have not derived revenue from our principal business activities. We will initially target energy storage systems (“ESS”), marine applications, commercial vehicles and electric vehicles (“EV”) with slower charge requirements, and then plan to target additional markets, including consumer EVs, through both the joint venture model and through the licensing model. We plan to produce faster charge battery cells for the broader consumer EV segment through the 24M platforms, as well as through the joint venture business model and potentially additional licensing partnerships.
We expect our capital and operating expenditures to increase significantly in connection with our ongoing activities and to prepare for growth, as we:
| ● | construct manufacturing facilities and purchase related equipment; |
| ● | commercialize products; |
| ● | continue to invest in technology; |
| ● | maintain and improve operational, financial, and management information systems; |
| ● | hire additional personnel; |
| ● | operate as a public company. |
Recent Developments
| ● | Signed a Head of Terms agreement to pursue a Joint Venture (“JV”) with Aleees to establish an LFP cathode plant in the Nordic region. The joint venture partners will seek to commence production in 2024, coinciding with the anticipated ramp-up of operations from FREYR’s first Gigafactory in Mo i Rana, Norway. |
| ● |
Announced our signing of UN Global Compact principles of human rights, labor, environment, and anti-corruption.
| |
| ● |
Appointed Oscar K. Brown as FREYR’s Group Chief Financial Officer, effective on April 4, 2022. Mr. Brown comes with more than 30 years of energy industry experience, having most recently been Senior Vice President of Strategy, Business Development and Supply Chain for Occidental Petroleum Corporation.
| |
| ● | Entered into a conditional power purchase agreement (“PPA”) to secure access to clean and renewable electricity through hydropower following the commencement of production in Gigafactory 1&2. The PPA is conditional upon FREYR taking a final investment decision on Gigafactory 1&2. |
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.
19
Key Factors Affecting Operating Results
We believe our performance and future success depends on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Report titled “Risk Factors.”
Components of Results of Operations
Operating Expenses
General and administrative
General and administrative expense consists of personnel and personnel-related expenses, including share-based compensation of our executives and employees, fees paid for contractors and consultants assisting with growing the business and developing the battery factories, office space related costs, travel costs, public relations costs, legal and accounting fees for professional and contract services, as well as depreciation expense. 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 operating as a public company, including compliance with the rules and regulations of the 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 expense 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 expense also includes the development costs related to the 24M License.
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.
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.
20
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Report. The following table sets forth FREYR Battery’s condensed consolidated results of operations data for the periods presented (in thousands, except percentages):
| For the three months ended | ||||||||||||||||
| March 31, | Change | Change | ||||||||||||||
| 2022 | 2021 | ($) | (%) | |||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | $ | 24,614 | $ | 9,012 | $ | 15,602 | 173 | % | ||||||||
| Research and development | 2,859 | 2,907 | (48 | ) | -2 | % | ||||||||||
| Equity in losses from investee | 167 | - | 167 | NM | (1) | |||||||||||
| Total operating expenses | 27,640 | 11,919 | 15,721 | 132 | % | |||||||||||
| Loss from operations | (27,640 | ) | (11,919 | ) | (15,721 | ) | 132 | % | ||||||||
| Other income (expense) | (7,267 | ) | 32 | (7,299 | ) | NM | (1) | |||||||||
| Loss before income taxes | (34,907 | ) | (11,887 | ) | (23,020 | ) | 194 | % | ||||||||
| Income tax expense | - | - | - | 0 | % | |||||||||||
| Net loss | $ | (34,907 | ) | $ | (11,887 | ) | $ | (23,020 | ) | 194 | % | |||||
| (1) | NM = Not meaningful |
Operating expenses
General and administrative
General and administrative expenses increased by $15.6 million or 173%, to $24.6 million for the three months ended March 31, 2022, from $9.0 million for the three months ended March 31, 2021. General and administrative expenses increased primarily due to an increase of $12.4 million related to growth in professional services, general corporate expenses, and travel. Additionally, there was an increase of compensation costs of $6.5 million resulting from a higher headcount and share based compensation costs. These increases were partially offset by a decrease in non-employee share-based compensation costs of $3.7 million recognized in the prior year.
Equity in losses from investee
Equity in losses from investee of $0.2 million were recognized for the three months ended March 31, 2022. There was no equity in losses from investee for the three months ended March 31, 2021.
Other income (expense)
Other income (expense) changed by $7.3 million to a loss of $7.3 million for the three months ended March 31, 2022 from a gain of less than $0.1 million for the three months ended March 31, 2021. The change in other income (expense) is primarily due to the increase in the warrant liability fair value adjustment of $8.7 million, offset by the increase in other income of $1.5 million, which predominantly consists of the grant proceeds recognized during the three months ended March 31, 2022.
Financial Condition, Liquidity and Capital Resources
Liquidity and Capital Resources
As of March 31, 2022 we had approximately $524.6 million of cash, cash equivalents, and restricted cash and current liabilities of approximately $35.1 million. To date, our principal sources of liquidity have been proceeds received from the Business Combination, issuance of debt and equity securities and amounts received from government grants. These funds will be used for our battery projects, technology licensing and research and development efforts, including the CQP, and general corporate purposes. Additionally, we expect that the various government grants we have received but not earned to date will also help fund our operational needs and general corporate purposes and cover certain operating expenses.
Our capital requirements depend on many factors, including capital expenditures required to support the development of the battery factories, the timing and extent of spending to support technology licensing and research and development efforts and market adoption of our future products. Until we can generate sufficient revenue to cover operating expenses, working capital and capital expenditures, we expect to fund cash needs through a combination of equity and debt financing. 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. 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 borrowings could impose significant restrictions on our operations. 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.
21
While we will need to raise additional capital in the future, if adequate funds are not available, we will need to curb our expansion plans or limit our research and development activities, which would have a material adverse impact on our business prospects and results of operations.
We believe that we have the ability to meet all of our contractual obligations and commitments for at least the next 12 months.
Cash Flow Summary
The following table summarizes our cash flows for the periods presented (in thousands):
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (30,135 | ) | $ | (6,392 | ) | ||
| Investing activities | (10,932 | ) | (54 | ) | ||||
| Financing activities | - | 7,500 | ||||||
Operating Activities
Net cash used in operating activities was $30.1 million for the three months ended March 31, 2022, while net cash used in operating activities was $6.4 million for the three months ended March 31, 2021. For the three months ended March 31, 2022, the primary factor affecting our operating cash flows was our operating expenses of $27.3 million driven by payroll and other related costs, accounting and legal fees, research and development, and other operating expenses. For the three months ended March 31, 2021, the primary factor affecting our operating cash flows was our operating expenses of $11.9 million driven by payroll and other related costs, fees to EDGE Global, accounting and legal fees, research and development, and other operating expenses. These operating expenses were partially offset by the impact of the increase in accounts payable and accrued liabilities of $1.3 million due to the timing of payments and non-cash share-based compensation of $4.2 million.
Investing Activities
Net cash used in investing activities was $10.9 million for the three months ended March 31, 2022, while net cash used in investing activities was $0.1 million for the three months ended March 31, 2021. For the three months ended March 31, 2022, our investing cash flows primarily reflect $7.9 million of purchases of property and equipment and a $3.0 million investment in FREYR Battery KSP JV, LLC, our equity method investee. For the three months ended March 31, 2021, our investing cash flows primarily reflect the purchases of equipment.
Financing Activities
There was no net cash provided by or used in financing activities for the three months ended March 31, 2022, while net cash provided by financing activities was $7.5 million for the three months ended March 31, 2021. For the three months ended March 31, 2021, our financing cash flows relate to net proceeds of $7.5 million from the issuance of redeemable preferred shares.
22
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are consistent with those described in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Annual Report on Form 10-K.
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.
Inflation Risk
Increases in raw material prices, 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 raw material inflation in fiscal year 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.
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.
23
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 March 31, 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
As part of our preparation towards production, we implemented a new cloud enterprise resource planning (“ERP”) system as of January 1, 2022. The ERP system, which is an integral component of our internal controls over financial reporting, will provide us with more efficient transactional processing, increased scalability and enhanced management tools for our business growth.
There were no other changes in our internal control over financial reporting during the first quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the knowledge of our management, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
From time to time, we may be involved in litigation relating to claims arising in the ordinary course of our business. There are currently no material claims or actions pending or threatened against us.
ITEM 1A. RISK FACTORS
Other than the update to the risk factor set forth below, 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. 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.
Doing business internationally creates operational, financial and tax risks for FREYR’s business.
FREYR’s business plan includes operations in international markets, including initial manufacturing and supply activities in Norway, initial sales in North America and Europe, and eventual expansion into other international markets. Conducting and launching operations on an international scale requires close coordination of activities across multiple jurisdictions and time zones and consumes significant management resources. If FREYR fails to coordinate and manage these activities effectively, its business, financial condition, prospects or results of operations could be adversely affected. International sales entail a variety of risks, including currency exchange fluctuations, challenges in staffing and managing foreign operations, tariffs and other trade barriers, unexpected changes in legislative or regulatory requirements of foreign countries into which FREYR sells its products and services, difficulties in obtaining export licenses or in overcoming other trade barriers, laws and business practices favoring local companies, political and economic instability, difficulties protecting or procuring intellectual property rights, and restrictions resulting in delivery delays and significant taxes or other burdens of complying with a variety of foreign laws.
In particular, in February 2022, armed conflict escalated between Russia and Ukraine. The EU and other governments in jurisdictions in which we plan to operate in have imposed severe financial and economic sanctions and export controls against Russia and Russian interests, and have threatened additional sanctions and controls. It is not possible to predict the broader consequences of this military conflict. Further escalation of geopolitical tensions related to the military conflict, could include, among other things, further sanctions, embargoes, greater regional instability, geopolitical shifts, heightened risk of cyberattacks, and other adverse effects on macroeconomic conditions, currency exchange rates, supply chains and financial markets, any of which may adversely affect our business and supply chain. In addition, the effects of the ongoing conflict could heighten many of our known risks described in the section entitled “Risk Factors" in our Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on March 9, 2022.
In addition, the corporate structure of FREYR and its subsidiaries with entities in several jurisdictions such as Norway, Luxembourg, the U.S., Finland and the Cayman Islands, is, together with its conducting of operations in international markets as described above, subject to tax risk. The expected tax treatment of FREYR and its subsidiaries relies on current tax laws and regulations, as well as certain tax treaties between the aforementioned different jurisdictions. As such, unexpected changes, interpretation, application or enforcement practice in respect of legislative or regulatory requirements of such tax laws in foreign countries into which FREYR or any of its subsidiaries is incorporated and/or conducting operations and sales in, including but not limited to, changes in treatment of sales and results of operations earned in foreign and offshore jurisdictions, value added tax, cessation of tax treaties and recognition of tax law principles in other jurisdictions, as well as other changes in corporate tax law, may adversely FREYR’s business, financial conditions, prospects or result of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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).
| # | Indicates management contract or compensatory plan or arrangement. |
| ‡ | 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. |
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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: May 11, 2022 | By: | /s/ Tom Einar Jensen |
| Name: | Tom Einar Jensen | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May 11, 2022 | By: | /s/ Oscar K. Brown |
| Name: | Oscar K. Brown | |
| Title: | Group Chief Financial Officer (Principal Financial Officer & Principal Accounting Officer) | |
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