FREYR Battery (“FREYR,”
the “Company”, “we”, or “us”) is a developer of clean, next-generation battery cell production capacity.
Our mission and vision are to accelerate the decarbonization of global energy and transportation systems by producing clean, cost-competitive
batteries. We are in the design and testing phase related to our battery production process and we have initiated construction of our
Customer Qualification Plant (“CQP”) and groundworks and foundation structures for our inaugural gigafactory (“Giga
Arctic”), both located in Mo i Rana, Norway. As of June 30, 2022, we have not yet initiated manufacturing or derived revenue from
our principal business activities.
On January 29, 2021, FREYR AS, a private limited liability company
organized under the laws of Norway (“FREYR Legacy”) and Alussa Energy Acquisition Corp., a Cayman Islands exempted company
(“Alussa”), among others, entered into the Business Combination Agreement (the “BCA”) to effect a merger between
the companies (the “Business Combination”). FREYR, a Luxembourg public limited liability company was formed to complete the
Business Combination and related transactions and carry on the business of FREYR Legacy. FREYR serves as the successor entity to FREYR
Legacy, the predecessor entity.
The merger was completed
in multiple stages, pursuant to the terms of the BCA, which included among other things, the transfer of FREYR Legacy’s wind farm
business to Sjonfjellet Vindpark Holding AS (“SVPH”), resulting in SVPH shares being held by FREYR Legacy’s shareholders.
On July 8, 2021, FREYR’s ordinary shares and warrants began trading on the New York Stock Exchange. On July 9, 2021, FREYR completed
the Business Combination with FREYR Legacy and Alussa. In connection with the consummation of the transactions contemplated by the BCA,
FREYR Legacy and Alussa became wholly owned subsidiaries of FREYR.
The Business Combination
was accounted for as a reverse recapitalization. Under this method of accounting, Alussa was treated as the “acquired” company
for financial reporting purposes. This determination was primarily based on the following factors: (i) FREYR Legacy’s existing
operations comprised the ongoing operations of the combined company, (ii) FREYR Legacy’s senior management comprised the senior
management of the combined company and (iii) no shareholder had control of the board of directors or a majority voting interest in the
combined company. In accordance with guidance applicable to these circumstances, the Business Combination was treated as the equivalent
of FREYR issuing shares for the net assets of Alussa, accompanied by a recapitalization. The net assets of Alussa were stated at historical
cost, with no goodwill or other intangible assets recorded.
As a result, the condensed
consolidated financial statements included herein reflect (i) the historical operating results of FREYR Legacy prior to the Business
Combination, (ii) the combined results of FREYR, FREYR Legacy and Alussa following the closing of the Business Combination, (iii) the
assets and liabilities of FREYR Legacy at their historical cost, (iv) the assets and liabilities of FREYR and Alussa at their historical
cost, which approximates fair value, and (v) FREYR’s equity structure for all periods presented.
The unaudited condensed consolidated
interim financial statements have been prepared in conformity with the accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of United States Securities
and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information
required by GAAP for complete consolidated financial statements.
The unaudited interim condensed
consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements for the
year ended December 31, 2021 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments
necessary for the fair presentation of the Company’s condensed consolidated financial statements for the periods presented. The
results of operations for the six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full
year ending December 31, 2022. The condensed consolidated balance sheet as of December 31, 2021, was derived from the audited consolidated
financial statements as of December 31, 2021. However, these interim condensed consolidated financial statements do not contain all of
the footnote disclosures from the annual consolidated financial statements. These unaudited condensed consolidated interim financial
statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2022.
The condensed consolidated
financial statements include the accounts of FREYR and its wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated. Certain prior period balances and amounts have been reclassified to conform with the current year presentation.
The preparation of the condensed
consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported
amounts in the condensed consolidated financial statements and accompanying notes. Estimates and assumptions include, but are not limited
to, estimates related to the valuation of share-based compensation, warrant liability, and convertible note. We base these estimates
on historical experiences and on various other assumptions that we believe are reasonable under the circumstances, however, actual results
may differ materially from these estimates.
We are subject to those risks common to our business and industry and
also those risks common to early stage development companies. These risks include those disclosed in Part I, Item 1A, of our Annual Report
on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2022 and
Part II, Item 1A, of our Quarterly Report on Form 10-Q for the period ended March 31, 2022. As of the date of this report, our existing
cash resources, which were primarily provided as a result of the business combination, are sufficient to support our planned operations
for at least the next 12 months. Therefore, our financial statements have been prepared on the basis that we will continue as a going
concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The Company’s significant accounting policies
were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Supplemental accounting policy
disclosures are included below.
Restricted cash 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.
A lease is a contract, or
part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Lease classification as short-term lease, operating lease or finance lease is made at the lease inception. The Company considers all
relevant contractual provisions, including renewal and termination options, to determine the term of the lease. Renewal or termination
options that are reasonably certain of exercise by the lessee and those controlled by the lessor are included in determining the lease
term. The Company has made an accounting policy election to present the lease and associated non-lease operations as a single component
based upon the predominant component.
The Company made an accounting
policy election not to recognize a right-of-use asset and lease liability for short-term leases with an initial term of 12 months or
less, therefore these leases are not recorded on the condensed consolidated balance sheets. Expenses for short-term leases are recognized
on a straight-line basis over the lease term in the consolidated statements of operations and comprehensive loss.
The Company recognizes lease
liabilities and right-of-use assets for all operating and finance leases for which it is a lessee at the lease commencement date. Lease
liabilities are initially recognized at the present value of the future lease payments during the expected lease term. As most of our
leases do not provide an implicit rate, we use our incremental borrowing rate, based on the information available at the lease commencement
date, in determining the present value of lease payments. Our incremental borrowing rate is estimated to approximate the interest rate
on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The right-of-use
asset is initially recognized at the amount of the initial measurement of the lease liability, plus any lease payments made at or before
the commencement date, less any lease incentives received, and any initial direct costs incurred by the Company. Right-of-use assets
are recorded as other long-term assets in the consolidated balance sheets. Subsequent to initial recognition, the right-of-use asset
is reflected net of amortization. Costs to get a leased asset to the condition and location necessary for its intended use are capitalized
as leasehold improvements.
The Company remeasures its
lease liabilities with a corresponding adjustment to the right-of-use asset due to an applicable change in lease payments such as those
due to a lease modification not accounted for as a separate contract, certain changes in the expected term of the lease, and certain
changes in assessments and contingencies. Subsequent to initial recognition, the operating lease liability is increased for the interest
component of the lease liability and reduced by the lease payments made. Operating lease expenses are recognized as a single lease cost
in the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term, which includes the
interest component of the measurement of the lease liability and amortization of the right-of-use asset.
In December 2019, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (ASC
740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in ASC 740 and also
clarifies and amends existing guidance to improve the consistent application. We adopted this guidance as of January 1, 2022. Adoption
of the standard did not have a material impact on the condensed consolidated financial statements.
In February 2016, the FASB
issued ASU No. 2016-02, Leases (ASC 842), as amended, which generally requires lessees to recognize operating and financing lease
liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing
and uncertainty of cash flows arising from leasing arrangements. We adopted this guidance as of January 1, 2022, on a modified retrospective
basis and thus did not restate comparative periods. As a result, the comparative financial information and the required disclosures prior
to the date of adoption have not been updated and continue to be reported under the accounting standards in effective for those periods.
We elected the package of practical expedients permitted under the transition guidance, which allows us to carry forward our historical
lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that existed
before the adoption of the new standard. A description of our accounting policy and accounting methods elected, is included under “Leases”
above. Our right-of-use assets and corresponding lease liabilities for operating lease liabilities at adoption were $9.9 million. There
was no change to accumulated deficit as a result of adoption, and the implementation of this standard did not cause a material change
in the Company’s operating expenses.
As discussed in Note 1 -
Business and Basis of Presentation, we completed the Business Combination on July 9, 2021. Immediately before the closing of the Business
Combination, all outstanding redeemable preferred shares of FREYR Legacy were converted into ordinary shares of FREYR. Upon the consummation
of the Business Combination, each share of FREYR Legacy issued and outstanding was canceled and converted into the right to receive 0.179038
ordinary shares in FREYR (the “Exchange Ratio”).
Upon the closing of the Business
Combination, our articles of association were amended and restated to, among other things, increase the total number of authorized shares
to 245,000,000 shares without par value.
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 60,000,000 ordinary
shares (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $600.0 million, in
a private placement pursuant to the subscription agreements (the “PIPE Investment”). The PIPE Investment closed simultaneously
with the consummation of the Business Combination.
The Business Combination
was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Alussa was treated as the “acquired”
company for financial reporting purposes. See Note 1 - Business and Basis of Presentation for further details. Accordingly, for accounting
purposes, the Business Combination was treated as the equivalent of FREYR issuing shares for the net assets of Alussa, accompanied by
a recapitalization. The net assets of Alussa were stated at historical cost, with no goodwill or other intangible assets recorded.
Construction in progress
primarily includes costs related to the construction of the CQP and Giga Arctic facilities and the related CQP production equipment in
Mo i Rana, Norway. Depreciation expense was $0.2 million and $24 thousand for the six months ended June 30, 2022 and 2021, respectively,
and is included in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.
We currently lease our corporate
headquarters, CQP, the land for the Giga Arctic facilities, as well as other properties. Our leases have remaining lease terms up to
50 years, some of which include options to extend the leases and some of which include options to terminate the leases at our sole discretion.
We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured. As of June
30, 2022, all of our leases are operating leases.
The components of lease liabilities
included in our condensed consolidated balance sheet consisted of the following (in thousands):
The remaining minimum lease
payments due on our long-term leases are as follows (in thousands):
Supplemental cash flow information
related to leases were as follows (in thousands):
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. Warrants
As of June 30, 2022 and December
31, 2021, we had 24,625,000 warrants outstanding (the “Warrants”), consisting of 14,375,000 public warrants (the “Public
Warrants”) and 10,250,000 private warrants (the “Private Warrants”). The Warrants entitle the holder thereof to purchase one
of our ordinary shares at a price of $11.50 per share, subject to adjustments. The Warrants will expire on July 9, 2026, or earlier upon
redemption or liquidation.
The Public and Private Warrants
were exchanged for public and private warrants of Alussa as part of the Business Combination, as described in Note 3 – Business
Combination. The Warrants are subject to the terms and conditions of the warrant agreement entered into between Alussa, Continental Stock
Transfer & Trust Company, and FREYR (the “Amended and Restated Warrant Agreement”).
We may call the Public Warrants
for redemption once they become exercisable, in whole and not in part, at a price of $0.01 per Public Warrant, so long as we provide at
least 30 days prior written notice of redemption to each Public Warrant holder, and if, and only if, the reported last sales price of
our ordinary shares equals or exceeds $18.00 per share for each of 20 trading days within the 30 trading-day period ending on the third
trading day before the date on which we send the notice of redemption to the Public Warrant holders. 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 as part of additional paid-in capital on the condensed consolidated balance sheets.
The Private Warrants are identical
to the Public Warrants, except that so long as they are held by the Sponsor or any of its permitted transferees, the Private Warrants:
(i) may be exercised for cash or on a cashless basis and (ii) shall not be redeemable by FREYR. We determined that the Private Warrants
are not considered indexed to our ordinary shares as the holder of the Private Warrants impacts the settlement amount and thus, they are
liability classified. The Private Warrants are presented as warrant liability on the condensed consolidated balance sheets. See also Note
9 - Fair Value Measurement.
9. Fair Value Measurement
The following table sets
forth, by level within the fair value hierarchy, the accounting of our financial assets and liabilities at fair value on a recurring basis
according to the valuation techniques we use to determine their fair value (in thousands):
| |
June 30, 2022 | | |
December 31, 2021 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Convertible Note | |
$ | — | | |
$ | — | | |
$ | 20,722 | | |
$ | 20,722 | | |
$ | — | | |
$ | — | | |
$ | 20,231 | | |
$ | 20,231 | |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant Liabilities | |
| — | | |
| — | | |
| 24,420 | | |
| 24,420 | | |
| — | | |
| — | | |
| 49,124 | | |
| 49,124 | |
In some circumstances, the
inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair
value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the
fair value measurement.
We measured our Private Warrants
and the Convertible Note as of June 30, 2022 and December 31, 2021 at fair value based on significant inputs not observable in the market,
which caused them to be classified as Level 3 measurements within the fair value hierarchy. The valuation of the Private Warrants and
the Convertible Note used assumptions and estimates that we believed would be made by a market participant in making the same valuation.
Changes in the fair value of the Private Warrants related to updated assumptions and estimates were recognized as a warrant liability
fair value adjustment within the condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of
the Convertible Note related to updated assumptions and estimates were recognized as a convertible note fair value adjustment within the
condensed consolidated statement of operations and comprehensive loss.
As of June 30, 2022 and December
31, 2021, the carrying value of all other financial assets and liabilities approximated their respective fair values.
Private Warrants
The Private Warrants outstanding
on June 30, 2022 and December 31, 2021, were valued using the Black-Scholes-Merton option pricing model. See Note 8 - Warrants above for
further detail. Our use of the Black-Scholes-Merton option pricing model for the Private Warrants as of June 30, 2022 and December 31,
2021, required the use of subjective assumptions:
| ● | The risk-free interest rate assumption was based on the United States Treasury Rates, which was commensurate
with the contractual terms of the Private Warrants, which expire on the earlier of (i) five years after the completion of the Business
Combination or July 9, 2026 and (ii) redemption or liquidation. An increase in the risk-free interest rate, in isolation, would increase
the fair value measurement of the Private Warrants and vice versa. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
| ● | The expected term was determined to be 4.03 and 4.53 years as of June 30, 2022 and December 31, 2021,
respectively, given the expiration of the Private Warrants as noted above. An increase in the expected term, in isolation, would increase
the fair value measurement of the Private Warrants and vice versa. |
| ● | The expected volatility assumption was based on the implied volatility from a set of comparable publicly
traded companies as determined based on the size and industry. An increase in expected volatility, in isolation, would increase the fair
value measurement of the Private Warrants and vice versa. |
Using this approach, an exercise
price of $11.50 and a share price of $6.84 and $11.18 as of June 30, 2022 and December 31, 2021, respectively, we determined that the
fair value of the Private Warrants was $24.4 million and $49.1 million, respectively.
Convertible Note
As of June 30, 2022 and December
31, 2021, we had an investment in a convertible note from 24M that was fair valued pursuant to the election of the fair value option under
ASC 825, Financial Instruments. See Note 14 - Convertible Note for further detail. The Company considers this to provide a more accurate
reflection of the current economic environment of the instrument. The Convertible Note was valued using a scenario-based framework. This
analysis assumed various scenarios that were weighted based on the likelihood of occurrence. Within each scenario, an income approach,
specifically the discounted cash flow approach, was utilized based on the expected payoffs upon the event, the discount rate, and the
expected timing and then the expected probability of occurrence was applied, all of which management determined were significant assumptions.
We noted that a change in the expected payoffs, discount rate, timing, or expected probability would result in a change to the fair value
ascribed to the Convertible Note.
Redeemable Preferred Shares
On November 11, 2020, 7,500,000
redeemable preferred shares were issued, each with a nominal value of NOK 0.01 per share for an aggregate subscription amount of NOK 71.5
million ($7.5 million) to two affiliates of Alussa in exchange for a cash contribution of $7.5 million (the “Preferred Share Preference
Amount”). Concurrently, FREYR Legacy issued 92,500,000 warrants that were subscribed together with the redeemable preferred shares
and considered an embedded feature as they were not separately exercisable. On February 16, 2021, an additional 7,500,000 redeemable preferred
shares were issued, each with a nominal value of NOK 0.01 per share for an aggregate subscription amount of NOK 64.1 million ($7.5 million)
to three affiliates of Alussa in exchange for a Preferred Share Preference Amount of $7.5 million. As part of the Business Combination
and after the Norway demerger, the FREYR Legacy preferred shares were repurchased by FREYR at an adjusted Preferred Share Preference Amount
of $14.9 million and the holders received 1,489,500 ordinary shares of FREYR. Before settlement, the preferred shares were valued using
a scenario-based framework. Within each scenario, an income approach, specifically the discounted cash flow approach, was utilized based
on the expected payoffs upon the conversion or redemption event, the estimated yield, and the expected probability of occurrence, which
we determined was a significant assumption. Prior to settlement, changes in the fair value of the redeemable preferred shares related
to updated assumptions and estimates were recognized as a redeemable preferred shares fair value adjustment within the consolidated statements
of operations and comprehensive loss.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The changes in the Level
3 instruments measured at fair value were as follows (in thousands):
| |
For the six months ended June 30, 2022 | | |
For the six months ended June 30, 2021 | |
| |
Asset | | |
Liability | | |
Asset | | |
Liability | |
| |
Convertible Note | | |
Private Warrants | | |
Convertible Note | | |
Private Warrants | | |
Redeemable Preferred Shares | |
| |
| | |
| | |
| | |
| | |
| |
Balance (beginning of period) | |
$ | 20,231 | | |
$ | 49,124 | | |
$ | — | | |
$ | — | | |
$ | 7,574 | |
Additions | |
| — | | |
| — | | |
| — | | |
| — | | |
| 7,500 | |
Fair value measurement adjustments | |
| 491 | | |
| (24,704 | ) | |
| — | | |
| — | | |
| (74 | ) |
Foreign currency exchange effects | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Settlements | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Balance (end of period) | |
$ | 20,722 | | |
$ | 24,420 | | |
$ | — | | |
$ | — | | |
$ | 15,000 | |
10. Shareholders’
Equity
Ordinary Shares
As of June 30, 2022 and December
31, 2021, 245,000,000 ordinary shares without par value were authorized and 116,703,504 and 116,853,504 ordinary shares were outstanding
as of June 30, 2022 and December 31, 2021, respectively. Holders of ordinary shares are entitled to one vote per share and are entitled
to receive dividends when, as, and if, declared by our Board of Directors. As of June 30, 2022, we have not declared any dividends.
Share Repurchase Program
In May 2022, the board of
directors approved a share repurchase program (the “Share Repurchase Program”). The shares purchased under the program are
to be used to settle the exercise of employee options granted under the Company’s equity compensation plans. We were authorized
to repurchase up to 150,000 of the Company’s Ordinary Shares, or approximately 0.13% of the current outstanding share capital. The
Share Repurchase Program had no time limit and was able to be suspended or discontinued at any time. We purchased 150,000 ordinary
shares at an average price of $6.97 per share, excluding fees, during the three and six months ended June 30,
2022 (no comparative amounts for the three and six months ended June 30, 2021). As of June 30, 2022, the authorized share repurchase
was completed and no ordinary shares remain available for repurchase under the program.
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 895,190 ordinary shares could be issued. On December 1, 2020, the board of directors increased
the number of ordinary shares available under the 2019 Plan by 895,190 ordinary shares.
As a result of the consummation
of the Business Combination on July 9, 2021, the stock options and warrants and performance stock options and warrants already granted
or earmarked for an employee’s first year of employment vested immediately. As such, on July 9, 2021, share-based compensation was
recognized for the remaining unrecognized fair value of the 2019 Plan awards. Effective as of the close of the Business Combination, the
2019 Plan was modified to require cash-settlement after a lock-up period of either (i) one year for all non-executive employees or (ii)
two years for all executive employees. The awards granted under the 2019 Plan are liability-classified awards, and as such, these awards
are remeasured to fair value at each reporting date with changes to the fair value recognized as stock compensation expense in general
and administrative expense or research and development expense within the consolidated statements of operations and
comprehensive loss. Cumulative stock compensation expense cannot be reduced below the grant date fair value of the original award.
During the
six months ended June 30, 2022, 223,796 of the 2019 Plan awards were exercised.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Nonemployee Awards – Related Party
On March 1, 2019, FREYR Legacy
entered into a consulting agreement with EDGE Global LLC (“EDGE”) for FREYR Legacy’s CEO and Chief Commercial Officer
to be hired to perform certain services related to leadership, technology selection, and operational services (the “2019 EDGE Agreement”).
FREYR Legacy issued 1,488,862 warrants to EDGE under the 2019 EDGE Agreement with a subscription price of $0.95 per share and an expiration
date of May 15, 2024.
On September 1, 2020, FREYR
Legacy amended the 2019 EDGE Agreement, effective as of July 1, 2020 (the “2020 EDGE Agreement”). FREYR Legacy issued an additional
687,219 warrants to EDGE under the 2020 EDGE Agreement with an initial subscription price of $0.99 per share, which was modified to $1.22
per share on September 25, 2020. The warrants vested over an eighteen-month graded vesting period and expire on September 30, 2025.
Upon the consummation of the
Business Combination on July 9, 2021, all unvested warrants under the 2019 and 2020 Edge Agreements vested immediately. As such, on July
9, 2021, compensation cost was recognized for the remaining unrecognized fair value of these awards.
Employee Awards – 2021 Plan
We have a Long-Term Incentive
Plan (the “2021 LTIP”) that was issued on July 9, 2021. According to the 2021 LTIP, at the discretion of our board of directors,
but at least on an annual basis, stock options may be granted to eligible employees and directors. The aggregate number of additional
shares authorized under the 2021 LTIP is not to exceed 10% of the current number of issued shares over the subsequent five years, excluding
any options or warrants granted prior to the 2021 LTIP.
All options and restricted
stock units (“RSUs”) granted under the 2021 LTIP vest annually in equal thirds and options can be exercised up to five years
after the grant date. There are no performance or market conditions for vesting. During the six
months ended June 30, 2022, 2.9 million options were granted to employees and directors,
81,191 RSUs were granted, and 164,386 options were forfeited.
CEO Option Awards
On June 16, 2021, our Chief
Executive Officer (“CEO”) entered into a stock option agreement, as an appendix to an employment agreement, effective upon
the consummation of the Business Combination. In accordance with the stock option agreement, on July 13, 2021 our CEO was granted 850,000
options to acquire our shares at an exercise price of $10.00 (the “CEO Option Awards”). The CEO Option Awards are subject
to nine separate performance criteria, each of which is related to 1/9th of the total award amount. If any of the performance
criteria are achieved and certified by the board of directors’ during their first quarter 2022 meeting, the corresponding awards
will vest in equal thirds on December 31, 2022, September 30, 2023, and June 1, 2024. If achieved and certified during the first quarter
2023 meeting, the awards will vest in equal halves on September 30, 2023 and June 1, 2024. Compensation cost is recognized to the extent
that achievement of the performance criteria is deemed probable. During the six months ended June 30, 2022, 94,444 of the CEO Option Awards
were deemed probable.
11. Government Grants
On February 12, 2021, we were
awarded a grant of NOK 39.0 million ($4.6 million based on NOK/USD exchange rate at the time of the transaction) for research, development,
and innovation in environmental technology. The grant was awarded to assist with the costs incurred associated with employees and staff,
contract research and consultants, overhead and operating expenses and intellectual property, patents, and licenses. The grant is paid
out in three installments based on meeting certain milestones in the agreement, in which the last milestone is payable after the final
project report is approved. The grant is subject to meeting certain business size thresholds and conditions, such as documenting and supporting
costs incurred, obtaining a third-party attestation of our related records, and implementing policies that demonstrate good corporate
governance. For the portion of any grant received for which costs have not yet been either incurred or supported through the appropriate
documentation, we recognize deferred income in the condensed consolidated balance sheets. The first milestone of 30% and the second milestone
of 50% were met during 2021 and payment was received. However, as of June 30, 2022, the appropriate documentation of the financing of
project costs and third-party attestation had only occurred for the second milestone. As such, we recognized $1.2 million as of June 30,
2022 and $1.3 million as of December 31, 2021, as deferred income within the condensed consolidated balance sheet. For the six months
ended June 30, 2022 and 2021, no other income was recognized within the condensed consolidated statements of operations and comprehensive
loss.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On March 1, 2021, we were
awarded a grant of NOK 142.0 million ($16.5 million based on NOK/USD exchange rate at the time of the transaction) for the development
and construction of the pilot plant in Mo i Rana, Norway. The grant was awarded to assist with the costs incurred associated with the
pilot plant including research and development, general and administrative, and construction in progress. The grant is paid in arrears
upon request based on progress and accounting reports with the last milestone becoming payable after the final project report is approved.
The grant is subject to achieving successful financing of the pilot plant and other conditions, such as documenting and supporting costs
incurred and obtaining a third-party attestation of our related records. As of June 30, 2022, we satisfied the requirements for an initial
payment of $6.3 million of which $1.4 million related to costs which were expensed and were recognized as other income and $4.9 million
related to costs which were capitalized and were recognized as a reduction of the carrying amount of the CQP’s construction in progress.
12. Income Taxes
The provision for income taxes is recorded at the end of each interim
period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year.
There is no provision for income taxes because the Company has incurred operating losses in each year since inception. The Company’s
effective income tax rate was 0% for the three and six months ended June 30, 2022 and 2021 as the Company continues to maintain a full
valuation allowance against its deferred tax assets.
13. Related Party Transactions
EDGE Agreements
The 2020 EDGE Agreement provided
that FREYR Legacy should pay EDGE a monthly retainer fee. Additionally, FREYR Legacy agreed to make certain milestone payments to EDGE
based on the closing of certain additional financing rounds as defined within the 2020 EDGE Agreement. See Note 10 - Shareholders’
Equity for further discussion on the warrant agreements between FREYR Legacy and EDGE. On January 18, 2021, the board resolved to terminate
the 2020 EDGE Agreement and enter into an employment contract with the continuing CEO and a consulting contract with the prior Chief Commercial
Officer, subject to the closing of the Business Combination. See below for further detail on the consulting agreement with the prior Chief
Commercial Officer.
The expenses incurred in relation
to the consulting services provided for the three and six months ended June 30, 2021 were $0.1 million and $0.2 million, respectively.
No expenses were recorded in the corresponding periods of 2022. These expenses are recognized as general and administrative expenses within
the condensed consolidated statements of operations and comprehensive loss. There was no unpaid amount in accounts payable and accrued
liabilities – related party as of June 30, 2022 and December 31, 2021.
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 $0.4 million
plus expenses. Per the agreement, the consultant is also entitled to participate in our benefit plans made available to our senior executives.
The expenses incurred for consulting services for the three and six months ended June 30, 2022 were $0.2 million and $0.3 million, respectively.
No expenses were recorded in the corresponding periods of 2021. These expenses are recognized as general and administrative expenses within
the condensed consolidated statements of operations and comprehensive loss. The unpaid amount of less than $0.1 million was recognized
in accounts payable and accrued liabilities - related party as of June 30, 2022 and December 31, 2021.
Metier
In 2020, we entered into a
framework agreement with Metier OEC, which provides primarily project management and administrative consulting services. The CEO of Metier
OEC is the brother of our current Executive Vice President Project Execution. The expenses incurred for consulting services for the three
and six months ended June 30, 2022 were $1.5 million and $2.8 million, respectively, and $1.2 million and $2.5 million for the three and
six months ended June 30, 2021, respectively. These expenses are recognized as general and administrative expenses within the condensed
consolidated statements of operations and comprehensive loss. The unpaid amount of $0.6 million and $0.3 million was recognized in accounts
payable and accrued liabilities - related party as of June 30, 2022 and December 31, 2021, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Equity Method Investment
We hold a 50% common stock ownership in FREYR Battery KSP JV, LLC (“FREYR
KSP JV”) that is accounted for under the equity method. FREYR along with Koch Strategic Platforms, who also holds 50% common stock
ownership, formed FREYR KSP JV in October 2021 to advance the development of clean battery cell manufacturing in the United States. As
part of this agreement, both parties agreed to contribute $3.0 million for the initial costs related to developing the first gigafactory
to project concept selection. Project concept selection remains under development as of June 30, 2022. The initial capital contributions
by both parties were made in January 2022. FREYR KSP JV reported a net loss of $0.9 million for the six months ended June 30, 2022. For
the six months ended June 30, 2022, we incurred $0.5 million of expenses on behalf of FREYR KSP JV. There was no unpaid amount as of June
30, 2022 and December 31, 2021.
14. Convertible Note
On October 8, 2021, we invested
$20.0 million in an unsecured convertible note receivable from 24M, our battery platform technology licensor for our current planned manufacturing
facilities in Norway. The Convertible Note matures on October 8, 2024, carries an annual interest rate of 5%, and is convertible into
common stock or preferred stock at our option beginning on October 8, 2023 or automatically upon a qualified initial public offering or
direct listing in excess of our conversion price. Additionally, the Convertible Note contains a change of control provision that would
result in repayment of 1.75x the note’s original investment value plus any accrued interest. We have elected to account for the
Convertible Note using the fair value option. See Note 9 - Fair Value Measurement for details on the valuation methodology.
15. Net Income (Loss) Per
Share
The Company’s basic
net income (loss) per share attributable to ordinary shareholders for the three and six months ended June 30, 2022 was computed by dividing
net income (loss) attributable to ordinary shareholders by the weighted-average ordinary shares outstanding.
For the three and six months
ended June 30, 2021, we computed net loss per share using the two-class method required for participating securities. Under the two-class
method, undistributed earnings for the period are allocated to participating securities, including the redeemable preferred shares that
were settled as part of the Business Combination, based on the contractual participation rights of the security to share in the current
earnings as if all current period earnings had been distributed. As there was no contractual obligation for the redeemable preferred shares
to share in losses, our basic net loss per share attributable to ordinary shareholders for the three and six months ended June 30, 2021,
was computed by dividing net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding.
No dividends were declared
or paid for the six months ended June 30, 2022 and 2021.
Diluted net income (loss)
per share attributable to ordinary shareholders adjusts basic net loss per share attributable to ordinary shareholders to give effect
to all potential ordinary shares that were dilutive and outstanding during the period. For the six months ended June 30, 2022 and 2021,
the treasury stock method was used to assess our warrants and share-based payment awards while the if-converted method was used to assess
our redeemable preferred shares.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table sets forth
the computation of our basic and diluted net income (loss) per share attributable to ordinary shareholders for the three and six months
ended June 30, 2022 and 2021(in thousands, except per share data):
| |
For the three months ended
June 30, | | |
For the six months ended
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Numerator: | |
| | |
| | |
| | |
| |
Net income (loss) attributable to ordinary shareholders – basic and diluted | |
$ | 4,671 | | |
$ | (8,036 | ) | |
$ | (30,236 | ) | |
$ | (19,923 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average ordinary shares outstanding – basic | |
| 116,830 | | |
| 37,452 | | |
| 116,842 | | |
| 37,452 | |
Dilutive effect of EDGE Warrants and share-based compensation liability awards | |
| 2,420 | | |
| — | | |
| — | | |
| — | |
Weighted average ordinary shares outstanding – dilutive | |
| 119,250 | | |
| 37,452 | | |
| 116,842 | | |
| 37,452 | |
Net income (loss) per ordinary share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.04 | | |
$ | (0.21 | ) | |
$ | (0.26 | ) | |
$ | (0.53 | ) |
Diluted | |
$ | 0.04 | | |
$ | (0.21 | ) | |
$ | (0.26 | ) | |
$ | (0.53 | ) |
The following table discloses
the outstanding securities that could potentially dilute basic net loss per share in the future that were not included in the computation
of diluted net loss per share as the impact would be anti-dilutive (in thousands):
| |
For the three months ended June 30, | | |
For the six months ended
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Public Warrants | |
| 14,375 | | |
| — | | |
| 14,375 | | |
| — | |
Private Warrants | |
| 10,250 | | |
| — | | |
| 10,250 | | |
| — | |
EDGE warrants | |
| — | | |
| 2,176 | | |
| 2,176 | | |
| 2,176 | |
Share-based compensation liability awards | |
| — | | |
| — | | |
| 784 | | |
| — | |
Employee awards | |
| 4,881 | | |
| 1,012 | | |
| 4,881 | | |
| 1,012 | |
RSUs | |
| 81 | | |
| — | | |
| 81 | | |
| — | |
CEO option awards | |
| 94 | | |
| — | | |
| 94 | | |
| — | |
Other nonemployee warrants | |
| — | | |
| 413 | | |
| — | | |
| 413 | |
Redeemable preferred shares | |
| — | | |
| 15,000 | | |
| — | | |
| 15,000 | |
Total | |
| 29,681 | | |
| 18,601 | | |
| 32,641 | | |
| 18,601 | |
For the three and six months
ended June 30, 2022, the Company excluded 755,556 of the total 850,000 CEO Option Awards, as it is not yet
probable that the performance conditions for these options will be achieved.
ITEM 2. FREYR BATTERY’S MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This FREYR
Battery’s “Management’s Discussion and Analysis” of FREYR Battery’s results operations and financial condition
should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 and the unaudited interim condensed
consolidated financial statements and the accompanying notes included as part of this Quarterly Report on Form 10-Q for the period ended
June 30, 2022. The financial information contained herein is taken or derived from such audited annual consolidated financial statements
and unaudited interim condensed consolidated financial statements, unless otherwise indicated. The following discussion contains forward-looking
statements and actual results could differ materially from those that are discussed in these forward-looking statements. See also “Cautionary
Note Regarding Forward-Looking Statements” and “Risk Factors” in this Form 10-Q and our December 31, 2021 Annual Report
on Form 10-K for more information on factors that could cause or contribute to such differences. Unless the context otherwise requires,
all references in this section to “FREYR” refer to FREYR Legacy prior to the closing of the Business Combination and to FREYR
Battery following the closing of the Business Combination.
Overview
FREYR Battery (“FREYR,”
the “Company”, “we”, or “us”) is a developer of clean, next-generation battery cell production capacity.
Our mission and vision are to accelerate the decarbonization of global energy and transportation systems by producing clean, cost-competitive
batteries. We are in the design and testing phase related to our battery production process and we have initiated construction of our
Customer Qualification Plant (“CQP”) and groundworks and foundation structures for our inaugural gigafactory (“Giga
Arctic”), both located in Mo i Rana, Norway. As of June 30, 2022, we have not yet initiated manufacturing or derived revenue from
our principal business activities.
Our initial CQP production line is expected to be based on our licensed
Semi-SolidTM technology and partnership with 24M and lithium-ion chemistry. Future development and expansion could incorporate
alternative chemistry models and additional advances in battery technology both through our ongoing partnership with 24M, joint ventures,
and licensing opportunities. We will initially target market opportunities in energy storage systems
(“ESS”), marine applications, commercial vehicles, and electric vehicles (“EV”) with
slower charge requirements, with plans to target additional markets, including faster charge battery cells for the broader consumer EV
market.
We
expect our capital and operating expenditures to increase significantly in the second half of 2022 and 2023 in connection with our ongoing
activities and to prepare for growth, as we:
| ● | Construct manufacturing facilities and purchase related equipment; |
| ● | Make additional investments in technology; |
| ● | Maintain and improve operational, financial, and management information systems; |
| ● | Hire additional personnel; and |
| ● | Operate as a public company. |
Recent Developments
| ● | In June 2022, FREYR’s Board of Directors sanctioned construction of Giga Arctic, a combination of
our previously announced Gigafactory 1 & 2, the Company’s first full scale battery manufacturing facility currently under development
in Mo i Rana, Norway. Giga Arctic is expected to have nameplate capacity of 29 Gigawatt hours (“GWh”) and a total estimated
capital cost of $1.7 billion. |
| ● | In June 2022, FREYR announced it had identified $1.6 billion of total potential debt financing support
based on visibility from export credit agencies, multilateral development finance institutions, and commercial banking partners. |
| ● | In June 2022, FREYR secured a conditional offtake agreement with a major European energy technology company
for 25 GWh of battery cells from 2024 to 2028. |
| ● | In June 2022, FREYR announced it had entered into a reservation agreement with Changzhou Senior New Energy Materials Co., Ltd. and
Senior Material (Europe) AB (“Changzhou”) to supply battery materials for its CQP and Giga Arctic facilities through 2028,
with an optional extension until 2031. Subject to the terms and conditions of the reservation agreement, Changzhou has reserved the supply
capacity of separator materials through 2028 to align with FREYR’s estimated demand. |
| ● | In May 2022, FREYR signed a binding Heads of Terms with Statkraft, Europe’s largest producer
of renewable energy, which was finalized as a long-term physical supply agreement in June 2022. The agreement provides a supply of
hydropower renewable energy to cover all of FREYR’s currently anticipated electricity needs for the period of 2024 to 2031 and
ensures physical delivery of energy from the central grid in Mo i Rana to FREYR’s CQP and Giga Arctic facilities. The
agreement will be effective upon our meeting certain requirements related to the status of our construction and financing
activities. |
Comparability
of Financial Information
Our
results of operations and reported assets and liabilities may not be comparable between periods as a result of the Business Combination
and becoming a public company. As a result of the Business Combination, we became a New York Stock Exchange (“NYSE”) listed
company, which has required and will continue to require us to hire additional personnel and implement procedures and processes to address
public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for,
among other things, directors’ and officers’ liability insurance, director fees, internal and external accounting, legal and
administrative resources, including increased audit, compliance, and legal fees.
Share Repurchase Program
In May 2022, the board of
directors approved a share repurchase program (the “Share Repurchase Program”). The shares purchased under the program are
to be used to settle the exercise of employee options granted under the Company’s equity compensation plans. We were authorized
to repurchase up to 150,000 of the Company’s Ordinary Shares, or approximately 0.13% of the current outstanding share capital. The
Share Repurchase Program had no time limit and was able to be suspended or discontinued at any time. We purchased 150,000 ordinary
shares at an average price of $6.97 per share, excluding fees, during the three and six months ended June 30,
2022 (no comparative amounts for the three and six months ended June 30, 2021). As of June 30, 2022, the authorized share repurchase
was completed and no ordinary shares remain available for repurchase under the program.
Results of Operations
The
following table sets forth FREYR Battery’s condensed consolidated results of operations data for the periods presented (in thousands
except percentages):
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2022 | | |
2021 | | |
Change (%) | | |
2022 | | |
2021 | | |
Change (%) | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Operating expenses: | |
| | |
| | |
| | |
| | |
| | |
| |
General and administrative | |
$ | 28,150 | | |
$ | 7,176 | | |
| 292 | % | |
$ | 52,764 | | |
$ | 16,188 | | |
| 226 | % |
Research and development | |
| 3,082 | | |
| 3,045 | | |
| 1 | % | |
| 5,941 | | |
| 5,952 | | |
| 0 | % |
Equity in losses from investee | |
| 296 | | |
| — | | |
| NM | | |
| 463 | | |
| — | | |
| NM | |
Total operating expenses | |
| 31,528 | | |
| 10,221 | | |
| 208 | % | |
| 59,168 | | |
| 22,140 | | |
| 167 | % |
Loss from operations | |
| (31,528 | ) | |
| (10,221 | ) | |
| 208 | % | |
| (59,168 | ) | |
| (22,140 | ) | |
| 167 | % |
Other income (expense) | |
| 36,199 | | |
| 2,185 | | |
| NM | | |
| 28,932 | | |
| 2,217 | | |
| NM | |
Income (loss) before income taxes | |
| 4,671 | | |
| (8,036 | ) | |
| 158 | % | |
| (30,236 | ) | |
| (19,923 | ) | |
| 52 | % |
Income tax expense | |
| — | | |
| — | | |
| | | |
| — | | |
| — | | |
| | |
Net income (loss) | |
$ | 4,671 | | |
$ | (8,036 | ) | |
| 158 | % | |
$ | (30,236 | ) | |
$ | (19,923 | ) | |
| 52 | % |
NM - Not meaningful
Operating expenses
General and administrative
General and administrative expenses consist of personnel and personnel-related
expenses, including share-based compensation, fees paid for contractors and consultants assisting with growing the business, office space
related costs, travel costs, public relations costs, legal, accounting, and audit fees, and depreciation expense.
General
and administrative expenses increased by $21.0 million or 292%, to $28.2 million for the three months ended June 30, 2022, from $7.2 million
for the three months ended June 30, 2021. General and administrative expenses increased by $36.6 million or 226%, to $52.8 million for
the six months ended June 30, 2022, from $16.2 million for the six months ended June 30, 2021. General and administrative expenses increased
primarily due to higher headcount and increased spending associated with the ramp up of activities as we continue to invest in building
our business and move closer to start-up of manufacturing operations. Overhead costs also increased due to the professional fees and other
costs related to operating as a public company.
We
expect general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business,
and as a result of increased expenses to operate as a public company, including compliance with the rules and regulations of the United
States Securities and Exchange Commission, additional legal, audit, and insurance expenses, investor relations activities, and other administrative
and professional services.
Research and development
(“R&D”)
R&D
expenses consists primarily of compensation to employees engaged in research and development activities, including share-based compensation,
internal and external engineering, supplies and services, and contributions to research institutions. R&D expenses also include development
costs related to our technology license with 24M.
R&D
expenses increased slightly to $3.1 million for the three months ended June 30, 2022, from $3.0 million for the three months ended June
30, 2021. R&D expenses decreased slightly to $5.9 million for the six months ended June 30, 2022, from $6.0 million for the six months
ended June 30, 2021.
We
expect R&D expenses to increase in future periods as we increase our personnel and research activities.
Equity in losses from
investee
Equity
in losses from investee consists of our proportionate share of the net earnings or losses and other comprehensive income from FREYR Battery
KSP JV LLC, which is accounted for under the equity method, as we exercise significant influence but not control, over its operating and
financial policies.
Equity
in losses from investee of $0.3 million and $0.5 million were recognized for the three and six months ended June 30, 2022, respectively.
There was no equity in losses from investee for the corresponding periods in 2021.
Other income (expense)
Other
income (expense) primarily consists of the fair value adjustments on our warrant liability, convertible note, and redeemable preferred
shares, interest income and expense, net foreign currency transaction gains and losses, and grant proceeds received.
Other
income increased by $34.0 million to $36.2 million for the three months ended June 30, 2022 from $2.2 million for the three months ended
June 30, 2021. Other income increased by $26.7 million to $28.9 million for the six months ended June 30, 2022 from $2.2 million for the
six months ended June 30, 2021. The increase in other income is primarily due to the $33.4 million gain on the revaluation of the warrant
liability recorded during the second quarter of 2022 as a result of a decrease in our stock price.