There is no material pending or threatened litigation against the Company that remains outstanding as of March 31, 2021.
On February 5, 2021, the Company entered into a lease agreement by and among the Company, in its capacity as Tenant, and BP Hancock LLC, a Delaware limited liability company, in its capacity as Landlord. The lease
provides for the rental by the Company of office space at 200 Clarendon Street, Boston, MA 02116 for use as the Company’s executive offices. Under the terms of the lease, the Company leases 6,041 square feet at an initial fixed annual rent of
$456,095.50. The term of the lease is for five years (unless terminated as provided in the lease) and is expected to commence in April 2021. The Company provided security in the form of a security deposit in the amount of $114,023.88 which is
included in Other current assets.
On March 8, 2021, the Company entered into a lease for 21,401 square feet as a product development and manufacturing center at Hood Park in Charlestown, MA. Under the terms of the lease, the Company will pay an
initial fixed annual rent of $1,498,070.00. The lease has a term of eight years and five months, with an option to extend for five years, and is expected to commence in June 2021. The Company is obliged to provide security in the form of a security
deposit in the amount of $750,000.00 before commencement of the lease.
Net income (loss) per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period totaled to 46,105,947.
The following table sets forth the computation of the basic and diluted net loss per share for the three months ended March 31, 2021 and 2020.
Subsequent to March 31, 2021 certain warrantholders exercised their options to purchase an additional 22,798 shares at $11.50. These exercises generated $262,177 in additional proceeds to the Company and increased our shares outstanding by
22,798 shares.
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2021 (the “Original Annual Report”), as amended by Amendment No. 1 to Form 10-K, filed with the SEC on May 20, 2021 (as so amended, the “2020 Annual Report”), our
Current Report on Form 8-K, as filed with the SEC on February 9, 2021 as further amended by Amendment No. 2 to Form 8-K, filed with the SEC on March 26, 2021 (“Amendment No. 2”) and as further amended by
Amendment No 3 to Form 8-K, filed with the SEC on May 20, 2021 (“Amendment No. 3,” and, the Original Form 8-K, as so amended by Amendment No. 1, Amendment No. 2 and Amendment No. 3, the “Super Form 8-K”).
Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements
that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Item 1A. Risk Factors” section of this Quarterly Report on Form 10-Q and the “Item 1A. Risk Factors” section of our 2020 Annual Report, our actual results could differ
materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
This MD&A generally discusses 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. As used in this MD&A, unless the context
indicates otherwise, the financial information relating to the quarter ended March 31, 2020 are those of Advent Technologies, Inc. and its subsidiaries, and the financial information and data for the quarter ended March 31, 2021 includes the
financial information and data of Advent Technologies, Inc. and its subsidiaries for the period prior to the Closing and the financial information and data of Advent Technologies Holdings, Inc. for the period subsequent to the Closing. See Note 1
“Basis of Presentation” in the accompanying unaudited condensed consolidated financial statements for additional information.
Overview
Advent is an advanced materials and technology development company operating in the fuel cell and hydrogen technology space. Advent develops, manufactures and assembles the critical components
that determine the performance of hydrogen fuel cells and other energy systems. Advent’s core product offering is the Membrane Electrode Assembly (MEA) at the center of the fuel cell. The Advent MEA, which derives its key benefits from the
properties of Advent’s engineered membrane technology, enables a more robust, longer-lasting and ultimately lower-cost fuel cell product.
To date, Advent’s principal operations have been to develop and manufacture MEAs, and to design fuel cell stacks and complete fuel cell systems for a range of customers in the stationary power,
portable power, automotive, aviation, energy storage and sensor markets. Advent has its headquarters in Boston, Massachusetts, a product development facility in Livermore, California, and an MEA assembly and production facility in Patras, Greece.
In the third quarter of 2021, Advent anticipates opening its new research and development and manufacturing facility at Hood Park in Charlestown, Massachusetts. The majority of Advent’s current revenue derives from the sale of MEA’s as well as the
sale of membranes and electrodes for specific applications in the iron flow battery and cellphone markets respectively. While MEA sales and associated revenues are expected to provide the majority of Advent’s future income, both of these markets
remain commercially viable and have the potential to generate material future revenues based on Advent’s existing customers. Advent has also secured grant funding for a range of projects from research agencies and other organizations in the U.S.
and Greece. Advent expects to continue to be eligible for grant funding based on its product development activities over the foreseeable future.
Historically, Advent has financed its operations through internal cashflows, grant income and private placements of equity and convertible notes. In the three months ended March 31, 2021, Advent generated revenue
from product sales of approximately $1.5 million and incurred an operating loss of approximately $7 million. During the three months ended March 31, 2021, Advent received proceeds as a result of the Merger dated February 4, 2021 of approximately
$140 million and recorded approximately $(12.2 million) in operating cashflow, resulting in a period end cash balance of approximately $125 million as of March 31, 2021.
Business Combination and Public Company Costs
On October 12, 2020, Advent Technologies, Inc. entered into the Merger Agreement with Advent Technologies Holdings, Inc. (formerly known as “AMCI”), a Delaware corporation, AMCI Merger Sub Corp., a newly-formed
Delaware corporation and wholly-owned subsidiary of AMCI (“Merger Sub”), AMCI Sponsor LLC, a Delaware limited liability company (“Sponsor”), in its capacity as Purchaser Representative (the “Purchaser Representative”) and Vassilios Gregoriou, in
the capacity as Seller Representative ( the “Seller Representative”), pursuant to which, effective February 4, 2021, Merger Sub merged with and into Advent Technologies Inc., with Advent Technologies Inc. surviving the Merger as a wholly-owned
subsidiary of AMCI. Advent Technologies Inc. is deemed the accounting predecessor and the combined entity is the successor registrant with the SEC, meaning that Advent Technologies Inc.’s financial statements for previous periods will be disclosed
in the registrant’s current and future periodic reports filed with the SEC.
While the legal acquirer in the Merger Agreement is AMCI, for financial accounting and reporting purposes under GAAP, we have determined that Advent is the accounting acquirer and the Business Combination will be
accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of Advent in many
respects. Under this method of accounting, AMCI is treated as the acquired entity whereby Advent is deemed to have issued common stock for the net assets and equity of AMCI, consisting mainly of cash, accompanied by a simultaneous equity
recapitalization of AMCI (the “Recapitalization”).
Upon consummation of the Business Combination, the most significant change in Advent’s reported financial position and results has been an estimated increase in cash of approximately $140 million. Total direct and
incremental transaction costs of AMCI and Advent, along with liabilities of AMCI paid off at the Closing, were approximately $23.6 million.
As a consequence of the Business Combination, Advent became the successor to an SEC-registered and Nasdaq-listed company which has required and will require Advent to hire additional personnel and implement
procedures and processes to address public company regulatory requirements and customary practices. Advent expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance,
director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Additionally, Advent anticipates that its revenue, capital and operating expenditures will increase significantly in connection with its ongoing activities following the Business Combination, as
Advent expects to:
|
•
|
Expand U.S.-based operations to increase capacity for MEA testing, development projects and associated research and development activities;
|
|
•
|
Expand Greece-based production facilities to increase and automate MEA assembly and production;
|
|
•
|
Develop improved MEA and other products for both existing and new markets, such as ultra-light MEAs designed for aviation applications, to remain at the forefront of the fast-developing hydrogen economy;
|
|
•
|
Increase business development and marketing activities;
|
|
•
|
Increase headcount in management and head office functions in order to appropriately manage Advent’s increased operations;
|
|
•
|
Improve its operational, financial and management information systems;
|
|
•
|
Obtain, maintain, expand, and protect its intellectual property portfolio; and
|
|
•
|
Operate as a public company.
|
Change in Independent Registered Public Accounting Firm
On February 9, 2021, the audit committee of the board of directors of the Company approved the engagement of Ernst & Young (Hellas) Certified Auditors Accountants S.A. (“EY”) as the Company’s independent
registered public accounting firm to audit the Company’s consolidated financial statements for the year ending December 31, 2021. EY served as independent registered public accounting firm of Advent prior to the Business Combination. Accordingly,
Marcum LLP (“Marcum”), the Company’s independent registered public accounting firm prior to the Business Combination, was informed that it would be replaced by EY as the Company’s independent registered public accounting firm following completion
of its audit of the Company’s financial statements for the fiscal year ended December 31, 2020, which consists only of the accounts of the pre-Business Combination special purpose acquisition company.
Business Developments
Selection of Wearable Fuel Cell for the DOD 2021 Validation Program
On March 31, 2021, we announced that UltraCell’s 50 W Reformed Methanol Wearable Fuel Cell Power System (“Honey Badger”) had been selected by the U.S. Department of Defense’s (“DOD”) National Defense Center for
Energy and Environment (“NDCEE”) to take part in its demonstration/validation program for 2021. The NDCEE is a DOD program that addresses high-priority environmental, safety, occupational health, and energy technological challenges that are
demonstrated and validated at active installations for military application. UltraCell’s “Honey Badger 50” fuel cell is the only fuel cell that is part of this program that supports the U.S. Army’s goal of having a technology-enabled force by 2028.
Collaboration with the DOE
On March 1, 2021, we announced that we had entered into a joint development agreement (the “CRADA”) with the United States Department of Energy’s (“DOE”) Los Alamos National Laboratory (“LANL”), Brookhaven National
Laboratory (“BNL”), and National Renewable Energy Laboratory (“NREL”). Under this CRADA, along with support from the DOE’s Hydrogen and Fuel Cell Technologies Office (“HFTO”), our team of scientists plan to work closely with its LANL, BNL, and NREL
counterparts over the coming years to develop breakthrough materials to help strengthen U.S. manufacturing in the fuel cells sector and bring high-temperature proton exchange membrane (“HT-PEM”) fuel cells to the market.
UltraCell Purchase Agreement
On February 18, 2021, Advent Technologies Inc., entered into a Membership Interest Purchase Agreement with Bren-Tronics, Inc. (“Seller”) and UltraCell, LLC, a Delaware limited liability company and a direct
wholly-owned subsidiary of Seller (“UltraCell”) (the “Purchase Agreement”). Pursuant to the Purchase Agreement, and subject to the terms and conditions therein, on February 18, 2021, Advent acquired 100% of the issued and outstanding membership
interests in UltraCell, for $4 million and a maximum of $2 million upon achievement of certain milestones. Advent also assumed the terms of Seller’s lease for property used in UltraCell’s operations in Livermore, California. From the respective
acquisition, an amount $0.5 million recognized as Goodwill to the consolidated Balance Sheet.
Leases
On February 5, 2021, the Company entered into a lease agreement by and among the Company, in its capacity as Tenant, and BP Hancock LLC, a Delaware limited liability company, in its capacity as Landlord. The lease
provides for the rental by the Company of office space at 200 Clarendon Street, Boston, MA 02116 for use as the Company’s executive offices. Under the terms of the lease, the Company leases 6,041 square feet at an initial fixed annual rent of
$456,095.50. The term of the lease is for five years (unless terminated as provided in the lease). The Company provided security in the form of a security deposit in the amount of $114,023.88.
On March 8, 2021, the Company entered into a lease for 21,401 square feet as a product development and manufacturing center at Hood Park in Charlestown, MA. Under the terms of the lease, the Company will pay an
initial fixed annual rent of $1,498,070.00. The lease has a term of eight years and five months, with an option to extend for five years and is expected to commence in June 2021. The Company is obliged to provide security in the form of a security
deposit in the amount of $750,000.00, upon commencement of the lease.
Recent Developments
On April 16, 2021 the Company paid the $2 million of contingent consideration required to be paid to UltraCell’s former holders of
membership interests pursuant to the terms of the Purchase Agreement with Bren-Tronics.
On May 5, 2021, the Company, in collaboration with a consortium of DEPA Commercial, Damco Energy (Kopelouzos Group), PPC Greece, DESFA, Hellenic Petroleum, Motor Oil, Corinth Pipeworks, TAP and Terna Energy,
submitted to the Greek government the group’s “White Dragon” proposal for the development of an innovative, integrated green hydrogen project in Greece. The proposal aims to transition Greece to clean energy production and transmission, with the
ultimate goal of decarbonizing the energy system. The proposal plans to use large-scale renewable electricity to produce green hydrogen, which would then be stored and through high-temperature fuel cells developed and manufactured by the Company,
to supply Greece with clean electricity, green energy and heat. The proposal includes for the study and construction of a dedicated hydrogen pipeline in Greece to link green hydrogen production with large hydrogen end users, as well as plans to
implement the first widescale hydrogen fueled projects for the entire transportation section, including heavy duty trucks, trains and cars. The combined projected budget for the proposal, if approved in its entirety by the European and Greek
authorities, is € 8.063 billion.
Comparability of Financial Information
Advent’s results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Business Combination.
Key Factors Affecting Our Results
Advent believes that its performance and future success depend on several factors that present significant opportunities for Advent but also pose risks and challenges, including those discussed
below.
Increased Customer Demand
Based on conversations with existing customers and incoming inquiries from new customers, Advent anticipates substantial increased demand for its MEAs from a wide range of customers as it scales up its production
facilities and testing capabilities, and as the awareness of its MEA capabilities becomes widely-known in the industry. Advent expects both its existing customers to increase order volume, and to generate substantial new orders from major
organizations, with some of whom it is already in discussions regarding prospective commercial partnerships and joint development agreements. As of March 31, 2021, Advent was still generating a low level of revenues compared to its future
projections and has not made any commercial sales to these major organizations.
Successful development of the Advanced MEA product
Advent’s future success depends in large part on the increasing integration of the hydrogen fuel cell into the energy transition globally over the next decade. In order to become cost-competitive with existing
renewable power generation and energy storage technology and achieve widespread adoption, fuel cells will need to achieve substantial improvement in the cost/kw performance ratio delivered to prospective fuel cell customers, predominantly OEMs,
System Integrators and major energy companies. Advent expects to play an important enabling role in the adoption of hydrogen fuel cells, as its MEA technology is the critical determining factor in the cost/kw performance ratio of the fuel cells. In
partnership with the Los Alamos National Laboratory, Advent is currently developing its next generation MEA technology (“Advanced MEA”) which is anticipated to deliver as much as three times the power output of its current MEA product. Whilst
Advent is already projecting being able to pass through substantial cost benefits to its customers through economies of scale as it increases MEA production, the successful development of the Advanced MEA will be an important factor in delivering
the required improvement in cost/kw performance to Advent’s customers.
Basis of Presentation
Advent’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The Company has determined that it operates in one reportable segment. See Note 1 “Basis of
Presentation” in the accompanying unaudited condensed consolidated financial statements for more information.
Components of Results of Operations
Revenue, net
Revenues consist of sales of goods (MEAs, membranes, fuel cell stacks, fuel cell systems and electrodes). Advent expects revenues to increase materially and be weighted towards MEA sales over time, in line with the
projected increase in MEA production in response to customer demand.
Cost of Revenues
Cost of revenues consists of consumables, raw materials, processing costs and direct labor costs associated with the assembly and manufacture of MEAs, membranes, fuel cell stacks and electrodes. Advent expects cost
of revenues to increase substantially in line with MEA production.
Income from Grants
Income from grants consists of cash subsidies received from research agencies and other national and international organizations in support of Advent’s research and development activities. Advent expects to continue
to be eligible for grant income and remains in discussion with a number of prospective grantors in relation to a number of product development activities.
Research and Development Expenses
Research and development expenses consist of costs associated with Advent’s research and development activities, such as laboratory costs and sample material costs. Advent expects its research and development
activities to increase substantially as it invests in improved technology and products.
Administrative and Selling Expenses
Administrative and selling expenses consist of travel expenses, indirect labor costs, fees paid to consultants, third parties and service providers, taxes and duties, legal and audit fees, depreciation, business
development salaries and limited marketing activities. Advent expects administrative and selling expenses to increase in line with MEA production and revenue as the business scales up, and as a result of operating as a public company, including
compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services. Depreciation is also expected to increase as the Company invests in
fixed assets in support of the scale-up of the business.
Other Income / Expenses
Other operating income / (expenses) consist of additional de minimis incidental operating income / (expenses) incurred by the business. These income / (expenses) are expected to remain at a de minimis level in the
future.
Change Fair Value of Warrant Liability
Change of fair value of warrant liability amounting to $9,765,625 represents the change of fair value of the Private Placement Warrants and Working Capital Warrants from February 4, 2021 to March 31, 2021.
Finance Costs
Finance costs consist mainly of bank charges. Finance costs are not anticipated to increase materially as Advent is not intending to take on substantial borrowings at the corporate level in the near future.
Foreign exchange differences, net
Foreign exchange differences, net consists of foreign exchange gains and interest on deposits. As the Company scales up, its foreign exchange exposure is likely to increase given its revenues are denominated in both
euros and dollars, and a substantial proportion of the Company’s costs are denominated in euros.
Income tax
Income tax expense relates to the current income tax charge for the Company’s operations in Greece. This category is expected to increase in future as the Company generates sales and profits from its operations in
both Greece and the U.S.
Amortization of intangibles
The provisional value of $5 million of intangibles relates to trademarks, patents, customer relationships, customer contracts and know-how. Those intangibles mainly relate
to definite-live intangible assets with estimated useful lives that vary between 3-10 years, with the exception of contract backlogs which are amortized over the remaining period of the contracts assumed based on income approach. During the
period from acquisition and up to March 31, 2021, the Company has recognized in the condensed consolidated statement of operations amortization for those intangibles of $0.2 million. As noted earlier, the fair value of the acquired identifiable
intangible assets is provisional pending receipt of the final valuations for these assets.
Results of Operations
Comparison of the Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
The following table sets forth a summary of our consolidated results of operations and consolidated results of cash flows for the years indicated, and the changes between periods.
|
|
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$ change
|
|
|
% change
|
|
Revenue, net
|
|
$
|
1,489,292
|
|
|
$
|
100,266
|
|
|
|
1,389,026
|
|
|
|
1,385.34
|
%
|
Cost of revenues
|
|
|
(347,342
|
)
|
|
|
(66,037
|
)
|
|
|
(281,305
|
)
|
|
|
425.98
|
%
|
Gross profit/(loss)
|
|
|
1,141,950
|
|
|
|
34,229
|
|
|
|
1,107,721
|
|
|
|
3,236.11
|
%
|
Income from grants
|
|
|
38,453
|
|
|
|
228,764
|
|
|
|
(190,311
|
)
|
|
|
(83.19
|
%)
|
Research and development expenses
|
|
|
(29,082
|
)
|
|
|
(51,269
|
)
|
|
|
22,187
|
|
|
|
(43.28
|
%)
|
Administrative and selling expenses
|
|
|
(7,921,858
|
)
|
|
|
(302,669
|
)
|
|
|
(7,619,189
|
)
|
|
|
2,517,33
|
%
|
Amortization of intangibles
|
|
|
(186,760
|
)
|
|
|
-
|
|
|
|
(186,760
|
)
|
|
|
N/A
|
|
Operating Loss
|
|
|
(6,957,297
|
)
|
|
|
(90,945
|
)
|
|
|
(6,866,352
|
)
|
|
|
7,550.00
|
%
|
Finance costs
|
|
|
(10,280
|
)
|
|
|
(2,523
|
)
|
|
|
(7,757
|
)
|
|
|
307.45
|
%
|
Change fair value of warrant liability
|
|
|
9,765,625
|
|
|
|
-
|
|
|
|
9,765,625
|
|
|
|
N/A
|
|
Foreign exchange differences, net
|
|
|
23,955
|
|
|
|
(18,587
|
)
|
|
|
42,542
|
|
|
|
(228.88
|
)%
|
Other income/ (expense)
|
|
|
83,671
|
|
|
|
(104,561
|
)
|
|
|
188,232
|
|
|
|
(180.02
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income / (Loss) before income tax
|
|
|
2,905,674
|
|
|
|
(216,616
|
)
|
|
|
3,122,290
|
|
|
|
(1,441.39
|
%)
|
Net income/(loss)
|
|
$
|
2,905,674
|
|
|
$
|
(216,616
|
)
|
|
|
3,122,290
|
|
|
|
(1,441.39
|
%)
|
Net income/(loss) per share, basic
|
|
|
0.08
|
|
|
|
(0.01
|
)
|
|
|
0.09
|
|
|
|
N/A
|
|
Weighted Average shares outstanding, Basic
|
|
|
37,769,554
|
|
|
|
14,979,803
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net income/(loss) per share, diluted
|
|
|
0.07
|
|
|
|
(0.01
|
)
|
|
|
0.08
|
|
|
|
N/A
|
|
Weighted Average shares outstanding, Diluted
|
|
|
40,987,346
|
|
|
|
14,979,803
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Revenue, net
Our total revenue from product sales increased by approximately $1.4 million or 1,385% from approximately $0.1 million in the three months ended March 31, 2020 to approximately $1.5 million in the year ended March 31, 2021. The increase in
revenue was related to increased demand from customers for Advent’s MEAs and other products, as a result of Advent’s customers increasing their own testing and usage of Advent’s products.
Cost of Revenue
Cost of revenues increased by approximately $0.3 million or 426% from approximately $0.1 million in the three months ended March 31, 2020 to approximately $0.3 million in the three months ended March 31, 2021. The
increase in cost of revenues was directly related to the increased revenues across the two years and the requirement for increased production of MEAs and other products to satisfy customer demand. Gross margins were higher for the three months
ended March 31, 2021, reflecting a more mature mix of revenues leading to more normalized pricing arrangements.
Our Gross Profit, which is Revenue, net minus the Cost of Revenue increased to $1.1 million in the three months ended March 31, 2021.
Research and Development Expenses
Research and development expenses decreased in comparison to the prior year, decreasing from approximately $0.05 million in the three months ended March 31, 2020 to approximately $0.03 million in the three months
ended March 31, 2021 due to decreased activity in Advent’s research and development function as the business continues to look to develop and improve its product suite in order to respond to anticipated future customer demand.
Administrative and Selling Expenses
Administrative and selling expenses were approximately $7.9 million in the three months ended March 31, 2021, and $0.3 million in the three months ended March 31, 2020. The increase was primarily due to one-time
transaction costs post merger amounting to $5.9 million.
Change of fair value of Warrant Liability
Change of fair value of warrant liability amounting to $9,765,625 was due to the change of fair value of the Private Placement Warrants and Working Capital Warrants from February 4, 2021 to March 31, 2021.
Liquidity and Capital Resources
As of the date of this filing of the Quarterly Report on form 10-Q, Advent’s existing cash resources and projected cash inflows are anticipated to be sufficient to support planned operations for the next 12 months
after the date hereof. This is based on the amount of cash we raised in the business combination and projected income during the financial year 2021.
Cash flows from Operating Activities
Advent’s cash flows from operating activities reflect the income statement position adjusted for working capital movements in current assets and liabilities. As Advent grows, it expects that operating cash flows will
be affected by increased working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.
Net cash used to operating activities was approximately $12.2 million for the three months ended March 31, 2021, which related to outflows in connection with one-time transactions costs, settlement of unpaid
executive compensations and costs associated with insurances services and other consulting services.
Net cash used in operating activities was approximately $0.3 million for the three months ended March 31, 2020, mainly related to payments to suppliers net of receipts from customers.
Cash Flows from Investing Activities
Advent’s cash flows from investing activities represents the cash amount of $4 million paid at the consummation of the acquisition of UltraCell, LLC on February 18, 2021. Advent expects to invest substantially in
fixed assets, plant and equipment in the near future as it executes its product development programs.
Cash Flows from Financing Activities
Advent’s cash flows from financing activities for the three months ended March 31, 2021 represent the cash amount contributed at the date of the Merger dated February 4, 2021.
Contract Assets and Contract Liabilities
A contract asset results when goods or services have been transferred to the customer, but payment is contingent upon a future event, other than the passage of time. As at March 31, 2021, Advent recognized contract
assets of $0.7 million in the consolidated balance sheet. As at December 31, 2020, Advent recognized contract assets of $0.09 million in the consolidated balance sheet.
Advent recognizes contract liabilities when we receive customer payments in advance of the performance obligations being satisfied on our contracts. As at March 31, 2021, Advent recognized contract liabilities of
$0.04 million in the unaudited consolidated balance sheet. As at December 31, 2020, Advent recognized contract liabilities of $0.2 million in the consolidated balance sheet.
Off-Balance Sheet Commitments and Arrangements
Since the date of our incorporation, Advent has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Estimates
Advent’s financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires Advent to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date, as well as the reported expenses incurred during the reporting period. Management bases its estimates on historical experience and on
various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates, and such differences could be
material to Advent’s 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 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 an election to opt out is irrevocable. Advent elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, Advent, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new
or revised standard, until such time Advent is no longer considered to be an emerging growth company. At times, Advent may elect to early adopt a new or revised standard. See Note 2 in the unaudited condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q for more information about the recent accounting pronouncements adopted and the recent accounting pronouncements not yet adopted for the three months ending March 31, 2021 and 2020.
In addition, Advent intends to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company,
Advent intends to rely on such exemptions, Advent is not required to, among other things: (a) provide an auditor’s attestation report on Advent’s system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley
Act; (b) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (c) comply with any requirement that may be adopted by the Public
Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (d) disclose
certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
Advent will remain an emerging growth company under the JOBS Act until the earliest of (a) the last day of Advent’s first fiscal year following the fifth anniversary of the closing of the Business Combination, (b)
the last date of Advent’s fiscal year in which Advent has total annual gross revenue of at least $1.1 billion, (c) the date on which Advent is deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of
outstanding securities held by non-affiliates or (d) the date on which Advent has issued more than $1.0 billion in non-convertible debt securities during the previous three years.
While Advent’s significant accounting policies are described in the notes to Advent’s financial statements (see Note 2 in the unaudited condensed consolidated financial statements), Advent believes that the following
accounting policies require a greater degree of judgment and complexity. Accordingly, these are the policies Advent believes are the most critical to aid in fully understanding and evaluating Advent’s financial condition and results of operations.
Revenue Recognition from January 1, 2019
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. We adopted ASU No. 2014-09 on January 1, 2019, using the modified retrospective approach to all contracts not completed at the date of initial application. The prior period comparative
information has not been restated and continues to be reported under the accounting guidance in effect for that period.
In accordance with ASC 606, revenue is recognized when control of the promised goods or services are transferred to a customer in an amount that reflects the consideration that the Company expects to receive in
exchange for those services. We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements:
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identify the contract with a customer,
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identify the performance obligations in the contract,
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determine the transaction price,
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allocate the transaction price to performance obligations in the contract, and
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recognize revenue as the performance obligation is satisfied.
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With significant and recurring customers, we negotiate written master agreements as framework agreements (general terms and conditions of trading), following individually purchase orders. For customers with no master
agreements, the approved purchase orders form the contract. Effectively, contracts under the revenue standard have been assessed to be the purchase orders agreed with customers.
We have assessed that each product sold is a single performance obligation because the promised goods are distinct on their own and within the context of contract. In cases where the agreement includes customization
services for the contracted products, we are providing integrated services; therefore, the goods are not separately identifiable, but are inputs to produce and deliver a combined output and form a single performance obligation within the context of
the contract. Furthermore, we assessed whether it acts as a principal or agent in each of its revenue arrangements and has concluded that in all sales transactions it acts as a principal. Additionally, we, taking into consideration the guidance and
indicative factors provided by ASC 606, concluded that it provides assurance type warranties (warranty period is up to 45 days) as it does not provide a service to the customer beyond fixing defects that existed at the time of sale. We, based on
historical performance, current circumstances, and projections of trends, estimated that no allowance for returns as per warranty policy should be recognized, at the time of sale, accounted for under ASC 460, Guarantees.
Under ASC 606, we estimate the transaction price, including variable consideration, at the commencement of the contract and recognizes revenue over the contract term, rather than when fees become fixed or
determinable. In other words, where contracts with customers include variable consideration (i.e. volume rebates), we estimate at contract inception the variable consideration and adjust the transaction price only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Furthermore, no material rights or significant financing components
have been identified in our contracts. Payment terms generally include advance payment requirements. The time between a customer’s payment and the receipt of funds is less than one year. Payment terms are in the majority fixed and do not include
variable considerations, except from volume rebates.
Revenue from satisfaction of performance obligations is recognized based on identified transaction price. The transaction price reflects the amount to which we have rights under the present contract. It is allocated
to the distinct performance obligations based on standalone selling prices of the services promised in the contract. In cases of more than one performance obligation, we allocate transaction price to the distinct performance obligations in
proportion to their observable stand-alone selling prices and recognizes revenue as those performance obligations are satisfied.
In the majority of cases of product sales, revenue is recognized at a point in time when customer obtains control of the respective goods that is, when the products are shipped from our facilities as control passes
to the customer in accordance with agreed contracts and the stated shipping terms. In cases where the contract includes customization services, which one performance obligation is identified, revenue is recognized over time as our performance does
not create an asset with alternative use and we have an enforceable right to payment for performance completed to date. We use the input method (i.e. cost-to cost method) to measure progress towards complete satisfaction of the performance
obligation.
Income from grants and related deferred income
Grants include cash subsidies received from various institutions and organizations. Grants are recognized as other income. Such amounts are recognized in the consolidated statements of operations when all conditions
attached to the grants are fulfilled.
Condition to the grants would not be fulfilled unless related costs have been characterized as eligible by the grantors, are actually incurred and there is certainty that costs are allowable. These grants are
recognized as deferred income when received and recorded in income when the eligible and allowable related costs and expenses are incurred. Under all grant programs, a coordinator is specified. The coordinator, among other, receives the funding
from the grantor and proceeds to its distribution to the parties agreed in the process specified in the program. We assessed whether it acts as a principal or agent in its role as a coordinator for specific grants and has concluded that in all
related transactions it acts as an agent.
Goodwill
The Company allocates the fair value of purchase consideration transferred in a business acquisition to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on
their estimated fair values. The excess of the fair value of purchase consideration transferred over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant
estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired licenses, trade names, in process research
and development ("R&D"), useful lives and discount rates, patents, customer clientele, customer contracts and know-how. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations.
For significant acquisitions, the Company obtains independent appraisals and valuations of the intangible (and certain tangible) assets acquired and certain assumed obligations as well as
equity. The Company analyzes each acquisition individually and all acquisitions within each reporting period in aggregate to determine if those are material acquisitions in the context of ASC 805-10-50.
The estimated fair values and useful lives of identified intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the
acquired business, estimates of cost avoidance, the nature of the business acquired, the specific characteristics of the identified intangible assets and our historical experience and that of the acquired business. The estimates and assumptions
used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including product demand, market conditions, regulations affecting the business model of our operations, technological
developments, economic conditions and competition.
We conduct a goodwill impairment analysis annually in the fourth fiscal quarter, as of October 1, and as necessary if changes in facts and circumstances indicate that the fair value of our
reporting units may be less than their carrying amounts. When indicators of impairment do not exist and certain accounting criteria are met, we are able to evaluate goodwill impairment using a qualitative approach. When necessary, our
quantitative goodwill impairment test consists of two steps. The first step requires that we compare the estimated fair value of our reporting units to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value
of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value of its net assets,
we would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded. Currently, we identify one reporting unit.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. We are currently not aware of any issues under review that could result in significant accruals or material deviation from our position.
We are subject to income tax examinations by major taxing authorities.
The Company may be subject to potential examination by U.S. federal, state and city, and the Subsidiary may be subject to potential examination by the Greek taxing authorities in the areas of income taxes. These
potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with the U.S. federal, state and city and Greek tax laws. On December 22, 2017, the Tax Cuts and
Jobs Act of 2017 (“Tax Reform”) was signed into legislation. As part of the legislation, the U.S. corporate income tax rate was reduced from 35% to 21%, among other changes, for which our management does not believe that have a material effect on
our consolidated financial statements.
Warrant Liability
The Company accounts for the 26,392,355 warrants (comprising of 22,052,077 Public Warrants and 3,940,278 Private Placement Warrants) issued in connection with its Initial Public Offering and the 400,000 Working
Capital Warrants issued at the consummation of the Business Combination in accordance with ASC 815-40-15-7D. If the warrants do not meet the criteria for equity treatment, they must be recorded as liabilities. We have determined that only the
Private Placement Warrants and Working Capital Warrants must be recorded as liabilities and accordingly, the Company classifies these warrant instruments as liabilities at their fair value and adjusts the instruments to fair value at each
reporting period. These liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's statement of operations. The fair value of the Private Placement Warrants
and the Working Capital Warrants has been determined using either the quoted price, if available, or was based on a modified Black-Scholes-Merton model. The fair value of the Private Placement Warrants and the Working Capital Warrants has been
determined based on a modified Black-Scholes-Merton model for the quarter ended March 31, 2021.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by Advent as of the specified effective date. Unless otherwise discussed, Advent believes that
the impact of recently issued standards that are not yet effective will not have a material impact on Advent’s financial position or results of operations under adoption.
See Note 2 in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their
adoption and Advent’s assessment, to the extent Advent has made one, of their potential impact on Advent’s financial condition and results of operations.