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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to
_________
Commission file number 001-40581
FREYR Battery
(Exact name of registrant as specified in its charter)
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Luxembourg |
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Not Applicable |
(State or other jurisdiction of incorporation)
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(IRS Employer Identification No.) |
22-24, Boulevard Royal, L-2449 Luxembourg
Grand Duchy of Luxembourg
+352 46 61 11 3721
(Address, including zip code, and telephone number, including area
code, of Registrant’s principal executive offices)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Ordinary Shares, without nominal value |
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FREY |
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The New York Stock Exchange |
Warrants, each whole warrant exercisable for one Ordinary Share at
an exercise price of $11.50 |
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FREY WS |
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The New York Stock Exchange |
Securities
registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports); and (2) has been subject to such filing requirements
for the past 90
days. Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
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Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers
during the relevant recovery period pursuant to § 240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ☐ No
☒
As of June 30, 2022, the last business day of the Registrant’s most
recently completed second quarter, the aggregate market value of
the voting and non-voting Ordinary Shares held by non-affiliates,
computed by reference to the closing price of $6.84 reported on the
New York Stock Exchange, was
approximately $670.0 million. For the purposes of this
calculation, shares of Ordinary Shares beneficially owned by each
executive officer, director, and holder of more than 10% of our
Ordinary Shares have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other
purposes.
As of February 17, 2023, 139,705,234 shares of the
registrant’s Ordinary Shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FREYR Battery
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), that involve substantial
risks and uncertainties. All statements included in this Annual
Report on Form 10-K, other than statements of historical fact, are
forward-looking statements. This includes, but is not limited to,
statements regarding our or our management’s expectations, hopes,
beliefs, intentions or strategies. The words “anticipate”,
“believe”, “could”, “estimate”, “expect”, “intend”, “may”, “might”,
“plan”, “project”, “will”, “would”, the negative of such terms, and
similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain
such identifying words. These forward-looking statements are based
on management’s beliefs as well as information currently available
to them. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ
materially from those in the forward-looking statements, including,
without limitation, the risks set forth in Part I, Item 1A, “Risk
Factors” in this Annual Report on Form 10-K and in our other
filings with the U.S. Securities and Exchange Commission (the
"SEC"). We do not assume any obligation to update any
forward-looking statements.
Foreign Private Issuer Status and Financial
Presentation
We currently qualify as a foreign private issuer (“FPI”) under the
rules of the SEC. However, even though we qualify as an FPI, we
report our financial results in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”) and we have elected to
file our annual, quarterly, and current reports on Forms 10-K,
10-Q, and 8-K.
PART I
ITEM 1. BUSINESS
Overview
FREYR Battery, a Luxembourg public limited liability company
(“société
anonyme”)
(“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. Through our strategy of Speed, Scale, and
Sustainability, we seek to serve our primary markets of energy
storage systems (“ESS”); commercial mobility, including marine
applications and commercial vehicles; and electric vehicles
(“EV”).
We are in the design and testing phase related to our battery
production process and we are in the final stages of the
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. We have also
announced the launch of our first clean battery cell manufacturing
project in the U.S. (“Giga America”) located in Coweta County,
Georgia and we have announced the exploration of a potential
gigafactory site in Vaasa, Finland.
Our initial CQP production line is based on our licensed
SemiSolidTM
technology and cooperation with 24M Technologies, Inc. (“24M”) and
lithium-ion chemistry. Future development and expansion could
incorporate alternative chemistry models and additional advances in
battery technology through our ongoing cooperation with 24M,
through joint ventures, and other licensing opportunities. We will
initially target market opportunities in
ESS,
commercial mobility, and
EV
with high density and slower charge requirements, with plans to
target additional markets, including faster charge battery cells
for the broader consumer EV market.
As of December 31, 2022, we have not yet initiated manufacturing or
derived revenue from our principal business
activities.
Background and Business Combination
On January 29, 2021, FREYR AS, a private limited liability company
organized under the laws of Norway (“FREYR Legacy”) and Alussa
Energy Acquisition Corp., a Cayman Islands exempted company
(“Alussa”), among others, entered into the Business Combination
Agreement (the “BCA”) to effect a merger between the companies (the
“Business Combination”). FREYR was formed on January 20, 2021, to
complete the Business Combination and 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 (“NYSE”). On July 9,
2021, FREYR completed the Business Combination and FREYR Legacy and
Alussa became wholly owned subsidiaries of FREYR.
The Business Combination was accounted for as a reverse
recapitalization, with Alussa treated as the “acquired” company for
financial reporting purposes and 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 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.
Markets and Customers
The global battery market is projected to grow significantly over
the next decade driven by the ongoing energy industry’s
transformation from traditional fossil fuel energy production
systems to renewable energy sources requiring ESS and the
decarbonization of transport of commercial and passenger mobility.
We believe FREYR is well positioned to capitalize on these industry
trends and strives to accelerate this decarbonization by developing
and producing cleaner batteries at giga scale through our strategy
of Speed, Scale, and Sustainability.
FREYR is initially targeting market opportunities in
ESS,
marine applications, commercial vehicles, and
EVs with
high density and slower charge requirements, with plans to target
additional markets, including faster charge battery cells for the
broader consumer EV market.
In late 2022, FREYR completed the formation of the previously
announced module and pack joint venture with Nidec Corporation
(“Nidec”) and executed the binding sales (offtake) agreement to
supply 38 Gigawatt hours (“GWh”) of LFP Li-Ion battery cells from
2025 to 2030 to the joint venture, with options for the joint
venture to increase the volume to 50 GWh and to extend the contract
beyond 2030. The total firm and optional volume under the offtake
agreement comprises 50% of the planned production volumes for Giga
Arctic. The joint venture will combine FREYR’s clean,
next-generation battery cells with Nidec’s expertise as a global
leader in the ESS business and will produce modules and packs and
generate integrated downstream ESS solutions for industrial and
utility grade customers. Conditional offtake agreements have
been
executed with Powin, and other leading ESS and energy technology
companies. Conditional offtake agreements are non-binding to the
parties. We believe these agreements form a basis for FREYR’s entry
into the ESS marketplace.
Strategy
Our vision is to accelerate the decarbonization of all
transportation and energy systems with our mission to produce the
world’s most cost effective, efficient, and environmentally
friendly batteries.
FREYR works at speed to:
•Maximize
speed to market of low-carbon, cost-competitive battery
cells;
•Capitalize
on the projected battery shortfall as electrification accelerates;
and
•Commercialize
proven technology in battery cell manufacturing.
FREYR intends to maximize scale by:
•Building
manufacturing capacity on a gigafactory basis;
•Targeting
major addressable markets for electrification; and
•Addressing
substantial unmet demand across the ESS, commercial mobility, and
EV market segments.
FREYR prioritizes sustainability by:
•Sourcing
localized, low-cost, decarbonized, and renewable
energy;
•Commercializing
low-carbon production methods based on 24M’s
SemiSolidTM
technology; and
•Forming
strategic alliances to help ensure decarbonized low-cost raw
material supply.
Competitive Landscape
FREYR’s competitors include major battery manufacturers currently
supplying the markets, automotive original equipment manufacturers
(“OEMs”), and potential new entrants, including CATL (China), BYD
(China), LG Chem (South Korea), Samsung SDI (South Korea), SK
Innovation (South Korea), Panasonic (Japan), and Northvolt
(Sweden). Additionally, there are several development-stage
companies seeking to improve conventional lithium-ion batteries or
to develop new technologies for batteries. These companies are in
varying stages of development and commercialization.
FREYR seeks to compete with these companies by fulfilling the
customers’ needs for localized production and supply of batteries
and on the basis of its sustainable, low-cost production practices.
Localized production of batteries allows for a more secure supply
and lower transportation costs, and initiatives in Europe and the
U.S. are seeking to source batteries outside of China to minimize
political and national security concerns. FREYR’s production
strategy includes manufacturing batteries using renewable energy
and our licensed technology from 24M, which allows for a simplified
manufacturing process, lower costs, and more efficient recycling
after the end of the product’s lifecycle. This is expected to
provide our customers with more sustainable batteries.
International Expansion and Plant Construction
FREYR is concurrently developing its production capacity with giga
scale factories in the Nordic region and in the U.S. FREYR intends
to install 50 GWh of battery cell production capacity by 2025, 100
GWh annual production capacity by 2028, and 200 GWh of annual
production capacity by 2030.
Customer Qualification Plant
We are in the final stages of the construction of our 13 thousand
square meter CQP in Mo i Rana, Norway. Our initial CQP production
line is based on our licensed SemiSolidTM
technology and cooperation with 24M and lithium-ion battery
chemistry, as discussed further below. Production from the customer
qualification plant will be used to provide samples to enable early
customer engagement and to test new material suppliers and new
solutions over time and will incorporate a battery testing center.
This is important to our initial product development and continued
optimization of our battery products to meet evolving customer
needs. Future development and expansion could incorporate
alternative chemistry models and additional advances in battery
technology through our ongoing cooperation with 24M and/or joint
ventures, and licensing opportunities.
Giga Arctic
In June 2022, FREYR formally sanctioned the construction of Giga
Arctic, our 120 thousand square meter inaugural gigafactory which
combines our previously announced Gigafactory 1 & 2. This is
the first full scale battery manufacturing facility we have
sanctioned, and it is currently under development in Mo i Rana,
Norway. We have completed the initial groundworks and foundation
structures for a portion of the facility, which is ultimately
expected to have an annual nameplate capacity of up to 29 GWh over
eight production lines, with an initial estimated capital cost of
more than $1.7 billion. The timing of the start of production will
be primarily driven by the successful startup of CQP battery cell
production and testing, and the timing of project and other
financing activities, and is expected to follow the completion of
funding activities by a
period of 18 to 24 months. We believe Giga Arctic will also serve
as a blueprint for an idealized and modularized battery cell
manufacturing facility that can be rapidly replicated in other
locations.
Giga America
In November 2022, the Company, through its U.S. subsidiary FREYR
Battery US LLC, acquired approximately 368 acres of land in Coweta
County, Georgia, which is intended to be the site of the Company’s
Giga America clean battery cell manufacturing project. The initial
cell production module is expected to have an annual capacity of
approximately 34 GWh and will be established with the U.S.-based
24M production platform and based on the Giga Arctic manufacturing
blueprint. Production at Giga America is expected to meet the
demand for U.S. based customers.
This acceleration of FREYR’s previously planned expansion into U.S.
markets is based on strong tailwinds in U.S. renewable energy
development, an intensifying focus on grid stability initiatives,
and the tax incentives associated with the Inflation Reduction Act
of 2022 (the “IRA”) which was signed into law in the U.S. on August
16, 2022. The IRA includes $369 billion in climate and
energy-related provisions, including those to incentivize and
accelerate the build-out of renewable energy and accelerate the
adoption of EV technologies. The IRA creates specific tax credit
incentives for the manufacturing and production of battery cells,
modules, and electrode materials in the U.S., and extends the
investment tax credit to standalone battery storage technology
projects for the first time without co-location requirements to
solar or wind developments. The IRA will likely drive significantly
lower battery costs and prices in the U.S., potentially leading to
a surge in domestic ESS activity.
Finland
In May 2022, FREYR signed an agreement with the City of Vaasa,
Finland, for the lease of approximately 1.3 million square meters
of land in the Vaasa area. This land is a potential future site for
FREYR’s developmental initiatives based on the Company’s
collaboration with the City of Vaasa.
Research & Development and Technology Licenses
Research and Development
FREYR’s research and development (“R&D”) activities are
primarily related to the startup of manufacturing and process
optimization of the 24M technology manufacturing process using
lithium-ion chemistry. Additional R&D activities could
incorporate alternative chemistry models and additional advances in
battery technology both through our ongoing partnership with 24M,
joint ventures, and licensing opportunities.
The Company’s primary R&D locations currently include the
following leased facilities:
•CQP
in Mo i Rana, Norway - This facility focuses on the continual
improvement and optimization of our manufacturing process,
including the qualification of suppliers and testing of materials
and cells, as well as the development of products to meet specific
customer needs;
•Technology
resources, campus and business unit in Fukuoka, Japan - This
facility focuses on the facilitation and scale-up of FREYR’s
testing and development of the 24M battery platform;
•Technology
center in Boston, Massachusetts - This facility supports the
Company’s expansion strategy to accelerate the development of the
Company’s first U.S. gigafactory, Giga America, and to enhance
technological development and strategic coordination with 24M;
and
•R&D
center in Trondheim, Norway - This facility is located near the
Norwegian University of Science and Technology and provides
additional support for our R&D activities in Mo i Rana,
Norway.
24M License and Technology
FREYR, through its subsidiaries FREYR AS and Freyr Battery KSP JV,
LLC, executed two similar license and services agreements with 24M,
dated December 15, 2020, (as subsequently amended and collectively
the “24M License”). The 24M License provides FREYR with rights,
which in specified cases are on an exclusive basis, to exploit
certain patents and patent applications useful for or related to
the manufacture, assembly, test, operation, and service of
SemiSolidTM
battery cells and modules owned, controlled, developed, or acquired
by 24M or any of its affiliates, noting that 24M and FREYR have
agreed to a limited exclusivity, non-compete, and additional
licensing framework. Additionally, 24M will provide certain
services to FREYR, including technical training of engineers,
provision of information relevant to construct and operate the
factory, and on-site support.
The 24M License will continue for the duration of the licensed
patents and patent applications begin validly in force unless
terminated earlier by FREYR or 24M pursuant to the terms of the 24M
License.
The cost of the rights and services in the 24M License was $20.0
million, payable in several installments and an ongoing royalty fee
based on sales volumes. Additionally, 24M and FREYR have agreed to
an additional service fee of $8.8 million in exchange for the
completion of R&D work packages related to cell performance.
The fee is payable in four equal installments of $2.2 million, the
first of which was paid in January 2023. The estimated period of
performance for the
services is 20 months, spanning from November 2022 until June 2024.
The service fee is recognized as R&D expense on a straight-line
basis over the service period.
24M’s SemiSolidTM
cell architecture and associated production process reduces the
number of steps required to manufacture traditional battery cells,
while still using conventional materials, as discussed further
below. The 24M process incorporates technology that is expected to
provide significant advantages over traditional manufacturing
processes. FREYR expects to be able to apply this battery cell and
production process technology to any commercially available cathode
and anode chemistry for a wide range of applications. Initially,
the 24M technology will be used to produce batteries for utility
scale and commercial ESS, commercial vehicles, and EVs with slower
charge requirements. 24M is also developing faster charge EV
solutions for the broader consumer EV segment based on the 24M
production platform which could further increase the market
penetration and adoption of the technology.
Aleees License and Technology
In October 2022, FREYR signed a license and services agreement with
Taiwan based Advanced Lithium Electrochemistry Co., Ltd.
(“Aleees”). The agreement, which includes ongoing services and
support from Aleees, provides FREYR with a 20-year worldwide
license to produce and sell lithium-iron phosphate (“LFP”) cathode
battery material based on Aleees’ technology and to build
production facilities leveraging Aleees’ industrial experience. The
license is cancellable without cause at FREYR’s option after 10
years. Aleees is a qualified supplier of LFP cathode material to
24M and an established LFP cathode producer outside of mainland
China. LFP cathode materials represent a significant component of
the cost of a battery cell and the projected full-cycle supply
chain carbon footprint of cells. Through this agreement and in
cooperation with Aleees, FREYR believes it is positioned to become
a low cost and low carbon producer of LFP cathode
material.
Manufacturing Process
Production
FREYR’s cell production process in our initial CQP production line
and in our Giga Arctic facility is based on our licensed
SemiSolidTM
technology and partnership with 24M and lithium-ion battery
chemistry. The battery cell manufacturing process is accomplished
in multiple steps over three major stages - electrode creation,
cell assembly, and formation and aging. Traditional electrode
manufacturing includes the mixing and coating of multiple thin
layers of anode and cathode materials to produce the electrode. In
FREYR’s cell production process, fewer thicker layers are created.
During assembly of the cell, the electrode is wound or stacked as
determined by the final cell configuration. Aging, charge and
discharge cycles, and testing of the cell can then occur.
Manufactured battery cells are assembled into packs and modules for
a variety of applications. The anticipated advantages of the 24M
process technology over traditional battery manufacturing methods
include:
•Less
raw materials than factories with comparable capacity;
•Significant
reduction in the number of production steps, which could result in
a material reduction in required manufacturing footprint, energy
consumption, and labor requirements;
•Production
process free of 1-methyl-2-pyrrolidone (“NMP”), an industrial
solvent subject to regulation in Europe which requires a complex
and costly recovery process;
•Chemistry-agnostic
platform supporting current and next generation anode and cathode
chemistries, such as higher silicon content anodes, higher voltage
cathodes, dual electrolyte systems, and pre-lithiation
implementation;
•Significant
reduction in the use of inactive raw materials, due to thicker
electrodes with more active, energy carrying material;
•Larger
cell formats; and
•Simplified
recycling process, primarily due to the elimination of the need for
a binder.
In August 2022, FREYR announced a strategic partnership with South
Korea based Hana Technology Co. Ltd (“Hana Technology”) to jointly
develop formation and aging, pouch assembly, and inspection and
packaging equipment and automation solutions for FREYR’s planned
gigafactories. This strategic alliance frame agreement will enable
FREYR and Hana Technology to customize and co-develop solutions for
our gigafactories.
In September 2022, FREYR announced key contracts related to
constructing and equipping its Giga Arctic manufacturing facility
in Mo i Rana, Norway. FREYR signed an agreement with HENT AS
(“HENT”) for the planning, project management, and construction of
FREYR’s 120 thousand square-meter Giga Arctic battery factory. HENT
is one of Norway’s largest general contractors and project
developers. FREYR also entered into an agreement with Italy based
NTE Process (“NTE”) to supply a complete and integrated drying and
powder handling system to Giga Arctic. FREYR also awarded an
agreement to UK based Mpac Group (“Mpac”) to provide production
line equipment for automated casting and unit cell assembly to the
Giga Arctic project. Both of these equipment suppliers are
pre-qualified vendors of 24M and are currently supplying equipment
for the CQP project.
Material Suppliers
The manufacturing of battery cells requires coordination with a
variety of specialized material suppliers, many of which are
currently located in Asia. Initially, FREYR expects to rely on
qualified suppliers through 24M’s supply chain while embarking on
internal qualification of new material providers. Ultimately, FREYR
is working to localize its supply
chain where possible into Europe, and specifically the Nordic
region, to supply its CQP and Giga Arctic facilities. FREYR
believes that regional raw material supply will expand its low
cost, margin, and sustainability advantages by minimizing the
distance supplies must travel and ensuring supply chain
consistency. FREYR also expects that localized material supply will
make it a more attractive trade partner given potential trade
policy developments, increased supply chain tracing in Europe and
North America, and the logistical challenges of global
manufacturing.
In 2022, FREYR took several steps to secure raw materials and the
required energy supply for its facilities in Mo i Rana. FREYR
signed a long-term physical supply agreement with Statkraft,
Europe’s largest producer of renewable energy. The agreement
provides a supply of hydropower renewable energy to cover
substantially all of FREYR’s currently anticipated electricity
needs for the CQP and Giga Arctic facilities during the period of
2023 to 2031 and ensures physical delivery of energy from the
central grid in Mo i Rana.
FREYR also 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, exercisable solely by FREYR. Subject to
certain 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. Additionally,
FREYR announced a new service agreement with ITOCHU Corporation
(“ITOCHU”), the Japan-based global trading and import/export
company. As part of this agreement, ITOCHU will serve as a direct
materials supplier for FREYR’s procurement and supply chain
operations to secure the raw materials required for FREYR’s planned
battery production.
Sustainability
FREYR has a strong commitment towards environmental, social, and
governance (“ESG”) considerations. International cooperation and
outreach related to climate change are increasing focus on
sustainability and this is driving a new era of disclosure and
accountability across industries and countries. FREYR defines
full-cycle sustainability as environmentally-friendly, ethical
practices across all aspects of the battery supply chain, from
sourcing raw materials upstream to manufacturing to recycling. We
have aligned our Company goals with the United Nation’s Sustainable
Development Goals (“SDGs”), with a focus on the following
SDGs:
•Affordable
and clean energy;
•Decent
work and economic growth;
•Sustainable
cities and communities;
•Climate
action;
•Industry,
innovation, and infrastructure;
•Responsible
consumption and production; and
•Partnerships
for the goals.
FREYR’s ambition is to support these SDGs and achieve full-cycle
sustainability through:
•Strong
Governance - We are committed to instituting best-practice
governance policies and procedures to support our sustainability
goals. Honesty, integrity, fairness, and respect should be
exhibited in all business dealings of FREYR. We promote
transparency and accountability grounded on sound business
practices. To this end, we have implemented various policies and
procedures including an Anti-Bribery and Anti-Corruption Policy, a
Code of Business Conduct and Ethics, and a Supplier Code of
Conduct. We also have a Whistleblower Program to allow confidential
reporting of violations of our policies.
•Securing
a Sustainable Supply Chain - FREYR requires that suppliers certify
their materials are produced in a responsible manner, outside
conflict areas, and under conditions showing due respect to
international labor standards and the environment. We are actively
engaging with suppliers to develop supply agreements for active
materials. European, and especially Nordic-based materials, are
preferred, as these are typically manufactured with a lower
emissions profile than materials sourced from other regions of the
world. In addition to working with suppliers who employ
carbon-conscious extraction techniques, a more localized supply
chain could also lower carbon emissions by reducing transportation
requirements. FREYR’s manufacturing power source for its CQP and
Giga Arctic facility will draw primarily from carbon-free
hydropower in Mo i Rana.
•Sustainable
Operations and Manufacturing of Clean Batteries - The best way that
we can support sustainability is through our vision to accelerate
the decarbonization of all transportation and energy systems by
fulfilling our mission to deliver the world’s most cost effective,
efficient, and environmentally friendly batteries. We are strongly
dedicated to avoiding and minimizing any adverse environmental
impacts linked to our business operations and to promoting emission
reduction. This includes adverse impacts as a result of FREYR’s
business operations directly, as well as any indirect impacts such
as impacts related to business partners and suppliers. Our 24M
licensed technology allows for a simplified manufacturing process
that reduces material inputs and required energy consumption,
lowering the overall carbon footprint. In addition, the design of
FREYR’s manufacturing facilities will target zero emissions of
toxic substances and other waste from the manufacturing
process.
•Human
Rights / Health and Safety - We are strongly committed to
safeguarding human and labor rights, sound working conditions,
working environment, and protecting the health and safety of our
employees. FREYR condemns all forms of human rights violations and
expects its employees, business partners, and others associated
with our business operations to be equally committed to respecting
human rights. FREYR shall ensure that its
employees receive the proper training to perform the work in a safe
and secure manner and provide the equipment necessary to conduct
the work safely.
Employees and Human Capital
FREYR’s people are vital to our success as an organization and to
our ability to implement our long-term goals and objectives.
FREYR’s human capital goals include ensuring that it has the right
talent, in the right place, and at the right time. We accomplish
this through our commitment to attracting, developing, motivating,
and retaining our employees. We are committed to supporting our
employees through the full employment life cycle.
FREYR has competitive programs dedicated to selecting new talent
with the needed skills and experience. FREYR strives to attract
individuals who are people-focused and share our values of
innovation, collaboration, respect, and empowerment. Our mission,
vision, and values as an organization also help us to attract
dedicated and committed employees. FREYR promotes a diverse working
environment and a culture of equal opportunities and
non-discrimination. To support diversity in our workforce, we
strive to have a diverse group of candidates to consider for each
of our open positions. To that end, we have developed strong
relationships with a variety of industry associations that
represent diverse professionals and with diversity groups on
university and college campuses where we recruit.
Our training program is designed both to support employees in their
work through compliance with Company policies and procedures as
well as in their professional and leadership
development.
FREYR has designed a compensation structure, including an array of
benefit plans and programs, that it believes is attractive to
prospective employees and supports the retention of existing
employees. We also offer share-based compensation under our
long-term incentive program to certain employees to align Company
goals with individual goals and to support employee retention. In
addition to its fair and equitable compensation programs, FREYR
also seeks to retain its employees by using their feedback to
create and continually enhance programs that support their needs.
FREYR has formal annual goal-setting and performance review
processes for its employees. FREYR monitors and evaluates various
turnover and attrition metrics throughout its management teams to
monitor and support its retention efforts.
FREYR has a diversified and experienced management team with
relevant international experience. The team combines strategic
partnership and battery expertise, execution track-record from
large scale industry and renewable energy projects, as well as
experience from disruptive technology and battery and electrical
automotive industries.
As of December 31, 2022, FREYR
had 212 employees,
substantially all of which are full-time, a significant increase
from the 119 employees as of December 31, 2021.
Government Regulation/Compliance
As a multinational company, FREYR is subject to government
regulations and compliance with various laws and business practices
in multiple jurisdictions internationally, as well as federal,
state, and local jurisdictions in the U.S. These laws and
regulations include, but are not limited to, those related to
general corporate regulations, health and safety, and
industry-specific compliance.
FREYR is subject to relevant workplace safety requirements, such as
the Occupational Health and Safety Administration in the U.S. and
the Norwegian health, safety and environment requirements in
Norway. FREYR will also be subject to health and safety regulations
specifically applicable to its business, for instance in relation
to the handling of high voltage electricity in the production
facilities, chemicals and materials handling, and explosion
hazards.
Industry specific regulations, including those related to the
manufacture, transportation, use, and ultimate disposition of
batteries are a changing area of compliance. The proposed European
Commission Battery Regulations, for example, are expected to
provide new requirements related to sustainability, safety,
labeling, and end-of-life management. Industry specific regulations
may apply to FREYR’s activities Company-wide or in specific
jurisdictions.
FREYR is committed to complying with all relevant laws and
regulations for its business and operations.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports are
available free of charge on the investor section of our Company
website at https://www.freyrbattery.com, as soon as reasonably
practicable after such material is electronically filed with or
furnished to the SEC.
ITEM 1A. RISK FACTORS
Summary of Risk Factors
The following summarizes the significant factors, events, and
uncertainties that could create risk with an investment in our
securities. The events and consequences discussed in these risk
factors could, in circumstances we may not be able to accurately
predict, recognize or control, have a material adverse effect on
our business, growth, strategy, financial condition, operating
results, cash flows, liquidity, and stock price. These risk factors
are not exhaustive and do not identify all risks that we face; our
operations could also be affected by factors, events, or
uncertainties that are not presently known to us or that
we
currently do not consider as presenting significant risks to our
operations, or which we currently deem immaterial may also have a
material adverse effect on our business, financial condition, and
results of operations.
•Changes
adversely affecting the battery industry and the development of
existing or new technologies;
•The
failure of 24M Technologies, Inc. (“24M”) technology or our
batteries to perform as expected;
•24M
or other future counterparties will provide similar licenses to
other manufacturers which will increase our
competition;
•Our
ability to manufacture battery cells and to develop and increase
our production capacity in a cost-effective manner;
•The
electrification of energy sources does not develop as expected, or
develops more slowly than expected;
•Technological
developments in existing technologies or new developments in
competitive technologies that could adversely affect the demand for
our battery cells;
•General
economic and geopolitical conditions;
•Increases
in the cost of electricity or raw materials and
components;
•Our
ability to protect our intellectual property;
•Changes
in applicable laws or regulations, including environmental and
export control laws;
•Our
ability to comply with legal and environmental
regulations;
•Our
ability to attract and retain key employees and qualified personnel
and add significant staff;
•Our
ability to execute and realize our business strategy and
plans;
•Our
ability to target and retain customers and suppliers;
•The
failure to establish and maintain effective internal control over
financial reporting;
•Damage,
failure, or interruption of our information technology systems,
including due to cyber-based attacks and breaches;
•Our
ability to assert, enforce and otherwise protect against
unauthorized use of intellectual property rights licensed from 24M,
which could result in our competitors using the intellectual
property to offer products;
•The
outcome of any legal proceedings relating to our products and
services, including intellectual property or product liability
claims;
•Our
capital, organizational, and ownership structure;
•Whether
and when we might pay dividends;
•Our
ability to source materials from an ethically- and
sustainably-sourced supply chain and 24M-qualified suppliers in
sufficient quantities;
•The
result of future financing efforts;
•The
existence of, and our ability to qualify for, governmental and
other economic incentives;
•The
cost-competitiveness, carbon footprint, energy density and charge
rates of our batteries;
•The
timing, capacity, configurations and locations of our battery
factories and production lines;
•The
planned construction and production timing for the CQP and the
planned construction period for each of our
gigafactories;
•The
cost to build the CQP and the gigafactories;
•Our
expectations for our general and administrative
expenses;
•Our
expectations about market supply, demand, and other dynamics,
including the number of industrial-scale battery manufacturing
facilities in Norway, United States and Finland, supply costs,
regulatory developments, increased globalization, and consolidation
in the automotive and energy industries;
•The
use and mix of lithium-nickel-manganese-oxide and
lithium-iron-phosphate battery chemistries, including shifts in the
battery chemistry mix due to conversations with potential
customers;
•The
market segments that we will initially target;
•Whether
we will successfully enter into or obtain, and the impact of
failing to sign or obtain, customer offtake agreements, necessary
consents, other commercial agreements, permits or licenses in a
timely manner or at all
•Our
ability to enter successful joint venture partnerships and
licensing arrangements; and
•Our
ability to commercialize 24M and other technology for our licensing
strategy and business plans.
Risks Relating to the Development and Commercialization of FREYR’s
Battery Cells
FREYR’s success will depend on its ability to manufacture battery
cells, and to do so economically, at scale, of sufficient quality,
on schedule, and to customers’ specifications.
FREYR’s future business depends in large part on FREYR’s ability to
execute its plans to develop, manufacture, market, and sell its
battery cells and to deploy the battery cells at sufficient
capacity and agreed specifications to meet the demands of
customers. FREYR has no prior experience manufacturing battery
cells and cannot be certain that the technologies and methods it
intends to use will result in efficient, automated, low-cost
manufacturing capabilities and
processes, that will enable FREYR to meet the quality, price,
engineering, design, production standards, and production volumes,
required to successfully market its battery cells.
Even if FREYR is successful in developing its manufacturing
capability and processes it cannot be certain whether it will be
able to do so in a manner that avoids cost overruns, meets its
commercialization schedules, and satisfies the requirements of
customers. Construction and manufacturing are subject to a number
of risks and uncertainties that could be negatively impacted by
factors both within and beyond FREYR’s ability to control,
including but not limited to, difficulty in obtaining permits,
delays, and cost overruns, any of which could have a material
adverse effect on FREYR’s business, financial condition, operating
results, and cash flows.
FREYR’s license with 24M is subject to various risks and
uncertainties, which could adversely affect FREYR’s business and
future prospects. There can be no assurances that 24M or other
future counterparties will not provide similar licenses to other
manufacturers, which will increase the competition faced by
FREYR.
The 24M License is subject to various risks, which could adversely
affect FREYR’s business and future prospects. There are no
assurances that 24M or its successors will not provide similar
licenses to other battery cell manufacturers, outside the
exclusivity and non-compete restrictions detailed in the 24M
License, thus increasing the competition faced by
FREYR.
The 24M License provides FREYR with the rights to use 24M’s
technology and accelerate FREYR’s time to market. FREYR’s business,
competitive advantage. and financial results rely heavily on the
technology licensed from 24M and its relationship with 24M.
However, 24M may have economic, business, or legal interests or
goals that are inconsistent with those of FREYR. If 24M is unable
or unwilling to meet its economic or other obligations under the
24M License, FREYR may be required to either fulfill those
obligations alone or be unable to replicate the services to be
provided by 24M. Furthermore, FREYR has not licensed alternative
technology, so any disagreement with 24M or its successors, or
termination of the 24M License would result in a material adverse
effect on FREYR’s business, financial condition, operating results,
and cash flows, including impeding FREYR’s ability to maximize the
benefits of its licensing strategy and delay the development,
construction, or deployment of FREYR’s battery plants.
24M and FREYR have agreed to a limited exclusivity and non-compete
framework in the 24M License, which is limited by geography and
time and is conditional on FREYR’s materially proper performance of
its 24M License obligations. For example, the 24M License grants
exclusivity that is limited to the Scandinavian region and the EEA
until December 31, 2023, and in the U.S. exclusivity may cease if
FREYR does not meet a sustained annual production rate by December
31, 2025. Subject to these agreed exclusivities and non-compete
limitations in the 24M License, the future use by FREYR’s
competitors or potential competitors of 24M technology could result
in a material adverse effect on FREYR’s business, financial
condition, operating results, and cash flows.
The 24M technology or other technology licensed by FREYR may not
perform as expected.
The technology licensed from 24M has not yet been commercialized on
a gigafactory scale and therefore the technology and the battery
cell manufacturing process may not perform as expected. In
addition, FREYR may license technology from other third parties,
which may not have been commercialized broadly or at
all.
If the cost, manufacturing process, performance characteristics, or
other specifications of batteries produced with the 24M technology,
or technology licensed from another counterparty, are significantly
different than anticipated or are unable to be realized for
production at giga scale, FREYR’s projected sales, costs, time to
market, competitive advantage, product pricing, and margins would
likely be adversely affected. If FREYR’s licensed technologies do
not perform as expected, FREYR’s business, financial condition,
operating results, and cash flows could be adversely
affected.
FREYR’s success depends in part on its ability to construct and
equip manufacturing facilities in a timely and cost-effective
manner.
FREYR’s ability to plan, construct and equip manufacturing
facilities is subject to significant risks and uncertainties. The
construction of manufacturing facilities is subject to the risks
and uncertainties inherent in any construction project and
particularly in the development and construction of new facilities,
including risks of delays and cost overruns, which FREYR has
experienced in the past. Additionally, manufacturing equipment may
take longer and cost more to engineer, build, and install than
expected, and may not operate as required to meet FREYR’s
production plans.
The development phase of the manufacturing facilities includes
obtaining several consents, commercial agreements, permits, and
licenses from relevant authorities and stakeholders to secure
rights for construction and operation activities, and of which
could be delayed or denied, negatively impacting construction
time-frames and cost estimates. FREYR also depends on third-party
relationships in the development and construction of production
equipment, which may subject FREYR to the risk that such third
parties do not fulfill their obligations.
If FREYR is unable to build its manufacturing facilities, FREYR
will be unable to operate its business as expected. If the demand
for FREYR’s battery cells or production output is not as expected,
FREYR’s constructed manufacturing facilities may have capacity
significantly in excess of the demand for FREYR’s products,
resulting in a higher cost per unit manufactured than
anticipated.
The inability to construct and equip FREYR’s manufacturing
facilities in a timely or cost-effective manner or any significant
excess of production capacity over product demand, including the
impact of factors both within and outside of
FREYR’s control, could have a material adverse effect on FREYR’s
business, financial condition, operating results, and cash
flows.
FREYR will rely on complex machinery for its operations and
production involves a significant degree of risk and uncertainty in
terms of operational performance and costs, as well as the risk of
damage or destruction.
FREYR will rely heavily on complex machinery in its large-scale
manufacturing operations for the production of its battery cells.
FREYR has not yet acquired, developed, or operated with such
machinery in the past. The work required to design, secure, and
integrate this equipment into the production of FREYR’s battery
cells is time intensive and requires FREYR to work closely with
third-party equipment and technology providers to ensure that it
works properly for FREYR’s specific licensed-in battery
technology.
This production technology will be provided by third parties, and
will generally require FREYR to enter into binding agreements with
respect to such equipment and technology. FREYR has previously
entered into agreements with 24M to license battery cell technology
and with Aleees to license cathode material technology, as well as
agreements with Hana Technology Co. Ltd, NTE Process, and Mpac
Group to provide specialty equipment. There is no guarantee that
such third-party technology or machinery will perform as expected;
achieve the desired or expected automation or efficiency; or that
FREYR will have enforceable guarantees or recourse from the
providers. Additionally, FREYR’s equipment purchase agreements
signed directly with suppliers may result in equipment that does
not fully integrate with the 24M technology. Although such
purchasing decisions will be partially based on 24M’s input and/or
with 24M qualified suppliers, FREYR will not have any guarantee or
recourse from 24M for such input, including if the equipment cannot
be successfully integrated. FREYR will be responsible for any costs
associated with achieving operability and integration of the
equipment. There is a risk that FREYR will be unable to
successfully operate such machinery and this design and integration
work, including the work to be performed by third-parties, will
involve a significant degree of uncertainty and risk.
FREYR’s CPQ and its gigafactories will require complex machinery,
and such machinery will require routine maintenance and will likely
suffer unexpected malfunctions from time to time, which will
require repairs and spare parts to resume operations. Unexpected
malfunctions of FREYR’s production equipment may significantly
affect the intended operational efficiency, as can failures by
suppliers to deliver necessary spare parts or components in a
timely manner and at prices and volumes acceptable to FREYR.
Additionally, environmental hazards, difficulty or delays in
obtaining governmental permits, damages or defects in systems,
industrial accidents, fire, seismic activity, and natural disasters
can all effect the operation or intended operational efficiency of
FREYR’s production equipment.
Operational or technical problems with FREYR’s manufacturing
equipment could result in the personal injury to or death of
workers, the loss of production equipment, damage to manufacturing
facilities, monetary losses, delays and unanticipated fluctuations
in production. In addition, in some cases operational or technical
problems may result in environmental damage, administrative fines,
increased insurance costs and potential legal liabilities. All of
these operational or technical problems could have a material
adverse effect on FREYR’s business, financial condition, operating
results, and cash flows.
FREYR’s planned manufacturing plants, facilities, systems, and
infrastructure are subject to risks that could result in these
facilities not becoming operable on schedule, or at all, or
becoming damaged or destroyed, resulting in disruptions to FREYR’S
battery cell production.
FREYR has leased the land for its planned facilities in Mo i Rana
and contracted for a potential gigafactory site in Vaasa, Finland
and FREYR holds the land for the intended site of the Company’s
Giga America battery cell manufacturing project in Coweta County,
Georgia, U.S. The construction of these plants, or other plants or
facilities constructed in the future, and its related systems and
infrastructure may be halted, damaged, or rendered uninhabitable or
inoperable, by natural or man-made disasters, including
earthquakes, fire, flood, typhoons, power outages,
telecommunications failures, break-ins, political conflicts, war,
riots, terrorist attacks, and health epidemics or pandemics. Any of
the foregoing events may give rise to interruptions, breakdowns,
system failures, technology platform failures, or internet
failures, which could adversely affect FREYR’s ability to
manufacture battery cells and could cause the loss or corruption of
data or malfunctions of software or hardware.
The plant and equipment FREYR will use to manufacture the battery
cells would be costly to repair, replace, or qualify for use, all
of which could require substantial lead time. In addition, as a
result of the concentration of the CQP and Giga Arctic facilities
in Mo i Rana, Norway, FREYR’s operations could be more
significantly affected by negative developments in this area than
if its operations were spread out over several
regions.
The inability to produce FREYR battery cells or the backlog that
could develop if the manufacturing plant or facilities is
inoperable for any length of time may result in the loss of
customers or harm FREYR’s reputation. Although FREYR plans to
obtain and maintain insurance for damage to its property and the
disruption of its business, this insurance may be challenging to
obtain and maintain on terms acceptable to FREYR and may not be
sufficient to cover all of FREYR’s potential losses.
Any delays in the construction or equipping of FREYR’s
manufacturing plants or any damage or destruction to these plants
could have a material adverse effect on FREYR’s business, financial
condition, operating results, and cash flows.
FREYR may not be able to establish sufficient supply relationships
for necessary components and materials which could prevent or delay
the production of FREYR’s battery cells.
FREYR relies on third-party suppliers for components necessary to
develop and manufacture its battery cells, including key supplies
of cathode, anode, and other materials. Although FREYR has entered
into definitive agreements for the supply of certain of these
materials and supplies, FREYR has not yet concluded definitive
supply agreements for all necessary inputs into its manufacturing
process. FREYR currently depends on a number of 24M qualified
third-party suppliers that have pre-existing relationships with
24M. As a result, any disagreement under or termination of the
agreement with 24M may negatively affect FREYR’s ability to
maintain relationships with such third-party suppliers. If FREYR is
unable to source sufficient materials for its manufacturing
operations from qualified suppliers at agreed upon times and
quality and in sufficient quantities, FREYR’s business, financial
condition, operating results, and cash flows could be adversely
affected.
FREYR brands itself as a manufacturer of environmentally clean,
low-cost battery cells, which are produced using an ethically and
sustainably-sourced supply chain. FREYR cannot guarantee that its
suppliers will maintain agreed-upon quality and sourcing standards.
If FREYR is unable to partner with such suppliers or if such
materials are not available in the geographic areas where we plan
to operate at sufficient quality and quantities, FREYR’s business,
financial condition, operating results, and cash flows could be
adversely affected.
FREYR has not contracted with and secured and qualified secondary
suppliers for all of the key inputs in its manufacturing process.
Any disruption in the supply of components or materials could
temporarily delay or disrupt the production of FREYR’s battery
cells until an alternative supplier is able to supply the required
material. The production of FREYR’s battery cells involves complex
interdependent processes, and as such, disruption in one component
of the supply chain could materially affect other components or
materials, which could lead to further delays and adverse effects.
Supply disruptions could originate with or be exacerbated by
unforeseen circumstances, governmental changes, international
conflicts, international health crises or pandemics, and other
factors both within and beyond FREYR’s ability to control or
anticipate. Any of the foregoing could materially and adversely
affect FREYR’s business, financial condition, operating results,
and cash flows.
FREYR may be unable to adequately control the costs or adjust to
substantial increases in the prices for FREYR’s raw materials,
components, equipment, and machinery.
FREYR is exposed to multiple risks relating to the availability and
pricing of raw materials and components. FREYR has incurred, and
expects to continue to incur, significant costs related to
procuring components and materials required to manufacture and
assemble its battery cells, modules, and packs. FREYR expects to
use various expensive and difficult-to-source materials in its
manufacturing. Prices of certain materials, such as lithium, are
commodities, which are subject to volatile market price
fluctuations, which can be difficult to predict. FREYR may not be
able to control fluctuation in the prices for these materials or
negotiate agreements with suppliers on terms that are beneficial to
FREYR. Inflation, increases in building material costs, changing
exchange rates, and other factors have impacted FREYR’s expenses in
the past. In the future, currency fluctuations, trade barriers,
tariffs, shortages and other general economic or political
conditions may limit FREYR’s ability to obtain key components for
its battery cells or significantly increase freight charges, raw
material costs and other expenses associated with FREYR’s business.
Additionally, FREYR’s business model, brand, and reputation depend
in part on the ability to find ethically sourced materials, which
could further increase prices.
Manufacturing of battery cells, modules, and packs is a
capital-intensive process that requires a significant investment in
buildings, equipment, and components of the manufacturing process.
Investment in high-tech equipment could allow FREYR to be more
flexible in responding to customer needs and specifications, and
could allow for more efficient manufacturing operations, however,
such equipment can be expensive to purchase, install, and maintain.
The cost of purchasing or constructing manufacturing operations is
subject to a number of risks and uncertainties both within and
beyond FREYR’s ability to control. This can include, but is not
limited to, inflationary pressures on costs, increased commodity
pricing for building materials such as steel, and increased global
logistics costs.
Given the competitive nature of the market FREYR operates in, it is
unlikely that increases in expenses can be passed on to customers,
thus substantial increases in the prices for FREYR’s raw materials
or components could materially and adversely affect FREYR’s
business, financial condition, operating results, and cash
flows.
FREYR is sensitive to increases in the cost or supply of
electricity.
Access to low-cost and reliable sources of electricity is important
to FREYR’s business. The business depends on low electricity prices
and any fluctuation in such prices could adversely affect FREYR’s
business and prospects. Electricity prices, regulations, and power
generation methods can vary significantly for different
locations.
In Norway, electricity prices are determined in a highly regulated
Norwegian and EEA-wide marketplace, in which local prices are
strongly affected by constraints and changes in constraints on
transmission and storage of electricity. Changes in regulations and
changes in infrastructure may increase FREYR’s cost of electricity,
which it may not be able to pass on to customers through increased
prices, or such price increases may reduce demand. FREYR is also
exposed to changes in grid tariffs as a result of contemplated
investments in power grids and changes in the grid structure in
Norway, either of which would likely cause the grid operator to
raise tariffs in order to finance such investments or
changes.
In 2022, FREYR took several steps to secure raw materials and the
required energy supply for its facilities in Mo i Rana. FREYR
signed a long-term physical supply agreement with Statkraft,
Europe’s largest producer of renewable energy. The agreement
provides a supply of hydropower renewable energy to cover
substantially all of FREYR’s currently anticipated electricity
needs for the CQP and Giga Arctic facilities during the period of
2023 to 2031 and ensures physical delivery of energy from the
central grid in Mo i Rana. There can be no assurance that this
contract will provide energy prices that are favorable as compared
to market prices during the contract period, provide sufficient
power for all of FREYR’s needs in the region, and offset most or
all risks of rising energy prices. In addition, the contract may
provide more power or provide power at different time periods than
FREYR ultimately needs, which could result in additional costs or
exposure for FREYR.
Additionally, FREYR has not yet negotiated power supply agreements
for its other planned or potential locations, which subjects FREYR
to potential energy price fluctuations in these areas. Any of the
above impacts could materially and adversely affect FREYR’s
business, financial condition, operating results, and cash
flows.
FREYR’s current and expected use of joint ventures and other
collaborative arrangements subjects FREYR to various risks and
uncertainties.
FREYR has in the past entered into, and anticipates in the future
entering into, joint ventures or other collaboration arrangements
with various partners with expertise in raw material supply,
component manufacturing, battery cell manufacturing, battery
modules and packs, and other synergistic proficiencies. However,
there can be no assurance that FREYR will be able to consummate
such joint ventures or other arrangements or that such arrangements
will provide the expected benefits to FREYR. Joint venture
arrangements have in the past and may in the future require FREYR,
among other things, to pay certain costs, make certain capital
investments, or seek the joint venture partner’s consent to take
certain actions. In addition, if a joint venture partner is unable
or unwilling to meet its economic or other obligations under the
joint venture arrangements, FREYR may be required to either fulfill
those obligations alone or dissolve and liquidate the joint
venture. As a result, such joint ventures and collaborative
arrangements could have a material adverse effect on FREYR’s
business, financial condition, operating results, and cash
flows.
FREYR may not be able to successfully identify, conclude contracts
with, and generate revenues from target customers.
FREYR’s success depends on its ability to generate revenues and
operate profitably, which depends in large part on its ability to
identify, negotiate and sign sales agreements with, and generate
revenues from its target customers. FREYR’s long-term success will
require FREYR to maintain relationships with its customers and
provide battery cells, packs, and modules that meet needs. Although
FREYR has entered into, and plans to enter into, conditional and
definitive offtake and sales agreements, as of December 31, 2022,
FREYR has not yet initiated manufacturing or derived revenue from
its principal business activities.
If FREYR is unable to negotiate, finalize, and maintain definitive
sales agreements, including converting conditional offtake
agreements into definitive sales agreements and satisfying any
contractual conditions of its conditional or definitive off-take
and sales agreements, or if FREYR is unable to generate revenues on
terms that are favorable to FREYR, this could have a material
adverse effect on FREYR’s business, financial condition, revenues,
operating results, and cash flows.
If FREYR’s battery cells fail to perform as expected, FREYR’s
ability to market and sell its battery cells could be harmed and
FREYR could be subject to increased warranty claims.
FREYR’s battery cells are inherently complex and incorporate
technology and components that may contain defects and errors,
particularly when first introduced. FREYR has not yet and may be
unable to fully evaluate the long-term performance of its battery
cells prior to their introduction to the market. Once commercial
production of FREYR’s battery cells commences, its battery cells
may contain defects in design and manufacture that may cause them
to not perform as expected. There can be no assurance that FREYR
will be able to detect and fix any defects in its battery cells
prior to their sale.
If FREYR’s battery cells fail to perform as expected, either before
or after market introduction, this could result in the repair,
recall, or redesign of FREYR’s battery cells. Additionally, this
could cause customers to delay deliveries, terminate further
orders, or pursue warranty claims against FREYR, any of which could
have a material adverse effect on FREYR’s business, financial
condition, revenues, operating results, and cash
flows.
Lithium-ion battery cells have been observed to become hot, vent
smoke, and catch fire.
Lithium-ion battery cells can rapidly release the energy they
contain by generating heat, venting smoke, and extreme examples,
catching fire. This can cause the destruction of the battery cell
as well as ignite nearby materials and other lithium-ion cells.
Negative publicity of such past incidents has generated negative
public perceptions regarding the suitability of lithium-ion cells,
and any future incident involving lithium-ion cells, even if such
an incident does not involve FREYR battery cells, could seriously
harm FREYR’s business and reputation. Any incident involving
FREYR’s battery cells, regardless of if FREYR is ultimately deemed
responsible, could result in lawsuits, recalls, or redesign
efforts, all of which would be time-consuming and expensive and
could harm FREYR’s brand image.
Once FREYR begins manufacturing its battery cells, FREYR will need
to store a significant number of lithium-ion cells at its
facilities. FREYR will need to implement safety procedures related
to the handling and storage of battery cells. Any mishandling of
battery cells may cause damage to or disruption of the operation of
FREYR’s facilities. Additionally,
any fire or other event impacting the safety of FREYR personnel or
facilities could be worsened by the materials and components used
in the manufacturing of lithium-ion battery cells.
Any incident involving FREYR’s battery cells or facilities,
regardless of FREYR ultimately being deemed responsible, could
result in adverse publicity, lawsuits, recalls, or redesign
efforts, or could result in product warranty claims, all of which
would be time-consuming and expensive and could have a material
adverse effect on FREYR’s business, financial condition, revenues,
operating results, and cash flows.
Doing business internationally creates operational, financial, and
tax risks for FREYR’s business.
FREYR’s business plan includes operations in international markets,
including Norway, the U.S., and Europe, and eventual expansion into
other international markets. Conducting and launching operations on
an international scale requires close coordination of activities
across multiple jurisdictions, time zones, currencies, and legal
systems, which consumes significant management resources.
International sales and operations entail a variety of risks,
including challenges in:
•Staffing
and managing foreign operations;
•Complying
with local laws, regulatory requirements, and business
practices;
•Protecting
or procuring intellectual property rights;
•Addressing
political and economic instability;
•Obtaining
export licenses and managing tariffs and other trade barriers;
and
•Addressing
currency needs and exchange rate fluctuations.
Any of the above challenges could favor local companies or could
result in delivery delays, significant taxes, or other burdens for
FREYR. If FREYR fails to coordinate and manage these activities
effectively, its business, financial condition, revenues, operating
results, and cash flows could be adversely affected.
In addition, the corporate structure of FREYR and its subsidiaries
with entities in several jurisdictions such as Norway, Luxembourg,
the U.S., Finland, and the Cayman Islands, is subject to tax risk
in addition to the challenges described above. The expected tax
treatment of FREYR and its subsidiaries relies on current tax laws
and regulations, as well as certain tax treaties between several
jurisdictions. As such, unexpected changes, interpretation,
application, or enforcement practices of the legislative or
regulatory requirements of such tax laws, including but not limited
to, changes in the treatment of sales and net income (losses)
earned in various jurisdictions, transfer pricing between related
parties, tax treaty protections and provisions, value added taxes,
recognition of tax law principles, and other changes in corporate
tax law, could have a material adverse effect on FREYR’s business,
financial condition, revenues, operating results, and cash
flows.
FREYR relies on information technology and any failure, inadequacy,
interruption, or security lapse of that technology, including any
cybersecurity incidents, could harm its ability to operate its
business effectively.
Organized crime, government-backed threat actors, and hackers may
be able to penetrate FREYR’s network or systems, misappropriate or
compromise its confidential information or that of third parties,
create system disruptions, corrupt data, or cause shutdowns. Using
different tools and methodologies the threat actors may be able to
deploy malware that attacks FREYR’s systems or FREYR supplier’s
systems, or otherwise exploits any security vulnerabilities of
FREYR’s facilities and equipment. Such vulnerabilities in FREYR’s
systems can also occur due to a lack of robustness, quality,
integrity, and holistic architecture in the digital systems as a
whole. While FREYR employs a number of technical, organizational,
and physical protective measures, these measures have in the past
and may in the future fail to prevent or detect all attacks on or
weaknesses in its systems.
In addition, FREYR’s hardware and software, including third-party
components and software, may contain defects in design or
manufacture, including “bugs”, security vulnerabilities, and other
problems that could unexpectedly interfere with FREYR’s security or
operations. The costs to FREYR to eliminate or mitigate cyber or
other security problems, bugs, viruses, worms, malware, and
security vulnerabilities could be significant and, if its efforts
to address these problems are not successful, could result in
interruptions, delays, cessation of service, and loss of existing
or potential customers that may impede its manufacturing, sales,
distribution, or other critical functions.
FREYR manages and stores various proprietary, sensitive, and
confidential information and data relating to its business as well
as from its suppliers and customers. Breaches this information and
data by FREYR or any third party due to insufficient security
measures, accidental loss, inadvertent disclosure, or unapproved
dissemination, including incidents as a result of fraud, trickery,
or other forms of deception, could expose FREYR or its customers or
suppliers to a risk of loss or misuse of this
information.
Any claim that FREYR’s facilities, equipment, products, or systems
are subject to cybersecurity risk or data breaches, whether
legitimate or not, could have a material adverse effect on FREYR’s
business, financial condition, revenues, operating results, and
cash flows.
To the extent FREYR experiences cybersecurity incidents in the
future, its relationships with its customers and suppliers may be
materially impacted, its brand and reputation may be harmed and it
could incur substantial costs in responding to and remediating the
incidents and in resolving any investigations or disputes that may
result, any of which could have a material adverse effect on
FREYR’s business, financial condition, revenues, operating results,
and cash flows.
In addition, the cost and operational consequences of implementing
and adding further data protection measures could be
significant.
Any financial or economic crisis, or perceived threat of such a
crisis, could affect FREYR’s business.
In recent years, the global economies suffered dramatic downturns
as the result of the COVID-19 pandemic, a deterioration in credit
markets and the related financial crisis, political conflicts and
unrest, as well as a variety of other factors. This has resulted
in, among other impacts, volatility in security prices, diminished
liquidity and credit availability, and rating downgrades and
declining values of certain investments. The U.S. and certain other
governments have taken unprecedented actions in an attempt to
address and rectify these extreme market and economic conditions by
providing liquidity and stability to the financial markets. The
outcome of the actions taken by these governments is still ongoing,
and consequently, the return of adverse economic conditions may
negatively impact the demand for FREYR’s battery cells and may
negatively impact FREYR’s ability to raise capital, on acceptable
terms or at all.
If FREYR is unable to attract and retain key employees and
qualified personnel and add significant staff, it could negatively
impact its ability to operate its business and achieve its growth
plans.
FREYR’s success depends on its ability to attract and retain key
personnel, including its executive officers, as well as qualified
sales, marketing, manufacturing, plant operations, and support
personnel. Additionally, FREYR’s success depends on the ability to
attract and retain personnel in highly technical positions
including research and development, battery technology, and
engineering. To build and staff its manufacturing facilities, FREYR
will need to hire, train, and retain a considerable number of
qualified and experienced operators and managers. The successful
integration of these operators and their families in Mo i Rana will
involve several challenges, including the location in the Arctic,
providing sufficient and adequate housing in the small
municipality, establishing English schooling for international
children, and finding relevant local jobs for spouses. The failure
to add and retain sufficient staffing for its plants and operations
could have a material adverse effect on FREYR’s business, financial
condition, operating results, and cash flows.
Given the expected growth in the battery industry, there is an
increased risk that competitors or other companies will seek to
hire FREYR’s experienced and key personnel. This could result in
the loss of key employees or an increase in costs to retain key
personnel. The loss of FREYR’s executive officers and key employees
and an inability to find suitable replacements as well as, any
failure by FREYR’s management team and key employees to perform as
expected may have a material adverse effect on FREYR’s business,
financial condition, operating results, and cash
flows.
FREYR is an early-stage company with a history of financial losses
and expects to incur significant expenses and generate losses for
the foreseeable future.
As of December 31, 2022, FREYR has not yet initiated manufacturing
or derived revenue from its principal business activities. FREYR
believes that it will continue to use cash to fund operations and
will incur net losses until it begins significant commercial
production of its battery cells. FREYR expects the rate at which it
uses cash and incurs losses to be significantly higher in future
periods as it, among other things, ramps up spending to construct
and equip its manufacturing plants and increases technology
licensing, R&D, sales, marketing, and general and
administrative functions to support its growing
operations.
FREYR may find that these efforts are more expensive than it
currently anticipates or that these efforts may not result in
revenues when anticipated or at all, which would have a material
adverse effect on FREYR’s business, financial condition, operating
results, and cash flows.
Risks Relating to FREYR’s Intellectual Property
If FREYR is unable to assert, enforce, and otherwise protect the
intellectual property rights licensed from 24M this could
negatively affect FREYR’s business.
Under the 24M License, FREYR does not have the right to assert,
enforce, or protect any of the intellectual property licensed from
24M. In addition, certain patents licensed from 24M are jointly
owned by 24M and third parties. FREYR must therefore rely on 24M
and the affected third parties to take actions necessary to support
and defend their patents, and such actions may not be sufficient.
FREYR may also face claims that its use of the 24M License or other
intellectual property infringes the rights of others. For these
claims, FREYR may seek indemnification from 24M under the 24M
License, however, FREYR’s rights to indemnification may be
unavailable or insufficient to cover its costs and losses,
including as necessary the cost of litigation.
Loss of the rights to the intellectual property in the 24M License
could result in its competitors using the 24M intellectual property
to offer products in direct competition with FREYR, potentially
resulting in the loss of FREYR’s competitive advantage, which could
have a material adverse effect on FREYR’s business, financial
condition, revenues, operating results, and cash
flows.
If FREYR is unable to protect its intellectual property rights,
including its licensing rights to third-party intellectual
property, its business and competitive position would be
harmed.
FREYR seeks to establish and protect intellectual property rights
through nondisclosure and invention assignment agreements with its
employees and consultants, and through nondisclosure agreements
with business partners and other third parties. Despite FREYR’s
efforts to protect its proprietary rights, third parties may
attempt to copy or otherwise obtain and
use FREYR’s intellectual property. Monitoring unauthorized use of
FREYR’s intellectual property will be difficult and costly, and the
steps FREYR has taken, and will take in the future, to prevent
misappropriation may not be sufficient. Any of FREYR’s enforcement
efforts, including litigation, could be time-consuming and
expensive and could divert management’s attention. In addition,
existing intellectual property laws and contractual remedies may
afford less protection than needed to safeguard FREYR’s
intellectual property. Failure to adequately protect such
intellectual property could result in competitors offering similar
products, potentially resulting in the loss of FREYR’s competitive
advantage, which could have a material adverse effect on FREYR’s
business, financial condition, revenues, operating results, and
cash flows.
FREYR has not established or protected, and may not be able to
establish, adequately protect, or prevent unauthorized use of any
material intellectual property developed or owned by FREYR. Patent,
copyright, trademark, and trade secrecy laws vary significantly
throughout the world. A number of countries do not protect
intellectual property rights to the same extent as the laws of
European countries or the U.S. Failure to establish, adequately
protect, or prevent unauthorized use of FREYR’s intellectual
property rights could result in its competitors using the
intellectual property to offer similar products, potentially
resulting in the loss of FREYR’s competitive advantage, which could
have a material adverse effect on FREYR’s business, financial
condition, revenues, operating results, and cash
flows.
For FREYR to establish or adequately protect its intellectual
property and prevent or stop infringement, FREYR may have to file
infringement claims. Such claims can be time-consuming and costly
to assert and there can be no assurance that any such claims will
be successful. Policing unauthorized use of intellectual property
is difficult and costly, and FREYR may not successfully prevent the
misappropriation of its proprietary rights. Unauthorized use of
intellectual property may damage FREYR’s reputation, decrease the
value of such property, and reduce its market share.
Loss of key personnel may also create a risk that such personnel
may exploit knowledge, information, and know-how to the detriment
of FREYR, and/or that FREYR may face difficulties to operate its
technology or business methods as a result of the loss of such
personnel. FREYR cannot be assured that its know-how and trade
secrets will provide FREYR with any competitive advantage, as the
know-how and trade secrets may become known to, or be independently
developed by, others including FREYR’s competitors, regardless of
measures FREYR may take to try to preserve the confidentiality.
FREYR cannot give assurance that its measures for preserving its
trade secrets and confidential information are sufficient to
prevent others from obtaining such information.
FREYR may need to defend itself against intellectual property
infringement claims, which may be time-consuming and could cause it
to incur substantial costs.
Companies, organizations, or individuals, including FREYR’s current
and future competitors, may hold or obtain patents, trademarks, or
other proprietary rights that would prevent, limit, or interfere
with FREYR’s ability to make, use, develop, or sell its products,
which could make it more difficult for FREYR to operate its
business. From time to time, FREYR may receive inquiries from
holders of patents or trademarks, inquiring whether FREYR is
infringing their proprietary rights and/or seek court declarations
that they do not infringe upon FREYR’s owned and/or licensed
intellectual property rights. Additionally, third parties may claim
that 24M, or the holders of other intellectual property licensed by
FREYR, are infringing on their technology. Companies holding
patents or other intellectual property rights relating to battery
cells may bring suits alleging infringement of such rights, or
otherwise asserting their rights and seeking licenses. In addition,
if FREYR, 24M or any of FREYR’s suppliers are determined to have
infringed upon a third party’s intellectual property rights, FREYR
may be required to do one or more of the following:
•Cease
selling, incorporating, or using products that incorporate the
challenged intellectual property;
•Pay
substantial damages;
•Obtain
a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms, or
at all;
•Redesign
its battery cells; or
•Change
battery cell technology providers.
In the event of a successful claim of infringement against FREYR
and its failure or inability to obtain a license for the infringed
technology, FREYR’s business, financial condition, revenues,
operating results, and cash flows could be materially adversely
affected. In addition, any litigation or claims, whether or not
valid, could result in substantial costs and the diversion of
resources and management’s attention.
Risks Relating to Industry and Market Trends and
Developments
The battery industry and its technology are rapidly evolving and
may be subject to unforeseen changes, such as technological
breakthroughs in existing or competitive technologies that could
adversely affect the demand for FREYR’s battery cells.
FREYR may be unable to keep up with technological changes in the
rapidly evolving battery industry. FREYR’s competitors include
major battery manufacturers, automotive OEMs, battery industry
start-ups, and potential new entrants to the industry. There are
several development-stage companies seeking to improve conventional
lithium-ion batteries or to develop new technologies or chemistries
for batteries. Any failure by FREYR to successfully react to
changes in existing technologies could materially harm its
competitive position and growth prospects. Furthermore, the battery
industry also competes with other emerging or evolving
technologies, such as nuclear fusion, hydrogen energy storage, and
carbon capture storage and sequestration.
FREYR expects competition in battery technology for EVs to
intensify due to a regulatory push for EVs, continuing
globalization, and consolidation in the worldwide automotive
industry. Improvements in battery technology made by EV battery
competitors or if a competing process or technology is developed
that has superior operational or price performance, FREYR’s
business would be harmed.
If FREYR is unable to keep up with competitive developments,
including if such technologies can be manufactured at lower prices
or enjoy greater policy support than lithium-ion batteries, FREYR’s
competitive position and growth prospects may be harmed or FREYR’s
battery cells could become obsolete or noncompetitive. If FREYR’s
battery cells cannot effectively compete with other products, then
FREYR’s manufacturing facilities may be no longer needed and may
have less or no value, and FREYR’s business, financial condition,
revenues, operating results, and cash flows could be materially
adversely affected.
The battery industry continues to evolve, is highly competitive,
and FREYR may not be successful in competing in this industry or
establishing and maintaining confidence in its long-term business
prospects among current and future partners and
customers.
The battery market in which FREYR intends to compete continues to
evolve and is highly competitive. Many of FREYR’s competitors are
large entities at a more advanced stage of development and
commercialization and with more resources than FREYR. Although
FREYR believes the 24M technology, has the potential to
significantly reduce the cost of battery cells, there is no
guarantee that the 24M technology or other technology acquired or
licensed by FREYR, will be able to deliver the advantages and cost
savings anticipated by FREYR. In addition, battery manufacturers
may continue to reduce the cost of the conventional manufacturing
process and expand their supply of battery cells, reducing FREYR’s
business prospects and negatively impacting FREYR’s ability to sell
its products at a competitive price and generate sufficient
margins.
FREYR continues to commit significant resources to develop its
manufacturing operations and establish its position in the
competitive battery industry. There is no assurance FREYR will
successfully identify and employ the right strategy to effectively
compete. Customers, suppliers, potential partners and collaborators
will be less likely to conduct business with FREYR if they are not
convinced that its business will succeed in the long-term.
Accordingly, in order to build and maintain its business, FREYR
must establish and maintain confidence among current and future
customers, suppliers, and business partners, as well as with
analysts, rating agencies, and other parties to maintain its
long-term financial viability and business prospects. Developing
and maintaining such a positive image in the industry may be
complicated by certain factors, including those that are largely
outside of FREYR’s control, such as the actions of 24M or our
competitors as well as the general perception of the battery
industry and competing technologies, any of which could have a
material adverse effect on FREYR’s business, financial condition,
revenues, operating results, and cash flows.
FREYR’s future growth and success are dependent upon increasing
electrification of current energy sources driven by consumers’
willingness to adopt electrified forms of transportation, the
prices of such transportation, and continued government and social
support for the increased development of renewable sources of
energy.
FREYR’s growth and future demand for FREYR’s products are highly
dependent upon the adoption by consumers of electrified forms of
transportation, including EVs, the prices for such transportation,
as well as the increased use of intermittent forms of energy which
will require energy storage systems. The market for EVs is still
rapidly evolving, characterized by rapidly changing technologies,
pricing, competitive factors, government regulation, industry
standards, and consumer demands and behaviors. If the market for
EVs, in general, does not develop as expected or develops more
slowly than expected, FREYR’s business, financial condition,
revenues, operating results, and cash flows could be materially
adversely affected.
Additionally, one of FREYR’s primary markets is ESS, which is
largely driven by the installed capacity of renewable electricity
generation and increasing demand for renewable sources of power.
Since many of these renewable sources of power are intermittent,
like wind and solar, the energy produced by them must be stored for
use when there is demand. Should government requirements for these
intermittent power sources be relaxed or social desires for lower
carbon sources of energy decline, there could be a detrimental
impact on one of FREYR’s primary markets.
FREYR’s competitiveness, brand, and reputation depend on the
ability to build low-carbon battery cells from an ethically and
sustainably-sourced supply chain. If FREYR is unable to do so,
damage to FREYR’s brand and reputation could harm FREYR’s
business.
FREYR’s business will depend on establishing and maintaining its
brand and reputation for building low-carbon battery cells from an
ethically and sustainably-sourced supply chain, as well as FREYR’s
ability to qualify as a supplier of low-carbon batteries based on
customers’ expectations and requirements. If FREYR is unable to
manufacture batteries with a lower carbon footprint than the
traditional battery production process, or obtain its materials
from ethical and sustainable suppliers, its brand, reputation, and
ability to become a qualified supplier to certain customers could
be significantly impaired, which could affect FREYR’s
business.
Additionally, FREYR expects to rapidly scale up its workforce,
leading it in some instances to hire personnel or partner with
third parties who, it may later determine, do not fit FREYR’s
culture or mission. If FREYR cannot manage its hiring and training
processes to avoid potential changes to its culture and mission,
its business and reputation may be harmed and its ability to
attract customers would suffer. In addition, if FREYR were unable
to achieve a similar level of brand recognition as its competitors,
some of which currently have a broader brand footprint as a result
of greater resources, longer
operational history, or more prominent branding as automotive OEMs,
FREYR could lose recognition in the marketplace, among prospective
customers, suppliers, and partners, which could affect its growth
and financial performance.
Any significant decline in FREYR’s reputation, brand, culture, or
ability to deliver low-carbon, responsibly sourced battery cells,
could have a material adverse effect on FREYR’s business, financial
condition, revenues, operating results, and cash
flows.
FREYR’s future growth and success depend on its ability to sell
effectively to large customers.
FREYR’s potential customers are large enterprises, including in
ESS, automotive manufacturers, and maritime industry sectors.
Therefore, FREYR’s future success will largely depend on its
ability to effectively sell its products to large customers. Sales
to these customers involve risks that may not be present (or that
are present to a lesser extent) with sales to smaller customers.
These risks include, but are not limited to, the increased
purchasing power and leverage held by large customers in
negotiating contractual arrangements and longer sales cycles, with
the associated risk that substantial time and resources may be
spent on a potential customer that elects not to purchase FREYR’s
products.
Large enterprises often undertake a significant evaluation process
that results in a lengthy sales cycle. In addition, product
purchases by large organizations are frequently subject to budget
constraints, multiple approvals, unanticipated administrative
processing, and other delays. Additionally, large enterprises
typically have longer implementation cycles, require greater
product functionality and scalability, require a broader range of
services, demand that vendors take on a larger share of risks,
require acceptance provisions that can lead to a delay in revenue
recognition, and expect greater payment flexibility. All of these
factors can add further risk to business conducted with these
potential customers.
FREYR may not be able to accurately estimate the future supply and
demand for its battery cells, which could result in a variety of
inefficiencies in its business and hinder its ability to generate
revenues. If FREYR fails to accurately predict its manufacturing
requirements, it could incur additional costs or experience
delays.
FREYR’s business is closely related to the production levels of its
future customers, whose businesses are dependent on highly cyclical
markets, such as the automotive, maritime, and renewable energy
industries. This can make it more difficult to predict future
revenues and appropriately budget for expenses. As a result, FREYR
may have limited insight into trends that may emerge and affect its
business.
Furthermore, FREYR’s customers, in response to unfavorable or
cyclical market conditions, may request delays to shipment dates or
other contract modifications or may default, terminate, or not
renew their contractual arrangements with FREYR. Consequently, the
financial performance of FREYR could fluctuate with general
economic cycles, a decline in which could have a material adverse
effect on FREYR’s business, financial condition, operating results,
and cash flows.
FREYR’s ability to provide forecasts of its needs and order
materials from its suppliers will involve judgment and risk, as
FREYR does not have a historical basis for estimating its material
usage in large-scale manufacturing or the demand for FREYR’s
battery cells. In addition, lead times for suppliers to provide
materials and components may vary significantly and depend on
various factors, including contract terms, availability of
materials, and demand for components. If FREYR overestimates its
requirements, its suppliers may have excess inventory, which could
increase costs, and if FREYR underestimates its requirements, its
suppliers may have inadequate inventory, which could interrupt the
manufacturing process and result in delays in shipments and
revenues, which could have a material adverse effect on FREYR’s
business, financial condition, operating results, and cash
flows.
The increase in competition and advances in technology in the
battery industry is expected to cause substantial downward pressure
on the prices of battery cells and may cause FREYR to lose sales or
market share.
Global battery cell production capacity has been increasing, with
significant new battery capacity projects currently in various
stages of development. This has in the past, and may in the future,
result in substantial downward pressure on the price of battery
cells. Advances in battery technology and manufacturing techniques
can also drive downward pressure on the price of battery cells. A
principal component of FREYR’s business strategy is to obtain a
competitive advantage by reducing its costs to manufacture battery
cells when compared to the cost structure of traditional battery
manufacturers. If FREYR’s competitors are able to reduce
manufacturing costs faster or further than FREYR can, its battery
cells may become less competitive. Further, if raw materials and
other third-party component costs were to increase, FREYR may not
meet its cost reduction targets. If FREYR cannot effectively
execute its strategy to compete on a basis of low cost
manufacturing, FREYR’s competitive position could suffer and FREYR
could lose market share. Intensifying competition could also cause
FREYR to lose sales or market share. Such price reductions or the
loss of sales or market share could have a negative impact on
FREYR’s revenue and margins, and could materially adversely affect
FREYR’s business, financial condition, operating results, and cash
flows.
Risks Relating to Finance and Accounting
The manufacturing of battery cells is capital-intensive, and FREYR
may not be able to raise additional capital on attractive terms, if
at all, which could materially adversely affect FREYR’s ability to
operate its business and execute its growth plans. If FREYR does
raise additional capital, through debt or equity financing, this
could impose additional restrictions on FREYR’s operations and/or
have a dilutive effect on current stockholders.
The development, design, manufacturing, and sale of batteries is a
capital-intensive business. Prior to generating revenues and
positive operating cash flows, FREYR must invest significant
capital to construct and equip its manufacturing plant or plants,
fund R&D activities, hire personnel, and otherwise fund its
operations and overhead spending.
FREYR’s long-term operating needs and planned investments in its
business and manufacturing footprint, as currently devised, will
require significant financing to complete. Such financing may not
be available at acceptable terms, or at all. Interest rates are
subject to fluctuation, and rising interest rates could increase
FREYR’s cost of capital. The credit market and financial services
industry have in the past, and may in the future, experience
periods of uncertainty that could impact the availability and cost
of equity and debt financing. If FREYR is unable to raise
substantial additional capital in the near term, its ability to
invest in Giga Arctic, Giga America, and other gigafactories or
development projects will be significantly delayed or
curtailed.
If we raise funds by issuing debt securities, these debt securities
would have rights, preferences, and privileges senior to those of
holders of our ordinary shares. The terms of debt securities or
other borrowings could impose significant restrictions on our
operations. Additionally, debt financing may require certain
conditions precedent to funding, including but not limited to,
manufacturing of sample battery cells at a FREYR facility meeting
customer specifications and the execution of definitive off-take
agreements representing a minimum amount of revenue or percentage
of production capacity.
If we raise funds or otherwise fund transactions by issuing FREYR
ordinary shares or other equity securities, dilution to
stockholders may result. Any equity securities issued may also
provide for rights, preferences, or privileges senior to those of
holders of FREYR’s ordinary shares.
Any of the above scenarios could have a material adverse effect on
FREYR’s business, financial condition, operating results, and cash
flows.
FREYR’s forward-looking disclosures rely in large part on
assumptions and analyses, for which actual results may differ
materially from these estimates.
FREYR’s forward-looking disclosures reflect management’s current
estimates of future performance. Whether actual results and
business developments will be consistent with FREYR’s expectations
and assumptions depends on a number of factors, including those
both within and outside of FREYR’s control. These include, but are
not limited to:
•Success
and timing of development activity;
•Estimated
cost of constructing and equipping FREYR’s gigafactories and other
development activities;
•Government
incentives that could impact the relative competitiveness of our
gigafactories;
•Estimated
cost of materials, supplies, and components, and FREYR’s ability to
pass such cost increases on to its customers;
•FREYR’s
ability to enter into definitive contracts with customers and
suppliers on favorable terms, or at all;
•Customer
acceptance of FREYR’s products;
•Competition,
including from established and future competitors;
•Whether
FREYR can manage relationships with customers and key
suppliers;
•FREYR’s
ability to retain existing executive officers and key personnel, as
well as to attract, integrate, retain, and motivate qualified
personnel; and
•General
macroeconomic and battery industry trends.
Unfavorable changes in any of these or other factors could have a
material adverse effect on FREYR’s business, financial condition,
operating results, and cash flows.
If FREYR is unable to establish and maintain effective internal
control over financial reporting, investors may lose confidence in
the accuracy of FREYR’s financial reports and FREYR may face
litigation or other action.
As a public company, FREYR is required to comply with the rules and
regulations of the SEC, the Sarbanes-Oxley Act, the listing
regulations of the NYSE, and various other accounting and reporting
requirements. Company responsibilities required by the
Sarbanes-Oxley Act include establishing corporate oversight and
adequate internal control over financial reporting and disclosure
controls and procedures. Effective internal controls are necessary
for FREYR to produce reliable financial reports and to help prevent
and detect financial fraud.
For the year ended December 31, 2022 and future periods, FREYR must
perform system and process evaluation and testing of its internal
controls over financial reporting, and management must report on
the effectiveness of its internal controls over financial
reporting, as required by Section 404 of the Sarbanes-Oxley
Act.
If FREYR fails to establish and maintain effective internal control
over financial reporting, investors may lose confidence in the
accuracy and completeness of its financial reports, which could
cause the price of FREYR’s ordinary shares to decline. In addition,
FREYR could become subject to investigations by the NYSE, the SEC
or other regulatory authorities, which could require additional
management attention and could have a material adverse effect on
FREYR’s business, financial condition, operating results, and cash
flows.
If FREYR, or its independent registered public accounting firm,
identifies a material weakness in its internal control over
financial reporting, including one that is not sufficiently and
swiftly remediated, FREYR may face inquiry or action by the SEC or
other regulatory authorities, potential litigation, or other
disputes which may include, but are not limited to, claims invoking
the federal and state securities laws and/or contractual claims.
Any such action, litigation, or dispute, whether successful or not,
would require additional financial and management resources and
could have a material adverse effect on FREYR’s business, financial
condition, results of operations, and cash
flows.
FREYR’s ability to use its net operating loss carryforwards and
certain other tax attributes may be limited.
FREYR expects to incur significant net cash outflows and net
operating loss carryforwards, while it constructs and equips its
manufacturing plants and starts operations. As of December 31, 2022
we had significant net operating loss carryforwards in both Norway
and Luxembourg. Utilization of these loss carryforwards assumes
that prior to their expiration, FREYR will have sufficient taxable
income in these countries to utilize the carryforwards, and that
such usage is not limited based on anti-abuse provisions or other
statutes and laws. Any such limitations on FREYR’s ability to use
its net operating loss carryforwards and other tax assets could
adversely impact its tax expense, financial condition, results of
operations, and cash flows.
Changes in government and economic incentives could have a material
adverse effect on FREYR.
On August 16, 2022, the Inflation Reduction Act of 2022 was signed
into law in the U.S. The IRA is expected to drive lower battery
costs and prices in the U.S., while potentially leading to a surge
in domestic ESS activity. The passage of the IRA, any responses by
the European Union or the government of Norway, or any similar or
competing economic incentive packages, could significantly impact
the profitability of certain of FREYR’s planned operations and as a
result, could impact FREYR’s decisions concerning the allocation of
capital. Any new implementation, changes, reduction, elimination,
or discriminatory application of government subsidies and economic
incentives could have a material impact on the battery industry,
FREYR’s operations, and the relative competitiveness of its
gigafactories.
While certain tax credits and other incentives for clean and
renewable energy products have been available in the past and like
the IRA, have been recently enacted, there is no guarantee these
programs will continue to be available in the future. If current
tax incentives are not available in the future, or if FREYR makes
business decisions based on incentives that are later revised or
removed, this could materially and adversely affect FREYR’s
business, financial condition, results of operations, and cash
flows.
FREYR may be a passive foreign investment company, or “PFIC,” for
the current and future taxable years, which could result in adverse
U.S. federal income tax consequences to U.S.
investors.
A non-U.S. corporation is treated as a PFIC for any taxable year if
either (1) at least 75% of its gross income for such year is
passive income, or (2) at least 50% of the value of its assets
(based on an average of the quarterly values of the assets) during
such year is attributable to assets that produce passive income or
are held for the production of passive income.
If FREYR is a PFIC for any taxable year (or portion thereof), that
is included in the holding period of a U.S. holder of FREYR
securities, the U.S. holder may be subject to adverse U.S. federal
income tax consequences and/or additional reporting requirements.
Based on its income and assets (including the value of its goodwill
and other unbooked intangibles), FREYR does not believe it was a
PFIC for its taxable year ended December 31, 2022, and does not
expect to be a PFIC for its current taxable year or for foreseeable
future taxable years.
However, no assurance can be given with respect to FREYR’s PFIC
status for the current taxable year or for foreseeable future
taxable years, because whether FREYR is a PFIC for any given
taxable year is a fact-intensive determination made annually at the
close of each taxable year and depends on, among other things, the
composition of FREYR’s income and assets, and the market value of
its shares and assets (which may be volatile). Accordingly, there
can be no assurance of FREYR’s PFIC status for any current or any
subsequent taxable year. Moreover, if FREYR is treated as a PFIC
for any taxable year that is included in the holding period of a
U.S. holder of FREYR securities, FREYR will generally continue to
be treated as a PFIC with respect to such U.S. holder, whether or
not FREYR is a PFIC in subsequent years.
If FREYR determines it is a PFIC for any taxable year, it will
endeavor to make available to U.S. holders such information as the
U.S. Internal Revenue Service (“IRS”) may require, including a PFIC
Annual Information Statement, in order to enable the U.S. Holder to
make and maintain a “qualified electing fund” election, but there
can be no assurance that FREYR will timely provide such required
information, and such election would likely be unavailable with
respect to FREYR’s warrants. U.S. holders of FREYR securities are
urged to consult their own tax advisors regarding the possible
application of the PFIC rules to them.
Risks Relating to Legal and Regulatory Compliance
FREYR may become subject to product liability claims, which could
harm its business and liquidity if it is not able to successfully
defend or insure against such claims.
FREYR may become subject to product liability claims, even those
without merit. FREYR faces an inherent risk of exposure to claims
in the event its battery cells do not perform as expected, or in
the event of a malfunction resulting in personal injury or death. A
successful product liability claim against FREYR could require
FREYR to pay a substantial monetary award, in the form of
compensatory or punitive damages, and generate significant legal
fees. Moreover, a product liability claim could generate
substantial negative publicity about FREYR, which would have a
material adverse effect on FREYR’s brand and reputation. Insurance
coverage may not cover specific product liability claims, is
unlikely to cover punitive damages, and may be insufficient to
cover all expenses and monetary awards. Any lawsuit seeking
significant monetary damages in excess of, or outside of, FREYR’s
insurance coverage, could materially and adversely affect FREYR’s
business, financial condition, results of operations, and cash
flows.
FREYR may not be able to secure product liability insurance
coverage at commercially acceptable terms, or at all, and past
product liability claims may make it more difficult for FREYR to
find insurance coverage in the future.
From time to time, FREYR may be involved in commercial or
contractual disputes, warranty claims, and other legal proceedings,
which could have an adverse impact on FREYR.
FREYR may be involved in commercial or contractual disputes,
warranty claims, and other legal proceedings, which could be
significant. These are typically claims that arise in the normal
course of business including, without limitation, disputes with
suppliers or customers; intellectual property matters; personal
injury claims; environmental issues; tax matters; and employment
matters. It is difficult to predict the outcome or ultimate
financial exposure, if any, represented by these matters, and there
can be no assurance that any such exposure will not be
material.
Additionally, when FREYR begins to manufacture and distribute its
battery cells, FREYR will be subject to warranty claims and will
need to maintain warranty reserves to cover such claims. If FREYR’s
warranty claims are significant or unexpected, if warranty claims
are more expensive to resolve than anticipated, or if FREYR’s
warranty reserves are inadequate, FREYR’s business, financial
condition, results of operations, and cash flows could be
materially and adversely affected.
FREYR’s Consolidated Articles of Association (the “Articles”)
include a forum selection clause, which may impact shareholders’
ability to bring actions against FREYR.
The Articles provide that, unless FREYR consents in writing to the
selection of an alternative forum, the federal district courts of
the U.S. will be the exclusive forum for the resolution of any
complaint asserting a cause of action arising under the Securities
Act of 1933 and the Securities Exchange Act of 1934. Section 22 of
the Securities Act creates concurrent jurisdiction for federal and
state courts over all suits brought to enforce any duty or
liability created by the Securities Act or the rules and
regulations thereunder. As a result, a court may decline to enforce
these exclusive forum provisions with respect to suits brought to
enforce any duty or liability created by the Securities Act or any
other claim for which the federal and state courts have concurrent
jurisdiction, and FREYR shareholders may not be deemed to have
waived its compliance with the federal securities laws and the
rules and regulations thereunder. If a court were to find the
exclusive forum provisions to be inapplicable or unenforceable in
an action, FREYR may incur additional difficulties and costs
associated with resolving such action in other
jurisdictions.
Claims for indemnification by FREYR’s directors and officers may
reduce FREYR’s available funds to satisfy successful third-party
claims against FREYR and may reduce the amount of money available
to FREYR.
The Articles provide that FREYR will indemnify its directors and
officers, in each case to the fullest extent permitted by
Luxembourg law. More specifically, the Articles and FREYR’s
existing and anticipated indemnification agreements with its
directors and officers, provide that, subject to the exceptions and
limitations listed below, every person who is, or has been, a
director or officer of FREYR or a direct or indirect subsidiary of
FREYR (an “Indemnified Person”) shall be indemnified by FREYR to
the fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him or her in
connection with any claim, action, suit, or proceeding which he or
she becomes involved as a party or otherwise by virtue of his or
her being or having been such director or officer and against
amounts paid or incurred by him or her in the settlement
thereof.
The words “claim”, “action”, “suit”, and “proceeding” include all
actual or threatened claims, actions, suits, and civil or criminal
proceedings, including appeals. The words “liability” and
“expenses” include without limitation attorneys’ fees, costs,
judgments, amounts paid in settlement, and other liabilities.
However, no indemnification shall be provided to an Indemnified
Person:
•by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties of a director or
officer;
•with
respect to any matter as to which any director or officer has been
finally adjudicated to have acted in bad faith and against the
interest of FREYR; or
•in
the event of a settlement, unless approved by a court or the Board
of Directors.
FREYR may, to the fullest extent permitted by law, purchase and
maintain insurance or furnish similar protection or make other
arrangements, including, but not limited to, providing a trust
fund, letter of credit, or surety bond on behalf of an Indemnified
Person against any liability asserted against, incurred by, or
incurred on behalf of him or her in their capacity as an
Indemnified Person. The right of indemnification will be severable,
will not affect any other rights to which an Indemnified Person may
now or in the future be entitled, will continue as to a person who
has ceased to be such director or officer and will inure to the
benefit of the heirs, executors, and administrators of such a
person. The right to indemnification is not exclusive and will not
affect any rights to indemnification to which corporate personnel,
including directors and officers, may be entitled by contract or
otherwise under law. Expenses in connection with the preparation
and representation of a defense of any claim, action, suit, or
proceeding will be advanced by FREYR prior to the final disposition
thereof upon receipt of any undertaking by or on behalf of the
officer or director, to repay such amount if it is ultimately
determined that he or she is not entitled to
indemnification.
FREYR’s battery cells and its website, systems, and data it
maintains may be subject to intentional disruption, other security
incidents, or alleged violations of laws, regulations, or other
obligations relating to data handling which could have an adverse
impact on FREYR.
FREYR may face significant challenges with respect to information
security as well as maintaining the security and integrity of its
systems, other systems used in its business, and the data stored on
or processed by these systems. FREYR’s information and data can
include FREYR or third-party confidential information, personal
information, and other information and data. Because FREYR’s
business relies on confidential data from third parties, any
compromise of that data, or perception that any such compromise has
occurred, could materially affect FREYR’s business and reputation.
Advances in technology, an increased level of sophistication and
expertise of hackers, new discoveries in the field of cryptography,
or other factors can result in a compromise or breach of the
systems and security measures used in FREYR’s business to protect
information and data.
FREYR’s ability to conduct its business and operations depends on
the continued operation of information technology and
communications systems, including systems that may be acquired or
developed in the future. Systems used in FREYR’s business,
including data centers and other information technology systems,
are vulnerable to damage or interruption. Such systems could be
subject to break-ins, sabotage, and intentional acts of vandalism,
as well as disruptions and security incidents as a result of
non-technical issues, including both intentional and inadvertent
acts or omissions by employees, service providers, or others. FREYR
utilizes outsourced service providers and consultants and these
companies face similar security and system disruption risks as
FREYR. Some of the systems used in FREYR’s business will not be
fully redundant, and its disaster recovery planning cannot account
for all eventualities. Any data security incidents or other
disruptions to data centers or other systems used in FREYR’s
business could result in lengthy interruptions in its
service.
Significant capital and other resources may be required in efforts
to protect against information security breaches, security
incidents, and system disruptions, or to alleviate problems caused
by actual or suspected information security breaches and other data
security incidents and system disruptions. The resources required
may increase over time as the methods used by hackers and others
who are engaged in online criminal activities or who seek to obtain
unauthorized access to or disrupt systems and data, are
increasingly sophisticated and constantly evolving. Any failure or
perceived failure by FREYR or its service providers to prevent
information security breaches, security incidents, system
disruptions, or any compromise of security, that results in or is
perceived or reported to result in unauthorized access to, loss,
theft, alteration, release, or transfer of information or data of
FREYR or third parties could harm FREYR’s reputation. Such actual
or perceived events could also expose FREYR to legal claims,
regulatory investigations and proceedings, fines, penalties, and
other liabilities and could divert the efforts of FREYR’s technical
and management personnel, require FREYR to incur significant costs
to investigate or remediate, by putting in place additional tools
and devices designed to prevent such incidents in the
future.
Changes in laws relating to privacy and data protection could
disrupt FREYR’s business.
FREYR is also subject to various laws regarding privacy, data
protection, and the protection of certain data relating to
individuals. FREYR’s handling of data relating to individuals is
subject to a variety of laws and regulations relating to privacy,
data protection, and data security, and it may become subject to
additional obligations, including contractual obligations, relating
to its maintenance and processing of this data. For example, the
European Union’s General Data Protection Regulation (“GDPR”),
imposes stringent data protection requirements and provides for
significant penalties for noncompliance. Laws, regulations, and
other actual and potential obligations relating to privacy, data
protection, and data security are evolving rapidly, and the related
regulatory landscape is likely to remain uncertain for the
foreseeable future. FREYR may be subject to new laws and
regulations, or new interpretations of laws and regulations, in
various jurisdictions in the future. These laws, regulations, and
other obligations, and changes in their interpretation, could
require FREYR to modify its operations and practices, restrict its
activities, and increase its costs, and it is possible that these
laws, regulations, and other obligations may be, or interpreted or
asserted to be, inconsistent with each other or with FREYR’s
business or practices. Any inability to adequately address privacy
and security concerns or comply with applicable privacy and data
security laws, rules, and regulations could have an adverse effect
on FREYR’s reputation, business, financial position, results of
operations, and cash flows.
FREYR is subject to substantial regulation and unfavorable changes
to, or failure by FREYR to comply with, these regulations could
substantially harm its business and operating results.
FREYR’s battery cells and its customers’ markets are subject to
substantial regulation under international, European, and local
laws, including anti-bribery, export control, and safety,
environmental, and sustainability laws (including the
EU
Taxonomy Regulation (Regulation (EU) 2020/852). FREYR expects to
incur significant costs in complying with these regulations. In
particular, regulations related to batteries; materials to produce
batteries, such as lithium; and EV and alternative energy
industries, are currently evolving. FREYR faces risks associated
with new regulations, including the proposed EU Batteries
Regulation, and changes to existing regulations.
To the extent the laws change, FREYR’s products may not comply with
applicable international, European, or local laws and such changes
could imply the need to materially alter FREYR’s operations and may
prompt the need to apply for further permits, which would have an
adverse effect on FREYR’s business and prospects. Compliance with
changing regulations could be burdensome, time-consuming, and
expensive. To the extent compliance with new regulations is cost
prohibitive, FREYR’s business, financial condition, results of
operations and cash flows could be materially adversely
affected.
Internationally, there may be laws in jurisdictions FREYR has not
yet entered, or laws it is unaware of in jurisdictions it has
entered, that may restrict its sales or other business practices.
The laws in this area can be complex, difficult to interpret, and
may change over time. Continued regulatory limitations and other
obstacles that may interfere with FREYR’s ability to commercialize
its products could have a material adverse impact on its business,
financial condition, results of operations, and cash
flows.
As FREYR does not yet manufacture batteries and has not yet
generated revenues, FREYR is far more exposed to regulatory risk
compared to its peers in the industry that have stable sources of
income. FREYR is an early-stage company and as a result, certain
internal processes and procedures have only recently been
implemented. FREYR must ensure that it operates in accordance with
its own processes and policies, as well as statutory laws and
regulations, and there may be a higher risk that FREYR fails to
comply than more established companies. Any failure to comply with
such policies could have a material adverse impact on FREYR’s
business, financial condition, results of operations, and cash
flows.
FREYR is subject to export and import controls that could subject
it to liability or impair its ability to compete in international
markets.
The U.S. and various foreign governments have imposed controls,
export license requirements and restrictions on the import or
export of certain products, technologies, and software. FREYR must
export and import its products in compliance with any applicable
controls. FREYR may not always be successful in obtaining necessary
governmental approvals, and failure to obtain required import or
export approval for its products or limitations on its ability to
export or sell its products may adversely affect its revenue.
Noncompliance with these laws could have negative consequences,
including government investigations, penalties, and reputational
harm.
Changes in FREYR’s products or changes in export, import, and
economic sanctions laws and regulations may delay FREYR introducing
new products in international markets, prevent its customers from
using FREYR’s products internationally or, in some cases, prevent
the export or import of FREYR’s products to or from certain
countries altogether. Any change in export or import regulations or
legislation; shift or change in enforcement; or change in the
countries, persons, or technologies targeted by these regulations
could result in decreased use of FREYR’s products by, or in FREYR’s
decreased ability to, export or sell its products to existing or
potential customers with international operations, adversely
affecting FREYR’s business, financial condition, results of
operations, and cash flows.
FREYR is subject to anti-corruption, anti-bribery, anti-money
laundering, financial and economic sanctions, and similar laws in
many jurisdictions, and non-compliance with such laws can subject
FREYR to administrative, civil and criminal fines and penalties,
collateral consequences, remedial measures, and legal
expenses.
FREYR is subject to anti-corruption, anti-bribery, anti-money
laundering, financial and economic sanctions, and similar laws and
regulations in various jurisdictions in which it conducts, or in
the future may conduct, activities, including the U.S. Foreign
Corrupt Practices Act (“FCPA”), the U.S. domestic bribery statute
contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT
Act, the U.K. Bribery Act 2010, and other anti-corruption laws and
regulations. Anti-corruption and anti-bribery laws have been
enforced aggressively in recent years and are interpreted broadly
to generally prohibit companies, and their employees, agents,
representatives, business partners, and third-party intermediaries
from authorizing, offering, or providing, directly or indirectly,
improper payments or benefits to recipients in the public or
private sector.
FREYR will sometimes leverage third parties to sell its products
and conduct its business abroad. FREYR, its employees, agents,
representatives, business partners, and third-party intermediaries
have in the past and may in the future have direct or indirect
interactions with officials and employees of government agencies or
state-owned or affiliated entities and FREYR may be held liable for
the corrupt or other illegal activities of these employees, agents,
representatives, business partners, or third-party intermediaries
even if FREYR does not explicitly authorize such activities. FREYR
cannot assure that all of its employees and agents have not and
will not take actions in violation of applicable law, for which
FREYR may be ultimately held responsible. As FREYR increases its
international business, FREYR’s risks under these laws may
increase.
The FCPA also requires companies to make and keep books, records,
and accounts that accurately reflect transactions and dispositions
of assets and to maintain a system of adequate internal accounting
controls. FREYR’s policies and procedures are designed to ensure
compliance with these laws, but FREYR cannot assure that none of
its employees, agents, representatives, business partners, or
third-party intermediaries have or will engage in improper conduct
that violates FREYR’s policies and applicable law, for which FREYR
may be held responsible.
Non-compliance with anti-corruption, anti-bribery, anti-money
laundering, or financial and economic sanctions laws could subject
FREYR to whistleblower complaints, adverse media coverage,
investigations, civil and criminal sanctions, settlements,
prosecution, enforcement actions, loss of export privileges,
suspension, or debarment from U.S. government contracts and other
collateral consequences and remedial measures, all of which could
adversely affect FREYR’s reputation, business, financial condition,
results of operations and cash flows. Responding to any
investigation or action will likely result in a materially
significant diversion of management’s attention and resources, and
significant defense costs, and other professional fees. In
addition, changes in economic sanctions laws in the future could
adversely impact FREYR’s business and investments in its ordinary
shares.
FREYR and its partners, suppliers, and customers are subject to
requirements relating to environmental, permitting, and safety
regulations as well as environmental remediation
matters.
FREYR and its partners, suppliers, and customers are subject to
numerous environmental laws and regulations governing, among other
things, ESS siting and installation restrictions; solid and
hazardous waste storage, treatment, and disposal; and remediation
of releases of hazardous materials. There are significant capital,
operating, and other costs associated with compliance with these
environmental, permitting, and safety laws and regulations.
Environmental laws and regulations may become more stringent in the
future, which could increase costs of compliance or require FREYR
to manufacture with alternative technologies and materials.
Moreover, if FREYR or any of its partners, suppliers, or customers
were found to be in violation of environmental, permitting, or
safety laws, FREYR’s reputation for building clean battery cells
from an ethically and sustainably-sourced supply chain could be
harmed, potentially resulting in significant damage to its
brand.
FREYR’s manufacturing process will have hazards including, but not
limited to, hazardous materials, machines with moving parts, and
high voltage and/or high current electrical systems. There may be
safety incidents that damage machinery or products, slow or stop
production, or harm employees. Consequences may include litigation,
regulation, fines, increased insurance premiums, mandates to
temporarily halt production, workers’ compensation claims, or other
actions that impact FREYR’s brand, reputation, finances, or ability
to operate.
International trade policies may impact demand for FREYR’s products
and its competitive position.
Government policies on international trade and investment such as
sanctions, import quotas, capital controls, or tariffs, whether
adopted by non-governmental bodies, individual governments, or
addressed by regional trade blocs, may affect the demand for
FREYR’s battery cells, impact its competitive position, or prevent
FREYR from being able to sell products to certain customers or in
certain countries. The implementation of more protectionist trade
policies, such as more detailed inspections, higher tariffs, or new
barriers to entry, in countries where FREYR sells products could
negatively impact FREYR’s business, financial position, and results
of operations.
Possible new tariffs on materials and components used to
manufacture FREYR’s battery cells could have a material adverse
effect on FREYR’s business.
FREYR’s business is dependent on the availability of components
necessary to develop and manufacture its battery cells,
particularly cathode and anode materials. Although FREYR expects to
obtain such components from local suppliers whenever possible, it
will be necessary to develop relationships with suppliers in other
regions. Any tariffs imposed on the importation of components could
lead to price fluctuations and delays in the delivery of such
components. Disruptions in the supply of components could
temporarily impair FREYR’s ability to manufacture battery cells or
require FREYR to pay higher prices in order to obtain these
materials or components from other sources, which could affect
FREYR’s business, financial position, results of operations and
cash flows.
Risks Relating to Ownership of FREYR Ordinary Shares
The concentration of ownership among FREYR’s executive officers,
directors, and their affiliates may prevent new investors from
influencing significant corporate decisions.
As of February 17, 2023 FREYR’s executive officers, directors,
and their affiliates as a group own approximately 11.08% of FREYR’s
outstanding ordinary shares, after the inclusion of FREYR ordinary
shares subject to warrants and options that are currently
exercisable or exercisable within 60 days. As a result, these
shareholders as a group could exercise a level of control over
matters requiring shareholder approval, including the election of
directors, amendment of the Articles, and approval of significant
corporate transactions. This control could have the effect of
delaying or preventing a change of control or changes in management
and will make the approval of certain transactions more difficult
without the support of these shareholders.
FREYR qualifies as an “emerging growth company”, a “smaller
reporting company”, and a “foreign private issuer” and as such,
will benefit from reduced disclosure requirements. FREYR cannot be
certain if such reduced disclosure requirements will make its
ordinary shares less attractive to investors and make it more
difficult to compare FREYR’s performance with other public
companies.
FREYR qualifies as an “emerging growth company”, as defined in the
JOBS Act, a “smaller reporting company”, as defined in Item
10(f)(1) of Regulation S-K, and a “foreign private issuer” as
defined in the Securities Act Rule 405 and Exchange Act Rule 3b-4.
FREYR intends to take advantage of certain current and future
exemptions from various public company reporting requirements, that
are applicable to other public companies that do not qualify as an
“emerging growth company”, “smaller reporting company”, or “foreign
private issuer”. Such exemptions include, but are not limited to,
not
being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in Annual Reports on
Form 10-K and proxy statements, and exemptions from the
requirements to hold a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute
payments not previously approved.
As an “emerging growth company”, FREYR has, and may in the future,
elect to use the extended transition period for complying with new
or revised accounting standards, which allows FREYR to delay the
adoption of new or revised accounting standards that have different
effective dates for public and private companies until those
standards apply to private companies. As a result of this election,
FREYR’s financial statements may not be comparable to companies
that comply with public company effective dates.
FREYR may take advantage of any of these current or future
exemptions, or delays in implementation timeframes, as long as it
meets the applicable guidelines and criteria, and FREYR cannot
predict if it will continue to meet such criteria. Additionally,
FREYR cannot predict if investors will find its ordinary shares
less attractive because it will rely on these exemptions. If some
investors find FREYR ordinary shares less attractive as a result,
there may be a less active trading market for FREYR ordinary shares
and its stock price may be more volatile.
FREYR does not expect to declare dividends on its ordinary shares
in the foreseeable future.
Given the capital-intensive nature of battery manufacturing, FREYR
does not currently anticipate declaring any cash dividends to
holders of its ordinary shares in the foreseeable future.
Consequently, investors may need to rely on sales of their shares
after price appreciation, which may never occur, as the only way to
realize any future gains on their investment.
FREYR may call certain of its unexpired warrants prior to their
exercise at a time that is disadvantageous to warrant holders,
thereby making their warrants worthless, and the exercise of a
significant number of the warrants could adversely affect the
market price of FREYR ordinary shares.
As part of the Business Combination, FREYR assumed 24.6 million
warrants consisting of 14.4 million public warrants (“Public
Warrants”) and 10.3 million private warrants (“Private Warrants”).
The warrants entitle the holder thereof to purchase one of FREYR’s
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.
FREYR 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 it provides 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 FREYR’s 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. However, FREYR may not exercise the
redemption right if the issuance of the FREYR ordinary shares upon
exercise of the warrants is not exempt from registration or
qualification under applicable state blue sky laws or FREYR is
unable to effect such registration or qualification. None of the
Private Warrants are redeemable by FREYR so long as they are held
by a certain holder or any of its permitted
transferees.
Redemption of the outstanding warrants could force holders
to:
•Exercise
their FREYR Warrants and pay the exercise price therefore at a time
when it may be disadvantageous for them to do so;
•Sell
their FREYR Warrants at the then-current market price when they
might otherwise wish to hold their FREYR Warrants; or
•Accept
the nominal redemption price which, at the time the outstanding
FREYR Warrants are called for redemption, is likely to be
substantially less than the market value of their FREYR
Warrants.
Additionally, if a significant number of warrant holders exercise
their warrants instead of accepting the nominal redemption price,
the issuance of these shares would dilute other equity holders,
which could reduce the market price of FREYR’s ordinary
shares.
There can be no assurance that FREYR will be able to comply with
the continued listing standards of the NYSE.
FREYR trades its ordinary shares and Warrants on the NYSE under the
symbols “FREY” and “FREY WS”, respectively. If the NYSE delists
FREYR’s securities from trading on its exchange for failure to meet
the listing standards and FREYR is not able to list such securities
on another national securities exchange, FREYR expects such
securities could be quoted on an over-the-counter market. If this
were to occur, FREYR and its stockholders could face significant
material adverse consequences including:
•A
limited availability of market quotations for FREYR
securities;
•Reduced
liquidity for FREYR securities;
•A
limited amount of news and analyst coverage; and
•A
decreased ability to issue additional securities or obtain
additional financing in the future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal facilities in Luxembourg, Norway, the U.S., and Japan
are utilized for selling and administrative activities and research
and development. In Luxembourg, we lease office space to house our
corporate headquarters. In Lysaker, Norway, we lease office space
for the administration of our Norwegian operations and corporate
shared services. In Mo i Rana we lease office space as well as the
CQP and the land for Giga Arctic and own the assets under
construction. In the U.S., we hold an approximately 368-acre parcel
of land in Coweta County, Georgia for the development of Giga
America and we lease office and lab space in Boston, Massachusetts.
In Japan, we lease office and lab space for research and
development activities. We lease other office and lab spaces to
support additional personnel in various jurisdictions. We believe
that our facilities are suitable and adequate for the conduct of
our business.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to
claims arising in the ordinary course of our business. To the
knowledge of our management, there are no material litigation,
claims, or actions currently pending or threatened against us, any
of our officers, or directors in their capacity as such, or against
any of our property.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s ordinary shares and Warrants trade on the New York
Stock Exchange (“NYSE”) using the ticker symbols “FREY” and “FREY
WS”, respectively. As of February 17, 2023, there were 24
holders of record of our ordinary shares and 10 holders of record
of our Warrants.
Dividend Policy
To date, the Company has not declared or paid any dividends on our
ordinary shares and does not currently anticipate paying any such
dividends in the foreseeable future. The declaration and payment of
dividends on the ordinary shares is at the discretion of our Board
of Directors, subject to applicable laws and
regulations.
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Securities Authorized for Issuance Under Equity Compensation
Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan category |
|
(a) Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights |
|
(b) Weighted-average
exercise price of
outstanding options,
warrants and rights |
|
(c) Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)) |
Equity compensation plans approved by security holders |
|
5,924,379 |
|
|
$ |
9.83 |
|
5,659,565 |
Equity compensation plan not approved by security
holders |
|
566,935 |
(1)
|
|
$ |
3.23 |
|
— |
Equity compensation arrangement not approved by security
holders |
|
850,000 |
(2)
|
|
$ |
10.00 |
|
— |
Total |
|
7,341,314 |
|
|
|
|
5,659,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents ordinary shares issuable upon the exercise of stock
options issued pursuant to the FREYR Legacy’s 2019 Incentive Stock
Option Plan, dated November 9, 2019 (the “2019 Plan”). Excludes
options that are required per their terms to be settled in
cash.
|
(2)
|
Represents ordinary shares issuable upon the exercise of stock
options issued pursuant to the employment agreement entered into on
June 16, 2021 between FREYR Legacy and Tom Einar Jensen (the
“Jensen Employment Agreement”). The stock options are subject to
the achievement of certain key performance indicators (“KPIs”). As
of December 31, 2022, 94 thousand options were awarded. |
2019 Plan
Employees of FREYR Legacy were offered to participate in FREYR
Legacy’s 2019 Incentive Stock Option Plan. After the completion of
the Business Combination, all FREYR Legacy options and FREYR Legacy
warrants became fully vested and were exchanged for FREYR options
and FREYR Warrants. Under the terms of the Business Combination,
all employees were subject to a 12-month lock-up and certain
executives were subject to a 24-month lock-up. The options and
warrants are settled in shares if exercised during a lock-up period
and settled in cash after the lock-up period.
CEO Employment Agreement
On June 16, 2021, FREYR entered into a new employment agreement
with Mr. Jensen to serve as FREYR’s Chief Executive Officer
starting from July 9, 2021. The agreement included a commitment to
award 850 thousand options to acquire Ordinary Shares of FREYR at a
strike price of $10 per share upon the closing of the Business
Combination. These options were conditionally awarded to Mr. Jensen
upon the closing of the Business Combination. The award is subject
to the FREYR Board of Directors’ assessment of Mr. Jensen’s
performance of certain KPIs.
Share Performance Graph
FREYR is a smaller reporting company as defined by Rule 12b-2 of
the Exchange Act and is not required to provide the information
otherwise required under this item.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This MD&A should be read in conjunction with our consolidated
financial statements and the accompanying notes thereto contained
in Part I, Item 8 “Financial Statements and Supplementary Data” and
Part I, Item 1 “Business” of this Annual Report on Form 10-K, for
an overview of our operations and business
environment.
Overview
FREYR 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. Through our strategy
of Speed, Scale, and Sustainability, we seek to serve our primary
markets of ESS; commercial mobility, including marine applications
and commercial vehicles; and EV.
We are in the design and testing phase related to our battery
production process and we are in the final stages of the
construction of our CQP and groundworks and foundation structures
for our inaugural gigafactory Giga Arctic, both located in Mo i
Rana, Norway. We have also announced the launch of our first clean
battery cell manufacturing project in the U.S. located in Coweta
County, Georgia and announced the exploration of a potential
gigafactory site in
Vaasa, Finland.
Our initial CQP production line is based on our licensed
SemiSolidTM
technology and partnership with 24M and lithium-ion chemistry.
Future development and expansion could incorporate alternative
chemistry models and additional advances in battery technology
through our ongoing partnership with 24M or other joint ventures,
and licensing opportunities. We will initially target market
opportunities in ESS, commercial mobility, and EV with high density
and slower charge requirements, with plans to target additional
markets, including faster charge battery cells for the broader
consumer EV market.
As of December 31, 2022, we have not yet initiated manufacturing or
derived revenue from our principal business
activities.
Results of Operations
Comparison of the Years Ended December 31, 2022 and
2021
The following table sets forth information on FREYR’s consolidated
results of operations (in thousands, except
percentages):
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
For the years ended
December 31, |
|
|
Change (%) |
|
|
|
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
107,357 |
|
|
$ |
61,755 |
|
|
|
74 |
% |
|
|
|
|
|
|
|
Research and development |
|
13,574 |
|
|
13,816 |
|
|
|
(2 |
%) |
|
|
|
|
|
|
|
Share of net loss of equity method investee |
|
1,557 |
|
|
62 |
|
|
|
NM |
|
|
|
|
|
|
|
Total operating expenses |
|
122,488 |
|
|
75,633 |
|
|
|
62 |
% |
|
|
|
|
|
|
|
Loss from operations |
|
(122,488) |
|
|
(75,633) |
|
|
|
62 |
% |
|
|
|
|
|
|
|
Other income (expense) |
|
23,369 |
|
|
(17,745) |
|
|
|
232 |
% |
|
|
|
|
|
|
|
Loss before income taxes |
|
(99,119) |
|
|
(93,378) |
|
|
|
6 |
% |
|
|
|
|
|
|
|
Income tax expense |
|
— |
|
|
— |
|
|
|
NM |
|
|
|
|
|
|
|
Net loss |
|
(99,119) |
|
|
(93,378) |
|
|
|
6 |
% |
|
|
|
|
|
|
|
Net loss attributable to non-controlling interests |
|
328 |
|
|
— |
|
|
|
NM |
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders |
|
$ |
(98,791) |
|
|
$ |
(93,378) |
|
|
|
6 |
% |
|
|
|
|
|
|
|
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 $45.6 million
or 74%, to $107.4 million for the year ended December 31, 2022,
from $61.8 million for the year ended December 31, 2021. This is
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 the start-up of manufacturing
operations. Overhead costs also increased due to the professional
fees and other costs related to operating as a public company,
partially offset by a decrease in compensation expense, largely
attributable to employee options and warrants which vested
immediately following the Business Combination in
2021.
We expect general and administrative expenses to continue to
increase as we scale headcount and expand overhead to support the
growth and development of our business, and as a result of
increased professional fees and expenses, such as legal, audit,
tax, and other administrative and professional
services.
Research and development (“R&D”)
R&D expenses consist 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 the development costs related to the
24M License.
R&D expenses decreased by $0.2 million or 2%, to $13.6 million
for the year ended December 31, 2022, from $13.8 million for the
year ended December 31, 2021. This is primarily due to a decrease
in share-based compensation costs, largely attributable to employee
options and warrants which vested immediately following the
Business Combination in 2021, partially offset by an increase in
R&D activities in 2022.
We expect R&D expenses to increase in future periods as we
increase our personnel
and research activities.
Share of net loss of equity method investee
Share of net loss of equity method investee consists of our
proportionate share of the net earnings or losses and other
comprehensive income from FREYR Battery US LLC, which was accounted
for under the equity method from its formation in December 2021
until November 2022. In November 2022, FREYR made an additional
capital contribution which increased our common share ownership of
FREYR Battery US LLC to 95%. The entity was determined to meet the
characteristics of a variable interest entity (“VIE”), with the
Company deemed its primary beneficiary. Therefore, on
November 7, 2022, the Company began consolidating FREYR
Battery US LLC.
Share of net loss of equity method investee increased by $1.5
million to $1.6 million for the year ended December 31, 2022 from
$0.1 million for the year ended December 31, 2021. The increase is
primarily due to FREYR Battery US LLC’s minimal activity in 2021,
consisting mostly of initial formation costs incurred in December
2021, as compared to approximately 10 months of activity in
2022.
Other income (expense)
Other income (expense) primarily consists of the fair value
adjustments on our warrant liability, convertible note, redeemable
preferred shares, interest income and expense, net foreign currency
transaction gains and losses, and grant proceeds received.
Other income increased by $41.1 million or 232%, to income of $23.4
million for the year ended December 31, 2022, from expense of $17.7
million for the year ended December 31, 2021. Other income
increased primarily due to a gain from the warrant liability fair
value adjustment of $14.2 million for the year ended December 31,
2022 compared to a loss from the warrant liability fair value
adjustment of $21.9 million for the year ended December 31,
2021.
Financial Condition, Liquidity, and Capital Resources
Liquidity and Capital Resources
As of December 31, 2022 we had approximately $563.0 million of
cash, cash equivalents, and restricted cash and current liabilities
of approximately $62.6 million. Our restricted cash includes
$117.1 million held in escrow for planned construction
activities of Giga Arctic in 2023. To date, our principal sources
of liquidity have been proceeds received from the Business
Combination, issuance of equity securities, and amounts received
from government grants. Historically, these funds have been used
for constructing and equipping our battery manufacturing
facilities, including the CQP and Giga Arctic, the purchase of land
for Giga America, technology licensing, R&D activities, and
general corporate purposes.
In December 2022, FREYR closed a public offering of 23.0 million
ordinary shares at an offering price of $11.50 per share for total
gross proceeds of approximately $264.5 million. FREYR filed a
shelf registration statement on Form S-3 with the SEC on September
1, 2022, which was subsequently declared effective on September 12,
2022, of which the December public offering is a part. Under this
shelf registration statement, FREYR may, from time to time, sell up
to an additional aggregate amount of approximately $235.5 million
ordinary shares, preferred shares, debt securities, warrants,
rights, and purchase units.
Our future liquidity requirements depend on many factors, including
the timing and extent of the following: capital expenditures for
construction of our battery manufacturing facilities and purchase
of related equipment, spending to support technology licensing and
R&D efforts, spending on other growth initiatives or expansion
into new geographies, our future revenue generating activities,
including market acceptance of our products and services, and
overall economic conditions.
Until we can generate sufficient revenue to adequately support our
liquidity requirements, we expect to fund short-term cash needs
through our existing cash balances. We believe that we have
sufficient liquidity to meet our contractual obligations and
commitments for at least the 12 months following December 31,
2022.
Our long-term operating needs and planned investments in our
business and manufacturing footprint, as currently devised, will
require significant financing to complete. Such financing may not
be available at terms acceptable to us, or at all. The credit
market and financial services industry have in the past, and may in
the future, experience periods of uncertainty that could impact the
availability and cost of equity and debt financing. If we are
unable to raise substantial additional capital in the near term,
our ability to invest in Giga Arctic, Giga America, and other
gigafactories or development projects will be significantly delayed
or curtailed which would have a material adverse impact on our
business prospects and results of operations. If we raise funds by
issuing debt securities, these debt securities would have rights,
preferences, and privileges senior to those of holders of our
ordinary shares. The terms of debt securities or other borrowings
could impose significant restrictions on our operations. If we
raise funds by issuing equity securities, dilution to stockholders
may result. Any equity securities issued may also provide for
rights, preferences, or privileges senior to those of holders of
our ordinary shares.
Cash Flow Summary
The following table summarizes our cash flows for the periods
presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
Change (%) |
|
|
2022 |
|
2021 |
|
Net cash (used in) provided by: |
|
|
|
|
|
|
Operating activities |
|
(90,009) |
|
|
(63,136) |
|
|
43 |
% |
Investing activities |
|
(175,026) |
|
|
(33,787) |
|
|
418 |
% |
Financing activities |
|
250,072 |
|
|
649,000 |
|
|
(61 |
%) |
Operating Activities
Net cash used in operating activities was $90.0 million during the
year ended
December 31, 2022,
compared to $63.1 million during the year ended
December 31, 2021.
This increase in cash used in operating activities was driven by a
$45.5 million increase in net loss, adjusted for non-cash items.
The increase in net loss, adjusted for non-cash items was primarily
due to a gain on the warrant liability fair value adjustment for
the year ended
December 31, 2022
compared to a loss
for the year ended December 31, 2021.
Other factors include higher operating expenses from higher
headcount and increased spending associated with the ramp-up of
activities as we continue to invest in building our business and
move closer to the start-up of manufacturing
operations.
Investing Activities
Net cash used in investing activities was $175.0 million during the
year ended December 31, 2022, compared to $33.8 million during the
year ended December 31, 2021. The change in cash used in investing
activities was primarily driven by $180.8 million in purchases of
property and equipment during the year ended December 31, 2022
compared to $13.8 million during the year ended December 31, 2021.
In 2022, the purchases of property and equipment primarily consist
of the purchase of a 368-acre parcel of land in Coweta County,
Georgia, for the development of Giga America and costs related to
the construction of the CQP and Giga Arctic facilities and related
production equipment in Mo i Rana, Norway. In addition, for the
year ended December 31, 2022, we used $3.0 million in cash for an
investment in our former equity method investee in the U.S. and
received proceeds of $10.5 million from grants funding our property
and equipment construction.
Financing Activities
Net cash provided by financing activities was $250.1 million during
the year ended December 31, 2022, compared to $649.0 million during
the year ended December 31, 2021. Net cash provided during 2022,
consisted of net proceeds of $251.1 million from a public offering
of 23.0 million ordinary shares, partially offset by $1.1 million
in cash used for the purchase of treasury shares. Net cash provided
during 2021, consisted of net proceeds of $641.5 million from the
Business Combination and $7.5 million in proceeds from the issuance
of redeemable preferred shares.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with
U.S. GAAP. The preparation of these consolidated financial
statements requires us to make estimates, assumptions, and
judgments that can significantly impact the amounts we report as
assets, liabilities, revenues, and expenses and the related
disclosures. We base our estimates on historical experience and
other assumptions that we believe are reasonable under the
circumstances. Our actual results could differ significantly from
these estimates.
Our significant accounting policies are described in more detail in
Note 2 to our consolidated financial statements included in Part
II, Item 8 “Financial Statements and Supplementary Data” in this
Annual Report on Form 10-K. We believe
that the accounting policies discussed below are critical to
understanding our historical and future performance as these
policies involved a greater degree of judgment and
complexity.
Convertible Note
We have elected to account for our convertible note receivable from
24M under the fair value option, with changes in fair value
recognized as a convertible note fair value adjustment within the
consolidated statement of operations and comprehensive
loss.
We estimate the fair value of the convertible note at each balance
sheet date using a scenario-based framework that incorporated
various scenarios weighted based on the expected likelihood of
occurrence. This framework utilizes significant assumptions and
judgments about the expected timing and probability of each
scenario, expected payoffs upon the event, and the discount rate.
As these are significant inputs not observable in the market, this
is classified as a Level 3 measurement within the fair value
hierarchy.
Warrants and Warrant Liability
Our warrants entitle the holder to purchase one ordinary share of
FREYR upon payment of the option price. Certain of our warrants may
contain terms such as cash settlement and redemption provisions. We
evaluate our warrants to determine if they are considered indexed
to the ordinary shares of FREYR and would therefore be considered
equity classified awards or would be considered liability
classified awards.
Some terms of the warrants, such as those related to cash
settlement and redemption, are valid only for a restricted group or
class of holder, the warrants would be considered liability
classified and such classification would be reevaluated upon
distribution to a holder outside of that class. For equity
classified warrants, the grant date fair value of the warrants is
expensed over the vesting period. Liability classified warrants are
measured at fair value at each balance sheet date. The fair value
of the warrant is presented as warrant liability on the
consolidated balance sheets with the corresponding change in value
shown as warrant liability fair value adjustment within the
consolidated statements of operations and comprehensive
loss.
Prior to the completion of the Business Combination, we measured
the fair value of our warrants using a scenario-based framework
that considered varying levels of tranches of investments and the
related equity valuation. The assumptions and estimates used in the
analysis were based on information available at the time of the
assessment. This model used significant inputs not observable in
the market, which caused it to be classified as a Level 3
measurement within the fair value hierarchy. Subsequent to the
consummation of the Business Combination, we measured the fair
value of warrants using a Black-Scholes-Merton option pricing
model. The assumptions and estimates used in this model incorporate
significant inputs not observable in the market, including
risk-free interest rate, expected term, and expected volatility,
which caused this to be classified as a Level 3 measurement within
the fair value hierarchy.
Share-Based Compensation
We issue share-based compensation from our long-term incentive
plans. Awards are typically issued in the form of non-qualified
stock options and restricted stock units (“RSUs”) and awards may
contain time based and/or performance based vesting conditions.
Share-based compensation expense is generally determined based on
the grant-date fair value of awards. Liability-classified awards
are remeasured to fair value at each reporting date until
settlement.
We have made an accounting policy election to recognize the expense
for awards with a service condition and graded vesting features on
a straight-line vesting method over the applicable vesting period
and to account for forfeitures in compensation expense as they
occur. Therefore, the fair value of awards is expensed on a
straight-line method over the vesting period for awards expected to
meet performance based vesting conditions. Any subsequent changes
in the estimated number of awards expected to vest will be recorded
as a cumulative catch-up adjustment to compensation cost in the
period in which the change in estimate occurs.
The fair value of share-based compensation awards is calculated
with commonly used valuation models. We used a lattice option
pricing model for certain non-qualified stock options (“NQSOs”)
granted with a strike price above the grant date price and a
Black-Scholes-Merton option pricing model for all other NQSOs.
These models use inputs and assumptions, including the market price
of the shares on the date of grant, risk-free interest rate,
expected volatility, and expected life which involve significant
judgment. The fair value of RSUs is measured based on the closing
price of our ordinary shares.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies in the
accompanying consolidated financial statements for information
concerning new accounting standards and the impact or expected
impact of the implementation of these standards on our financial
statements.
Emerging Growth Company Status
Section 102(b)(1) of the JOBS Act exempts emerging growth companies
from being required to comply with new or revised financial
accounting standards until private companies (that is, those that
have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”))
are required to comply with the new or revised financial accounting
standards. The JOBS
Act provides that a company can elect to opt out of the extended
transition period and comply with the requirements that apply to
non-emerging growth companies, but any such election to opt out is
irrevocable.
We qualify as an emerging growth company, as defined in the JOBS
Act, and therefore intend to take advantage of certain exemptions
from various public company reporting requirements, including
delaying the adoption of new or revised accounting standards until
those standards apply to private companies. This may make a
comparison of our consolidated financial statements with another
public company that is either not an emerging growth company or is
an emerging growth company that has opted out of using the extended
transition period, difficult or impossible because of the potential
differences in accounting standards used.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
FREYR is exposed to market risks arising from adverse changes in
inflation and changing prices. This market risk is described
further below. In addition, refer to Part I, Item 1A in this Annual
Report on Form 10-K for additional discussion of these and other
risks.
Currency Exchange Risk
We are exposed to currency risk from potential changes in currency
values of our non-U.S. dollar denominated expenses, assets,
liabilities, and cash flows. Our most significant currency exposure
relates to the Norwegian Krone.
Inflation Risk
Increases in raw material prices, including those from inflationary
pressures or from supply chain constraints, may adversely impact
FREYR’s costs and results of operations. Rising raw material costs,
including steel and aluminum raw material inflation in the fiscal
year 2022, may result in significant increases in costs from our
suppliers and increased lead times associated with our raw
materials, particularly since we have not established fixed prices
and volumes with a majority of our prospective
suppliers.
We are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
otherwise required under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FREYR BATTERY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE
|
|
|
|
|
|
|
|
Consolidated Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Shareholders of FREYR
Battery
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
FREYR Battery and its subsidiaries (the “Company”) as of December
31, 2022 and 2021, and the related consolidated statements of
operations and comprehensive loss, of shareholders’ equity and of
cash flows for the years then ended, including the related notes
(collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2022 and 2021, and the results of
its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements,
the Company changed the manner in which it accounts for leases in
2022.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits of these consolidated financial statements
in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of
our audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers AS
Oslo, Norway
February 27, 2023
We have served as the Company's auditor since 2020.
Our financial statements for the fiscal years ended December 31,
2022 and 2021, and the reports thereon of the independent
registered public accounting firms are included in this Annual
Report.
FREYR BATTERY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2022 |
|
2021 |
ASSETS |
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
443,063 |
|
|
$ |
563,956 |
|
Restricted cash |
|
119,982 |
|
|
1,671 |
|
Prepaid assets |
|
8,293 |
|
|
15,882 |
|
Other current assets |
|
8,117 |
|
|
1,282 |
|
Total current assets |
|
579,455 |
|
|
582,791 |
|
|
|
|
|
|
Property and equipment, net |
|
210,777 |
|
|
21,062 |
|
Intangible assets, net |
|
2,963 |
|
|
— |
|
Convertible note |
|
19,954 |
|
|
20,231 |
|
Equity method investments |
|
— |
|
|
2,938 |
|
Right-of-use asset under operating leases |
|
14,538 |
|
|
— |
|
Other long-term assets |
|
11 |
|
|
11 |
|
Total assets |
|
$ |
827,698 |
|
|
$ |
627,033 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
6,765 |
|
|
$ |
3,813 |
|
Accrued liabilities and other |
|
51,446 |
|
|
19,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation liability |
|
4,367 |
|
|
2,211 |
|
|
|
|
|
|
Total current liabilities |
|
62,578 |
|
|
25,797 |
|
|
|
|
|
|
Warrant liability |
|
33,849 |
|
|
49,124 |
|
Operating lease liability |
|
11,144 |
|
|
— |
|
Long-term share-based compensation liability |
|
— |
|
|
6,627 |
|
Total liabilities |
|
107,571 |
|
|
81,548 |
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
Ordinary share capital, no par value, 245,000 ordinary shares
authorized as of both December 31, 2022 and December 31, 2021;
139,854 and 139,705 ordinary shares issued and outstanding,
respectively, as of December 31, 2022; and 116,854 ordinary shares
both issued and outstanding as of December 31, 2021
|
|
139,854 |
|
|
116,854 |
|
Additional paid-in capital |
|
772,602 |
|
|
533,418 |
|
Treasury stock |
|
(1,041) |
|
|
— |
|
Accumulated other comprehensive income (loss) |
|
9,094 |
|
|
(524) |
|
Accumulated deficit |
|
(203,054) |
|
|
(104,263) |
|
Total ordinary shareholders' equity |
|
717,455 |
|
|
545,485 |
|
|
|
|
|
|
Non-controlling interests |
|
2,672 |
|
|
— |
|
Total equity |
|
720,127 |
|
|
545,485 |
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
827,698 |
|
|
$ |
627,033 |
|
See accompanying notes to consolidated financial
statements
F-3
FREYR BATTERY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(In Thousands, Except per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended
December 31, |
|
|
|
|
|
|
2022 |
|
2021 |
Operating expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
$ |
107,357 |
|
|
$ |
61,755 |
|
Research and development |
|
|
|
|
|
13,574 |
|
|
13,816 |
|
Share of net loss of equity method investee |
|
|
|
|
|
1,557 |
|
|
62 |
|
Total operating expenses |
|
|
|
|
|
122,488 |
|
|
75,633 |
|
Loss from operations |
|
|
|
|
|
(122,488) |
|
|
(75,633) |
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Warrant liability fair value adjustment |
|
|
|
|
|
14,183 |
|
|
(21,859) |
|
|
|
|
|
|
|
|
|
|
Convertible note fair value adjustment |
|
|
|
|
|
(277) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
|
|
|
1,780 |
|
|
314 |
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction gain |
|
|
|
|
|
2,512 |
|
|
1,325 |
|
Other income, net |
|
|
|
|
|
5,171 |
|
|
2,475 |
|
Total other income (expense) |
|
|
|
|
|
23,369 |
|
|
(17,745) |
|
Loss before income taxes |
|
|
|
|
|
(99,119) |
|
|
(93,378) |
|
Income tax expense |
|
|
|
|
|
— |
|
|
— |
|
Net loss |
|
|
|
|
|
(99,119) |
|
|
(93,378) |
|
Net loss attributable to non-controlling interests |
|
|
|
|
|
328 |
|
|
— |
|
Net loss attributable to ordinary shareholders |
|
|
|
|
|
$ |
(98,791) |
|
|
$ |
(93,378) |
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding - basic and
diluted |
|
|
|
|
|
118,474 |
|
|
75,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to ordinary shareholders per share - basic
and diluted |
|
|
|
|
|
$ |
(0.83) |
|
|
$ |
(1.24) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
$ |
(99,119) |
|
|
$ |
(93,378) |
|
Foreign currency translation adjustments |
|
|
|
|
|
9,618 |
|
|
(1,182) |
|
Total comprehensive loss |
|
|
|
|
|
(89,501) |
|
|
(94,560) |
|
Comprehensive loss attributable to non-controlling
interests |
|
|
|
|
|
328 |
|
|
— |
|
Comprehensive loss attributable to ordinary
shareholders |
|
|
|
|
|
$ |
(89,173) |
|
|
$ |
(94,560) |
|
See accompanying notes to consolidated financial
statements
F-4
FREYR BATTERY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Treasury Stock |
|
Accumulated Deficit |
|
Non-controlling interests |
|
Total Equity |
|
|
Ordinary Shares |
|
|
|
|
|
|
|
|
Shares |
|
Amount |
|
|
|
|
|
|
Balance as of January 1, 2021 |
|
37,452 |
|
|
$ |
— |
|
|
$ |
15,183 |
|
|
$ |
658 |
|
|
$ |
— |
|
|
$ |
(10,885) |
|
|
$ |
— |
|
|
$ |
4,956 |
|
Share-based compensation expense |
|
— |
|
— |
|
14,055 |
|
— |
|
— |
|
— |
|
— |
|
14,055 |
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(93,378) |
|
|
— |
|
|
(93,378) |
|
Reclassification of share-based compensation expense from equity to
liability |
|
— |
|
|
— |
|
|
(8,984) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,984) |
|
Norway demerger |
|
— |
|
|
— |
|
|
(2,897) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,897) |
|
Issuance of ordinary shares in settlement of FREYR Legacy preferred
shares |
|
1,490 |
|
|
— |
|
|
14,895 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,895 |
|
PIPE Investment, net of transaction costs |
|
60,000 |
|
|
— |
|
|
579,000 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
579,000 |
|
Business Combination, net of redemptions and transaction
costs |
|
17,499 |
|
|
— |
|
|
39,020 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
39,020 |
|
Luxembourg reorganization |
|
— |
|
|
116,441 |
|
|
(116,441) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Conversion of warrants to ordinary shares |
|
413 |
|
|
413 |
|
|
(413) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
— |
|
|
— |
|
|
— |
|
|
(1,182) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,182) |
|
Balance as of December 31, 2021 |
|
116,854 |
|
|
116,854 |
|
|
$ |
533,418 |
|
|
$ |
(524) |
|
|
$ |
— |
|
|
$ |
(104,263) |
|
|
$ |
— |
|
|
$ |
545,485 |
|
Share-based compensation expense |
|
— |
|
|
— |
|
|
9,976 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
9,976 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(98,791) |
|
|
(328) |
|
|
(99,119) |
|
Repurchase of shares |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,052) |
|
|
— |
|
|
— |
|
|
(1,052) |
|
Exercise of stock options |
|
— |
|
|
— |
|
|
(11) |
|
|
— |
|
|
11 |
|
|
— |
|
|
— |
|
|
— |
|
Exercise of warrants |
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
Issuance of ordinary shares, net of transaction costs |
|
23,000 |
|
|
23,000 |
|
|
228,126 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
251,126 |
|
Reclassification of warrants from liability classified to equity
classified |
|
— |
|
|
— |
|
|
1,092 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,092 |
|
Contribution from non-controlling interest holders |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,000 |
|
|
3,000 |
|
Other comprehensive income |
|
— |
|
|
— |
|
|
— |
|
|
9,618 |
|
|
— |
|
|
— |
|
|
— |
|
|
9,618 |
|
Balance as of December 31, 2022 |
|
139,854 |
|
|
139,854 |
|
|
$ |
772,602 |
|
|
$ |
9,094 |
|
|
$ |
(1,041) |
|
|
$ |
(203,054) |
|
|
$ |
2,672 |
|
|
$ |
720,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-5
FREYR BATTERY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
2022 |
|
2021 |
Cash flows from operating activities: |
|
|
|
|
Net loss |
|
$ |
(99,119) |
|
|
$ |
(93,378) |
|
Adjustments to reconcile net loss to cash used in operating
activities: |
|
|
|
|
Share-based compensation expense |
|
8,643 |
|
|
14,818 |
|
Depreciation and amortization |
|
478 |
|
|
120 |
|
|
|
|
|
|
Loss on US joint venture consolidation |
|
1,619 |
|
|
— |
|
Reduction in the carrying amount of lease assets |
|
1,458 |
|
|
— |
|
Warrant liability fair value adjustment |
|
(14,183) |
|
|
21,859 |
|
|
|
|
|
|
Convertible note fair value adjustment |
|
277 |
|
|
— |
|
|
|
|
|
|
Share of net loss of equity method investee |
|
1,557 |
|
|
62 |
|
Foreign currency transaction net unrealized gain |
|
(2,868) |
|
|
— |
|
Other |
|
2 |
|
|
(131) |
|
Changes in assets and liabilities: |
|
|
|
|
Prepaid assets and other current assets |
|
(3,664) |
|
|
(16,419) |
|
|
|
|
|
|
Other long-term assets |
|
— |
|
|
(230) |
|
Accounts payable, accrued liabilities and other |
|
17,385 |
|
|
10,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability |
|
(1,594) |
|
|
— |
|
Net cash used in operating activities |
|
(90,009) |
|
|
(63,136) |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Proceeds from property related grants |
|
10,461 |
|
|
— |
|
Purchases of property and equipment |
|
(180,787) |
|
|
(13,775) |
|
Investments in equity method investee |
|
(3,000) |
|
|
— |
|
Asset acquisition, cash acquired |
|
300 |
|
|
— |
|
Investments in convertible note |
|
— |
|
|
(20,000) |
|
Purchases of other long-term assets |
|
(2,000) |
|
|
(12) |
|
Net cash used in investing activities |
|
(175,026) |
|
|
(33,787) |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from issuance of ordinary shares, net |
|
251,124 |
|
|
— |
|
Repurchase of treasury shares |
|
(1,052) |
|
|
— |
|
|
|
|
|
|
Proceeds from Business Combination |
|
— |
|
|
70,836 |
|
Proceeds from PIPE Investment, net |
|
— |
|
|
573,666 |
|
|
|
|
|
|
Proceeds from issuance of redeemable preferred shares |
|
— |
|
|
7,500 |
|
Payments for the Norway Demerger |
|
— |
|
|
(3,002) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
250,072 |
|
|
649,000 |
|
|
|
|
|
|
Effect of changes in foreign exchange rates on cash, cash
equivalents, and restricted cash |
|
12,381 |
|
|
(1,395) |
|
Net (decrease) increase in cash, cash equivalents, and restricted
cash |
|
(2,582) |
|
|
550,682 |
|
Cash, cash equivalents, and restricted cash at beginning of
period |
|
565,627 |
|
|
14,945 |
|
Cash, cash equivalents, and restricted cash at end of
period |
|
$ |
563,045 |
|
|
$ |
565,627 |
|
|
|
|
|
|
Supplementary disclosures of cash flow information |
|
|
|
|
Cash paid for interest |
|
$ |
— |
|
|
$ |
3 |
|
Cash paid for income taxes |
|
— |
|
|
— |
|
|
|
|
|
|
Supplementary disclosures for noncash activities |
|
|
|
|
Warranty liability assumed from business combination |
|
$ |
— |
|
|
$ |
27,265 |
|
Settlement of redeemable preferred shares through issuance of
ordinary shares |
|
— |
|
|
14,895 |
|
Reclassification of share-based compensation expense from equity to
liability |
|
— |
|
|
8,984 |
|
Accrued purchases of property and equipment and intangible
assets |
|
25,360 |
|
|
7,559 |
|
Investment in equity method investment through assumption of
liability |
|
— |
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to consolidated balance sheets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
443,063 |
|
|
$ |
563,956 |
|
Restricted cash |
|
119,982 |
|
|
1,671 |
|
Cash, cash equivalents, and restricted cash |
|
$ |
563,045 |
|
|
$ |
565,627 |
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Description of the Business
FREYR Battery (“FREYR,” the “Company”, “we”, or “us”) is a
developer of clean, next-generation battery cell production
capacity. Our mission and vision are to accelerate the
decarbonization of global energy and transportation systems by
producing clean, cost-competitive batteries. Through our strategy
of Speed, Scale, and Sustainability, we seek to serve our primary
markets of energy storage systems (“ESS”); commercial mobility,
including marine applications and commercial vehicles; and electric
vehicles (“EV”).
We are in the design and testing phase related to our battery
production process and we are in the final stages of the
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 December
31, 2022, we have not yet initiated manufacturing or derived
revenue from our principal business activities. Our Chief Executive
Officer (“CEO”), who is the chief operating decision-maker, manages
our operations as a single operating segment for purposes of
allocating resources and evaluating financial
performance.
Business Combination
On January 29, 2021, FREYR AS, a private limited liability company
organized under the laws of Norway (“FREYR Legacy”) and Alussa
Energy Acquisition Corp., a Cayman Islands exempted company
(“Alussa”), among others, entered into the Business Combination
Agreement (the “BCA”) to effect a merger between the companies (the
“Business Combination”). FREYR, a Luxembourg public limited
liability company was formed to complete the Business Combination
and related transactions and carry on the business of FREYR Legacy.
FREYR serves as the successor entity to FREYR Legacy, the
predecessor entity.
The merger was completed in multiple stages, pursuant to the terms
of the BCA, which included among other things, the transfer of
FREYR Legacy’s wind farm business to Sjonfjellet Vindpark Holding
AS (“SVPH”), resulting in SVPH shares being held by FREYR Legacy’s
shareholders. On July 8, 2021, FREYR’s ordinary shares and warrants
began trading on the New York Stock Exchange. On July 9, 2021,
FREYR completed the Business Combination with FREYR Legacy and
Alussa. In connection with the consummation of the transactions
contemplated by the BCA, FREYR Legacy and Alussa became wholly
owned subsidiaries of FREYR.
The Business Combination was accounted for as a reverse
recapitalization. Under this method of accounting, Alussa was
treated as the “acquired” company for financial reporting purposes.
This determination was primarily based on the following factors:
(i) FREYR Legacy’s existing operations comprised the ongoing
operations of the combined company, (ii) FREYR Legacy’s senior
management comprised the senior management of the combined company
and (iii) no shareholder had control of the Board of Directors or a
majority voting interest in the combined company. In accordance
with guidance applicable to these circumstances, the Business
Combination was treated as the equivalent of FREYR issuing shares
for the net assets of Alussa, accompanied by a recapitalization.
The net assets of Alussa were stated at historical cost, with no
goodwill or other intangible assets recorded.
As a result, the consolidated financial statements included herein
reflect (i) the historical operating results of FREYR Legacy prior
to the Business Combination, (ii) the combined results of FREYR,
FREYR Legacy and Alussa following the closing of the Business
Combination, (iii) the assets and liabilities of FREYR Legacy at
their historical cost, (iv) the assets and liabilities of FREYR and
Alussa at their historical cost, which approximates fair value, and
(v) FREYR’s equity structure for all periods
presented.
In accordance with Accounting Standards Codification (“ASC”)
805,
Business Combinations,
guidance applicable to these circumstances, the equity structure
has been restated in all comparative periods up to the closing
date, to reflect the number of shares of FREYR’s ordinary shares
issued to FREYR Legacy’s shareholders in connection with the
recapitalization transaction. As such, the shares and corresponding
capital amounts and earnings per share related to FREYR Legacy’s
ordinary shares prior to the Business Combination have been
retroactively restated as shares reflecting the exchange ratio
established in the Business Combination.
Basis of Presentation
The consolidated financial statements have been prepared in
conformity with the accounting principles generally accepted in the
U.S. (“U.S. GAAP”). The consolidated financial statements include
the accounts of FREYR and its wholly owned or controlled
subsidiaries. All intercompany accounts and transactions have been
eliminated. Certain prior period balances and amounts have been
reclassified to conform with the current year’s presentation in the
consolidated financial statements and the accompanying
notes.
The Company enters into relationships with or makes investments in
other entities that may be variable interest entities (“VIE”). A
VIE is consolidated in the financial statements if the Company has
the power to direct activities that most significantly impact the
economic performance of the VIE and has the obligation to absorb
losses or the right to receive benefits from the VIE that could
potentially be significant to the VIE.
Use of Estimates
The preparation of the consolidated financial statements in
accordance with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes.
Estimates and assumptions include, but are not limited to,
estimates related to the valuation of warrant liability,
share-based compensation, and the convertible note. We base these
estimates on historical experiences and on various other
assumptions that we believe are reasonable under the circumstances,
however, actual results may differ materially from these
estimates.
Risks and Uncertainties
We are subject to those risks common to our business and industry
and also those risks common to early development stage companies,
including, but not limited to, the possibility of not being able to
successfully develop or market our products, the ability to obtain
or maintain licenses and permits to support future business,
competition, dependence on key personnel and key external
alliances, loss of our grant contributor, the ability to maintain
and establish relationships with current and future vendors and
suppliers, the successful protection of our proprietary
technologies, the possibility of the factory development being
disrupted, compliance with government regulations, and the
possibility of not being able to obtain additional financing when
needed.
These financial statements have been prepared by management in
accordance with U.S. GAAP and this basis assumes that we will
continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of
business.
As of the date of this report, our existing cash resources, which
were primarily provided as a result of the business combination,
are sufficient to support our planned operations for at least the
next 12 months from the date of issuance of these financial
statements. Therefore, our financial statements have been prepared
on the basis that we will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of
business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit with banks and
highly liquid investments with maturities of 90 days or less
from the date of purchase.
Restricted Cash
Certain cash balances are restricted as to withdrawal or use.
Restricted cash primarily consists of the balance of an account
held for the construction of Giga Arctic. Additionally, restricted
cash includes funds
held in a restricted account for the payment of upfront rental
lease deposits and government income tax withholdings.
Fair Value Measurements and Fair Value Option
We define fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
When determining fair value measurements for assets and liabilities
which are required to be recorded at fair value, we consider the
principal or most advantageous market and the market-based risk
measurements or assumptions that market participants would use in
pricing the asset or liability. These could include risks inherent
in valuation techniques, transfer restrictions, and credit risk.
Fair value is estimated by applying the following hierarchy, which
prioritizes the inputs used to measure fair value into three
levels.
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.
Level 1
- Quoted prices in active markets for identical assets or
liabilities.
Level 2
- Observable inputs other than quoted prices in active markets for
identical assets and liabilities, quoted prices for identical or
similar assets or liabilities in inactive markets, or other inputs
that are observable or can be corroborated by observable market
data for substantially the full term of the assets or
liabilities.
Level 3
- Inputs that are generally unobservable and typically reflect
management’s estimate of assumptions that market participants would
use in pricing the asset or liability.
Under the fair value option, the Company has the irrevocable
option, on an instrument-by-instrument basis, to report certain
financial assets and financial liabilities at fair value with
changes in fair value reported in earnings. Any changes in the fair
value of liabilities resulting from changes in the
instrument-specific credit risk would be reported in other
comprehensive income.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment and Intangible Assets
Property and equipment is recorded at cost less accumulated
depreciation. The cost of an asset includes the cost of the
purchase or construction of the asset plus other costs necessary to
bring the asset to the condition and location necessary for its
intended use. Maintenance and repairs are charged to expense as
incurred and improvements or major enhancements are
capitalized.
The Company maintains arrangements with certain local government
agencies which provide for ad valorem tax incentives in connection
with the Company’s capital investment in property and equipment
purchases to outfit new facilities over a specified timeframe. To
facilitate the incentives, the Company conveys the purchased
property and equipment to the local government agency and will
lease it back from such agency for nominal consideration. The
Company retains access to and use of the property and equipment and
title will be conveyed back to the Company for a nominal fee. As
the Company continues to benefit from the property and equipment,
it is recorded on the Company’s consolidated balance
sheets.
Depreciation begins when an asset is placed into service or is
substantially complete and ready for its intended use. Depreciation
is computed using the straight-line method, over the estimated
useful lives of the related asset. Land and construction in
progress are not depreciated. Leasehold improvements are
depreciated over the shorter of the remaining expected lease term
or the estimated useful lives of the improvements.
The estimated useful lives of our property and equipment are as
follows:
|
|
|
|
|
|
|
|
|
Asset Class |
|
Useful Life |
Computer software and office equipment |
|
Three to
five years
|
Leasehold improvements |
|
Lesser of estimated useful life or remaining lease term |
The useful lives of our property and equipment are determined by
management when those assets are initially recognized and are
routinely reviewed for reasonableness. Useful lives are estimates
based on current facts and circumstances, and actual useful lives
may differ from these estimates. When a change is made to the
estimated useful life of an asset, the remaining carrying value of
the asset is prospectively depreciated or amortized over the
remaining estimated useful life. Historically, changes in useful
lives have not resulted in material changes to our depreciation and
amortization expense.
Intangible assets with definite lives are amortized on a
straight-line basis over their estimated useful lives, usually
determined by the remaining legal or contractual life of the asset.
Our current intangible assets have an estimated useful life of 20
years.
When assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the
consolidated balance sheets and any resulting gain or loss is
reflected in the accompanying consolidated statements of operations
and comprehensive loss.
Impairment of Long-Lived Assets
We review our property, plant and equipment, and intangible assets
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset (or asset group) may not be
recoverable. We measure recoverability by comparing the carrying
amount to the future undiscounted cash flows that the asset is
expected to generate. If the asset is not recoverable, its carrying
amount would be adjusted down to its fair value. For the years
ended December 31, 2022 and 2021, we have recognized no material
impairments of our long-lived assets.
Convertible Note
We have elected to account for our convertible note receivable from
24M under the fair value option, with changes in fair value
recognized as a convertible note fair value adjustment within the
consolidated statement of operations and comprehensive
loss.
We estimate the fair value of the convertible note at each balance
sheet date using a scenario-based framework that incorporates
various scenarios weighted based on the expected likelihood of
occurrence. This framework utilizes significant assumptions and
judgments about the expected timing and probability of each
scenario, expected payoffs upon the event, and the discount rate.
As these are significant inputs not observable in the market, this
is classified as a Level 3 measurement within the fair value
hierarchy.
Equity Method Investments
We utilize the equity method to account for investments, including
joint ventures, when we possess the ability to exercise significant
influence, but not control, over the operating and financial
policies of the investee. The ability to exercise significant
influence is presumed when the investor possesses more
than 20% of the voting interests of the investee. This
presumption may be overcome based on specific facts and
circumstances that demonstrate that the ability to exercise
significant influence is restricted.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In applying the equity method, we record the investment at cost and
subsequently increase or decrease the carrying amount of the
investment by our proportionate share of the net earnings or losses
and other comprehensive income of the investee.
Leases
A lease is a contract, or part of a contract, that conveys the
right to control the use of an identified asset for a period of
time in exchange for consideration. Lease classification as a
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 on
the predominant component.
The Company made an accounting policy election not to recognize a
right-of-use asset and a lease liability for short-term leases with
an initial term of 12 months or less, therefore these leases are
not recorded on the 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.
Government Grants
The Company recognizes grants over the periods in which we
recognize the related costs for which the grants are intended to
compensate. For grants related to income, we recognize the proceeds
as other income, net in the consolidated statement of operations
and comprehensive loss over the periods in which the related costs
are incurred and the conditions for receiving the grants have been
fulfilled. For grants related to the purchase or construction of
property, we reduce the carrying amount of the property and
equipment recorded on the consolidated balance sheets, as the
grants are received and the conditions for receiving the grants
have been fulfilled.
Research and Development Cost
Research and development costs that do not meet the criteria for
capitalization are expensed as incurred. Research and development
costs consist of compensation, employee benefits, and share-based
compensation for employees engaged in research and development
activities, as well as fees paid for external engineering, supplies
and services, allocation of indirect costs, and contributions to
research institutions.
Foreign Currency Translation and Transaction Gains and
Losses
Our functional currency is U.S. dollars. Generally, the functional
currency of our subsidiaries is the local currency. We translate
the financial statements of these subsidiaries to U.S. dollars
using period-end exchange rates for assets and liabilities.
Revenues and expenses are translated into U.S. dollars using the
average exchange rates prevailing for each period
presented.
We record translation gains and losses in accumulated other
comprehensive income. We reflect net foreign exchange transaction
gains and losses resulting from the conversion of the transaction
currency to functional currency as a component of foreign currency
exchange gain (loss) in other income (expense), net.
Share-Based Compensation
We issue share-based compensation from our long-term incentive
plans. Awards are typically issued in the form of non-qualified
stock options and restricted stock units (“RSUs”) and awards may
contain time based and/or performance based
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
vesting conditions. Share-based compensation expense is generally
determined based on the grant-date fair value of awards.
Liability-classified awards are remeasured to fair value at each
reporting date until settlement.
We have made an accounting policy election to recognize the expense
for awards with a service condition and graded vesting features on
a straight-line vesting method over the applicable vesting period
and to account for forfeitures in compensation expense as they
occur. Therefore, the fair value of awards is expensed on a
straight-line method over the vesting period for awards expected to
meet performance based vesting conditions. Any subsequent changes
in the estimated number of awards expected to vest will be recorded
as a cumulative catch-up adjustment to compensation cost in the
period in which the change in estimate occurs.
The fair value of share-based compensation awards is calculated
with commonly used valuation models. We used a lattice option
pricing model for certain NQSOs granted with a strike price above
the grant date price and a Black-Scholes-Merton option pricing
model for all other NQSOs. These models use inputs and assumptions,
including the market price of the shares on the date of grant,
risk-free interest rate, expected volatility, and expected life
which involve significant judgment. The fair value of RSUs is
measured based on the closing price of our ordinary
shares.
Warrants and Warrant Liability
Our warrants entitle the holder to purchase one ordinary share of
FREYR upon payment of the option price. Certain of our warrants may
contain terms such as cash settlement and redemption provisions. We
evaluate our warrants to determine if they are considered indexed
to the ordinary shares of FREYR and would therefore be considered
equity classified awards or would be considered liability
classified awards.
Some terms of the warrants, such as those related to cash
settlement and redemption, are valid only for a restricted group or
class of holder, the warrants would be considered liability
classified and such classification would be reevaluated upon
distribution to a holder outside of that class. For equity
classified warrants, the grant date fair value of the warrants is
expensed over the vesting period. Liability classified warrants are
measured at fair value at each balance sheet date. The fair value
of the warrant is presented as warrant liability on the
consolidated balance sheets with the corresponding change in value
shown as warrant liability fair value adjustment within the
consolidated statements of operations and comprehensive
loss.
Prior to the completion of the Business Combination, we measured
the fair value of our warrants using a scenario-based framework
that considered varying levels of tranches of investments and the
related equity valuation. The assumptions and estimates used in the
analysis were based on information available at the time of the
assessment. This model used significant inputs not observable in
the market, which caused it to be classified as a Level 3
measurement within the fair value hierarchy. Subsequent to the
consummation of the Business Combination, we measured the fair
value of warrants using a Black-Scholes-Merton option pricing
model. The assumptions and estimates used in this model incorporate
significant inputs not observable in the market, including
risk-free interest rate, expected term, and expected volatility,
which caused this to be classified as a Level 3 measurement within
the fair value hierarchy. We account for Private Warrants as
derivative liabilities on the consolidated balance sheets. We
measured the fair value at the close of the Business Combination
and each reporting date, with changes in fair value recognized in
the consolidated statements of operations and comprehensive loss in
the period of change.
Defined Contribution Benefit Plans
We have defined contribution benefit plans in accordance with
Norwegian law for employees residing in Norway, as well as in
certain other countries. We made contributions to our defined
contribution benefit plans of $2.5 million and $0.6 million in
the years ended December 31, 2022 and 2021.
Income Taxes
Income tax expense is based on relevant tax rates in effect in the
countries in which we operate and earn income. Current income tax
expense reflects an estimate of our income tax liability for the
current year, including changes in prior year tax estimates as
returns are filed, and tax audit adjustments, if any.
Deferred income tax assets and liabilities reflect temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, tax effected by applying the relevant tax rate,
applicable to the periods in which the reversal of such differences
is expected to affect taxable income. Changes in deferred income
tax assets and liabilities are included as a component of income
tax expense, unless they are associated with components of other
comprehensive income, which are instead reflected as a change in
other comprehensive income. The effect of changes in enacted tax
rates on deferred income tax assets and liabilities are reflected
in income tax expense in the period of enactment. A valuation
allowance is provided when it is deemed more likely than not that
some portion or all of a deferred tax asset will not be realized,
after consideration of both positive and negative evidence about
realization. Changes in the valuation allowances occurring in
subsequent periods are included in the consolidated statements of
operations and comprehensive loss.
Assets and liabilities are established for uncertain tax positions
taken, or expected to be taken, in income tax returns when such
positions, in our judgment, do not meet a more-likely-than-not
threshold based on their technical merits. Estimated interest and
penalties related to uncertain tax positions are included as a
component of income tax expense.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk
Financial instruments that are potentially subjected to credit risk
consist of cash and cash equivalents and the convertible note. Cash
and cash equivalents are placed with major financial institutions.
We have not experienced any credit loss related to our cash and
cash equivalents or the convertible note.
Emerging Growth Company
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 election to opt out is irrevocable. We
qualify as an emerging growth company, as defined in the JOBS Act,
and therefore intend to take advantage of certain exemptions from
various public company reporting requirements, including delaying
the adoption of new or revised accounting standards until those
standards apply to private companies. The effective dates shown
below reflect the election to use the extended transition period,
as applicable.
Adoption of Accounting Pronouncements
In December 2019, the 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 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 effect 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 of 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.
3. BUSINESS COMBINATION
As discussed in Note 1 – Business and Basis of Presentation, we
completed the Business Combination on July 9, 2021. Immediately
before the closing of the Business Combination, all outstanding
redeemable preferred shares of FREYR Legacy were converted into
ordinary shares of FREYR. Upon the consummation of the Business
Combination, each share of FREYR Legacy issued and outstanding was
canceled and converted into the right to receive 0.179038 ordinary
shares in FREYR (the “Exchange Ratio”).
Upon the closing of the Business Combination, our articles of
association were amended and restated to, among other things,
increase the total number of authorized shares to 245.0 million
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 60.0 million 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 U.S. GAAP. Under this method of
accounting, Alussa was treated as the “acquired” company for
financial reporting purposes. See Note 1 – Business and Basis of
Presentation for further details. Accordingly, for accounting
purposes, the Business Combination was treated as the equivalent of
FREYR issuing shares for the net assets of Alussa, accompanied by a
recapitalization. The net assets of Alussa were stated at
historical cost, with no goodwill or other intangible assets
recorded.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the elements of the Business
Combination and PIPE Investment to the consolidated statement of
cash flows and the consolidated statement of shareholders’ equity
for the year ended December 31, 2021 (in thousands):
|
|
|
|
|
|
|
Recapitalization |
Cash - Alussa trust and cash, net of redemptions |
$ |
104,535 |
|
Cash - PIPE Investment |
600,000 |
|
Less: Non-cash net liabilities assumed from Alussa |
(26,129) |
|
Less: Transaction costs |
(60,386) |
|
Net Business Combination and PIPE Investment |
618,020 |
|
Add back: Non-cash net liabilities assumed from Alussa |
26,129 |
|
Add: Accrued transaction costs |
353 |
|
Net cash contribution from Business Combination and
PIPE |
$ |
644,502 |
|
The number of ordinary shares issued immediately following the
consummation of the Business Combination:
|
|
|
|
|
|
|
Number of Shares |
Alussa Class A ordinary shares, outstanding prior to Business
Combination |
28,750,000 |
|
Less: redemption of Alussa Class A ordinary shares |
(18,439,168) |
|
Alussa Class A ordinary shares |
10,310,832 |
|
Alussa Class B founder ordinary shares |
7,187,500 |
|
Ordinary shares issued in PIPE Investment |
60,000,000 |
|
Ordinary shares issued to FREYR Legacy preferred
shareholders |
1,489,500 |
|
Business Combination and PIPE Investment ordinary
shares |
78,987,832 |
|
FREYR Legacy ordinary shares
(1)
|
37,452,359 |
|
Total ordinary shares immediately after Business Combination and
PIPE Investment |
116,440,191 |
|
|
|
|
|
|
|
(1)
|
The number of FREYR Legacy ordinary shares was determined from the
209,196,827 of FREYR Legacy ordinary shares outstanding prior to
the closing of the Business Combination converted at the exchange
ratio of 0.179038. All fractional shares were rounded
down.
|
4. PROPERTY AND EQUIPMENT, NET AND INTANGIBLES, NET
Property and Equipment, net
Property and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2022 |
|
2021 |
Land |
|
$ |
44,326 |
|
|
$ |
— |
|
Construction in progress |
|
164,387 |
|
|
20,017 |
|
Office equipment and other |
|
2,614 |
|
|
1,180 |
|
|
|
211,327 |
|
|
21,197 |
|
Less: Accumulated depreciation |
|
(550) |
|
|
(135) |
|
Total |
|
$ |
210,777 |
|
|
$ |
21,062 |
|
Land consists of a 368-acre parcel of land in Coweta County,
Georgia, which was purchased in 2022 for the development of Giga
America. Construction in progress primarily includes costs related
to the construction of the CQP and Giga Arctic facilities and the
related production equipment in Mo i Rana, Norway. Depreciation
expense was $0.4 million and $0.1 million for 2022 and 2021,
respectively, and is included in general and administrative
expenses in the consolidated statements of operations and
comprehensive loss.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents property and equipment by geographic
area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2022 |
|
2021 |
Norway |
|
$ |
166,388 |
|
|
$ |
21,062 |
|
United States |
|
44,345 |
|
|
— |
|
Luxembourg |
|
44 |
|
|
— |
|
Total |
|
$ |
210,777 |
|
|
$ |
21,062 |
|
Intangibles, net
Intangible assets consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
License |
$ |
3,000 |
|
|
$ |
(37) |
|
|
$ |
2,963 |
|
|
|
|
|
|
|
Intangible assets consist of a license to produce and sell
lithium-iron phosphate cathode battery materials using Taiwan based
Aleees’ technology. The license has a 20-year useful life. There
were no intangible assets recorded as of December 31, 2021.
Amortization expense for the years ended
December 31, 2022
and 2021 was $38 thousand and zero, respectively. Future
amortization expense was estimated as being $150 thousand for each
of the next five years.
5. ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2022 |
|
2021 |
Accrued purchases |
|
$ |
34,932 |
|
|
$ |
11,481 |
|
Accrued payroll and payroll related expenses |
|
12,936 |
|
|
6,476 |
|
Operating lease liabilities (Note 6)
|
|
3,257 |
|
|
— |
|
Accrued other operating costs and other current
liabilities |
|
321 |
|
|
1,816 |
|
|
|
|
|
|
Total |
|
$ |
51,446 |
|
|
$ |
19,773 |
|
6.
LEASES
We currently lease our corporate headquarters, the building for the
CQP, the land for the Giga Arctic facilities, as well as other
facilities and properties. Our leases have remaining lease terms of
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
December 31, 2022, all of our leases are operating
leases.
The components of lease liabilities included in our consolidated
balance sheet consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022 |
|
|
Accrued liabilities and other (Note 5)
|
|
$ |
3,257 |
|
Operating lease liability |
|
11,144 |
|
Total |
|
$ |
14,401 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Components of lease expenses consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 |
Operating lease cost |
|
|
|
$ |
2,232 |
|
Variable lease cost |
|
|
|
170 |
|
Short-term lease cost |
|
|
|
157 |
|
Total lease cost |
|
|
|
$ |
2,559 |
|
The remaining minimum lease payments due on our long-term leases
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022 |
2023 |
|
3,339 |
|
2024 |
|
2,129 |
|
2025 |
|
2,157 |
|
2026 |
|
2,152 |
|
2027 |
|
1,273 |
|
Thereafter |
|
18,571 |
|
Total undiscounted lease payments |
|
29,621 |
|
Less: imputed interest |
|
(15,220) |
|
Present value of lease liabilities |
|
$ |
14,401 |
|
Weighted average remaining lease term and discount rate are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022 |
Weighted-average remaining lease term (in years) |
|
22.8 |
Weighted-average discount rate |
|
6.88 |
% |
Supplemental cash flow information related to leases were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022 |
Cash paid for amounts included in the measurement of lease
liabilities |
|
|
Operating cash flows |
|
$ |
2,528 |
|
Lease liabilities arising from obtaining right-of-use
assets |
|
15,878 |
|
|
|
|
7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, we may be subject to legal and regulatory
actions that arise in the ordinary course of business. The
assessment as to whether a loss is probable or reasonably possible,
and as to whether such loss or a range of such loss is estimable,
often involves significant judgment about future events. Management
believes that any liability of ours that may arise out of or with
respect to these matters will not materially, adversely affect our
consolidated financial position, results of operations, or
liquidity.
8. WARRANTS
Public and Private Warrants
As part of the Business Combination, as described in Note 3 –
Business Combination, we assumed 24.6 million warrants consisting
of 14.4 million public warrants
(“Public Warrants”)
and 10.3 million private warrants (“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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated balance sheets.
The Private Warrants are identical to the Public Warrants, except
that so long as they are held by a certain holder 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 consolidated balance sheets.
If Private Warrants are sold or transferred to another party that
is not the specified holder or any of its permitted transferees,
the Private Warrants become Public Warrants and qualify for
classification within shareholders’ equity at the fair value on the
date of the transfer. See also Note 9 – Fair Value
Measurement.
As of
December 31, 2022,
we had
24.6 million public and private warrants outstanding, consisting of
14.6 million Public Warrants and 10.0 million
Private Warrants. As of December 31, 2021, we had 24.6
million
public and private
warrants outstanding, consisting of 14.4 million Public Warrants
and 10.3 million Private Warrants.
EDGE Warrants
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 1.5 million
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 thousand 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.
We determined that the EDGE warrants are equity classified as they
are indexed to our ordinary shares. 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.
As of December 31, 2022 and 2021, we had 2.2 million EDGE warrants
outstanding and exercisable.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
December 31, 2021 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Note |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,954 |
|
|
$ |
19,954 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
20,231 |
|
|
$ |
20,231 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
33,849 |
|
|
$ |
33,849 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
49,124 |
|
|
$ |
49,124 |
|
We measured our Private Warrants and the Convertible Note 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. These valuations used assumptions and
estimates that we believed a market participant would use when
making the same valuation. Changes in the fair value of the Private
Warrants were recognized as a warrant liability fair value
adjustment within the consolidated statements of operations and
comprehensive loss. Changes in the fair value of the Convertible
Note were recognized as a convertible note fair value adjustment
within the consolidated statement of operations and comprehensive
loss.
As of
December 31, 2022
and December 31, 2021, the carrying value of all other financial
assets and liabilities approximated their respective fair
values.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Private Warrants
The Private Warrants outstanding on
December 31, 2022
and December 31, 2021, were valued using the Black-Scholes-Merton
option pricing model. See Note 8 – Warrants above for further
details. Our use of the Black-Scholes-Merton option pricing model
for the Private Warrants as of
December 31, 2022
and December 31, 2021, required the use of subjective
assumptions:
•The
risk-free interest rate assumption was based on the U.S. Treasury
Rates commensurate with the contractual terms of the Private
Warrants.
•The
expected term was determined based on the expiration date of the
Private Warrants.
•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 each of the risk-free interest rate, expected term,
or expected volatility, in isolation, would increase the fair value
measurement, and a decrease in each of these assumptions would
decrease the fair value measurement, of the Private
Warrants.
Using this approach, an exercise price of $11.50 and a share price
of $8.68 and $11.18 as of
December 31, 2022
and December 31, 2021, respectively, we determined that the fair
value of the Private Warrants was $33.8 million and $49.1 million,
respectively.
Convertible Note
As of
December 31, 2022
and December 31, 2021, we had an investment in a convertible note
from 24M, for which we had made a fair value election, as we
considered fair value to provide a more accurate reflection of the
current economic worth of the instrument. See Note 14 – Convertible
Note for further details.
The Convertible Note was valued using a scenario-based framework,
where the fair value determined in various scenarios were weighted
based on the estimated probability of occurrence. Within each
scenario, a discounted cash flow approach was utilized, taking the
expected payoff for the event, and discounting it based on the
expected timing and a discount rate. Each of the assumptions in
this model were considered significant assumptions. We noted that a
change in the expected probability, expected payoff, timing, or
discount rate, would result in a change to the fair value ascribed
to the Convertible Note.
Redeemable Preferred Shares
On November 11, 2020, 7.5 million 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 92.5 million 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 7.5 million
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 1.5 million ordinary shares of FREYR. Before
settlement, the preferred shares were valued using a scenario-based
framework, and within each scenario, a discounted cash flow
approach was utilized, discounting the expected payoffs upon a
conversion or redemption event. Each of the assumptions in this
model were considered significant assumptions. Prior to settlement,
changes in the fair value of the redeemable preferred shares were
recognized as redeemable preferred shares fair value adjustment
within the consolidated statements of operations and comprehensive
loss.
The following table presents changes in the Level 3 instruments
measured at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2022 |
|
For the year ended
December 31, 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 |
|
— |
|
|
— |
|
|
20,000 |
|
|
27,265 |
|
|
7,500 |
|
Fair value measurement adjustments |
|
(277) |
|
|
(14,183) |
|
|
231 |
|
|
21,859 |
|
|
(74) |
|
Reclassification to Public Warrants |
|
— |
|
|
(1,092) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(15,000) |
|
Balance (end of period) |
|
$ |
19,954 |
|
|
$ |
33,849 |
|
|
$ |
20,231 |
|
|
$ |
49,124 |
|
|
$ |
— |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. SHAREHOLDERS' EQUITY
Ordinary Shares
As of December 31, 2022 and December 31, 2021, 245.0 million
ordinary shares without par value were authorized and
139.7 million and 116.9 million ordinary shares were
outstanding as of December 31, 2022 and December 31, 2021,
respectively. Holders of ordinary shares are entitled to one vote
per share and to receive dividends when, as, and if, declared by
our Board of Directors. As of December 31, 2022, we have not
declared any dividends.
In December 2022, FREYR closed a public offering of 23.0 million
ordinary shares at an offering price of $11.50 per share for total
gross proceeds of approximately $264.5 million.
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 thousand of the Company’s
ordinary shares. The Share Repurchase Program had no time limit and
was able to be suspended or discontinued at any time. We
purchased 150 thousand ordinary shares at an average price
of $6.97 per share, excluding fees, during the year
ended December 31, 2022 (no comparative amounts for the
year ended December 31, 2021). As of December 31, 2022, the
authorized share repurchase was completed and no ordinary shares
remain available for repurchase under the program. There were 148.4
thousand and zero treasury shares outstanding as of December 31,
2022 and December 31, 2021, respectively.
Share-Based Compensation
2021 Plan
In June 2021, we adopted the 2021 Equity Incentive Plan (the “2021
Plan”). The 2021 Plan provides for the grant of stock options,
restricted stock, RSUs, stock appreciation rights, performance
units, and performance shares to our employees, directors, and
consultants. Generally, our stock options and RSUs vest annually
over three years and our stock options are exercisable over a
maximum period of five years from their grant dates. Options are
typically forfeited when the employment relationship ends for
employees and they do not typically forfeit for directors.
Generally, our RSUs are liability-classified awards, as they are
cash settled based on the closing price of the shares on the
vesting date.
As of December 31, 2022, a total of 11.6 million shares were
reserved for issuance to satisfy share-based compensation awards
made under the 2021 Plan. All exercised options are settled in
shares net of shares withheld to satisfy the award exercise price
and related taxes.
A rollforward of employee options outstanding under the 2021 Plan
was as follows (number of options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
Weighted average exercise price |
|
|
|
|
Outstanding at January 1, 2022 |
|
2,102 |
|
|
$ |
10.05 |
|
|
|
|
|
Granted |
|
4,103 |
|
|
9.74 |
|
|
|
|
|
Exercised |
|
(16) |
|
|
10.00 |
|
|
|
|
|
Forfeited |
|
(326) |
|
|
9.82 |
|
|
|
|
|
Outstanding at December 31, 2022 |
|
5,863 |
|
|
9.83 |
|
|
|
|
|
Exercisable at December 31, 2022 |
|
842 |
|
|
$ |
10.04 |
|
|
|
|
|
The aggregate intrinsic value of options outstanding and
exercisable as of December 31, 2022 was $0.7 million and zero,
respectively. The weighted average remaining life for options
outstanding and exercisable as of December 31, 2022 was 4.1 years
and 3.7 years, respectively.
A rollforward of RSUs outstanding under the 2021 Plan was as
follows (number of RSUs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs |
|
Weighted average grant date fair value |
Outstanding at January 1, 2022 |
|
$ |
— |
|
|
$ |
— |
|
Granted |
|
61 |
|
|
7.39 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2022 |
|
$ |
61 |
|
|
$ |
7.39 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The aggregate intrinsic value of RSUs outstanding as of December
31, 2022 was $0.5 million. The weighted average remaining life for
RSUs as of December 31, 2022 was 2.4 years.
2019 Plan
FREYR Legacy had an Incentive Stock Option Plan (the “2019 Plan”).
According to the 2019 Plan, options or warrants could be granted to
eligible employees.
As a result of the consummation of the Business Combination on July
9, 2021, all granted awards vested immediately. As such, on July 9,
2021, share-based compensation was recognized for the remaining
unrecognized fair value of the 2019 Plan awards. No further options
or warrants can be issued under the 2019 Plan.
Effective at the close of the Business Combination, the 2019 Plan
was modified to require cash settlement after a lock-up period of
one year for all non-executive employees or 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 expenses or research and development expenses in 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.
A rollforward of employee options and warrants outstanding under
the 2019 Plan was as follows (number of options and warrants in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of options and warrants |
|
Weighted average exercise price |
|
|
|
|
Outstanding at January 1, 2022 |
|
1,008 |
|
|
$ |
2.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
(331) |
|
|
$ |
1.96 |
|
|
|
|
|
Outstanding and exercisable at December 31, 2022 |
|
677 |
|
|
$ |
3.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options and warrants outstanding
and exercisable as of December 31, 2022 was $3.7 million. The
weighted average remaining life for options and warrants
outstanding and exercisable as of December 31, 2022 was 2.7 years.
The Company paid $2.9 million for 2019 Plan options and
warrants exercised in 2022.
CEO Option Awards
In June 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 thousand options to acquire our shares at
an exercise price of $10.00 (the “CEO Options”). The CEO Options
are subject to nine separate performance criteria, each of which is
related to 1/9th
of the total award amount. After the performance criteria are
achieved and certified by the Board of Directors, the options will
vest in equal parts subsequent to the certification date on the
stated dates of December 31, 2022, 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 year ended December 31, 2022, 94 thousand of the CEO
Options were awarded by the Board of Directors after the
achievement of one of the performance criteria.
Nonemployee Awards
On December 4, 2020, FREYR Legacy entered into a license agreement
with a third-party service provider for its support in initiating
and enabling high-level discussions with Japanese technology
providers. On February 16, 2021, FREYR Legacy’s shareholders issued
413 thousand warrants with an exercise price of NOK 0.01, as
payment-in-kind for the services provided in the license agreement.
On March 8, 2021, the third-party service provider subscribed for
the warrants, and the warrants were reclassified from liability to
equity and remeasured to the fair value on the date of
subscription. On November 26, 2021, the warrants were exchanged on
a one-for-one basis for ordinary shares.
Valuation and Expense
Valuation Models and Assumptions
We generally estimate the fair value of stock options and warrants
with service or service and performance vesting conditions using
the Black-Scholes-Merton option pricing model. The grant date fair
value is determined for equity-classified options, and
liability-classified options and warrants are revalued at each
reporting date. The fair value of RSUs is based on the closing fair
market value of our common stock, which for our
liability-classified RSUs is determined at each reporting
date.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The weighted average grant date assumptions and fair values for
stock options and warrants calculated using the
Black-Scholes-Merton option pricing model are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, |
|
|
2022 |
|
2021 |
Valuation assumptions: |
|
|
|
|
Expected term (years) |
|
3.45 |
|
4.22 |
Expected volatility |
|
60.32 |
% |
|
49.30 |
% |
Expected dividend yield |
|
0.00 |
% |
|
0.00 |
% |
Risk-free interest rate |
|
3.16 |
% |
|
0.28 |
% |
Grant date fair value |
|
$ |
3.82 |
|
|
$ |
7.60 |
|
The Company generally uses the simplified method when calculating
the expected term due to insufficient historical exercise data. For
stock options and warrants granted under the 2019 Plan, we used the
contractual term as the expected term, as these awards were deeply
in the money on the grant date. The expected volatility was derived
from the average historical daily stock volatility of a peer group
of public companies that we consider to be comparable to our
business over a period equivalent to the expected terms of the
share-based awards. The expected dividend yield was based on our
expectation that we would not pay dividends in the foreseeable
future. The risk-free interest rate was based on U.S. Treasury
Rates for awards granted after the Business Combination and based
on the AAA-Rated Euro Area Central Government Bond Yields for
awards issued before the Business Combination.
We valued out of the money option awards granted in 2021, after the
Business Combination, using a lattice option pricing model. The
weighted average grant date assumptions and fair values for stock
options calculated using a lattice option pricing model are as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2021 |
Valuation assumptions: |
|
|
|
|
|
Expected volatility |
|
50.33 |
% |
Expected dividend yield |
|
0.00 |
% |
Risk-free interest rate |
|
0.79 |
% |
Grant date fair value per option |
|
$ |
3.42 |
|
As the awards were issued out of the money, an assumption was made
that the
holders would choose to exercise when a certain exercise ratio was
achieved of the share price over the exercise price, upon which the
expected life was calculated. All other assumptions were consistent
with those used in the Black-Scholes-Merton option pricing
model.
Share-Based Compensation Expense
The following table summarizes share-based compensation expense by
line item in the consolidated statements of operations (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, |
|
|
2022 |
|
2021 |
General and administrative |
|
$ |
8,312 |
|
|
$ |
12,998 |
|
Research and development |
|
331 |
|
|
1,820 |
|
As of December 31, 2022, we had $13.8 million of total unrecognized
share-based compensation expense which will be recognized over a
weighted-average period of 1.3 years.
11. GOVERNMENT GRANTS
For the year ended December 31, 2022 and 2021, we recognized grant
income of $4.0 million and $2.3 million, respectively, in other
income, net within the consolidated statements of operations and
comprehensive loss. For the year ended December 31, 2022 and 2021,
we recorded grant income of $10.5 million and zero, respectively,
as a reduction of property and equipment, net on our consolidated
balance sheets, as these grants partially offset capitalized costs
related to the construction in progress for the CQP. The 2022
reduction was attributable to the March 1, 2021 grant, which is
discussed
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
below. As of December 31, 2022 and 2021, we had $0.2 million and
$1.4 million in deferred income from grants recorded as accrued
liabilities and other on our consolidated balance
sheets.
Significant Grant Awards
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 final conditions for the project were
approved in December 2022. The grant may become repayable if grant
proceeds are used to purchase or develop property and equipment or
intangible assets that are later sold or moved out of Norway within
five years of receipt of the grant.
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 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.
12. INCOME TAXES
As of December 31, 2022, FREYR has not yet initiated manufacturing
or derived revenue from our principal business activities and, as a
result, we generate losses before income taxes on our consolidated
statements of operations. We also generate taxable losses in the
majority of the jurisdictions in which we operate.
We had no provision for income taxes for the years
ended December 31, 2022 and 2021. Additionally, we
had no current tax expense, as a result of historical
losses, and have no current deferred tax expense, as a
result of the valuation allowance against our deferred tax
assets.
A reconciliation of our income tax expense to the amount obtained
by applying the statutory tax rate in Luxembourg is as follows (in
thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, |
|
|
|
|
|
|
2022 |
|
2021 |
Pretax net loss |
|
|
|
|
|
$ |
(99,119) |
|
|
$ |
(93,378) |
|
Statutory tax rate in Luxembourg |
|
|
|
|
|
25 |
% |
|
25 |
% |
Income taxes calculated at statutory tax rate |
|
|
|
|
|
(24,720) |
|
|
(23,288) |
|
Permanent difference - Fair value adjustments |
|
|
|
|
|
(26,691) |
|
|
5,452 |
|
Foreign tax differential |
|
|
|
|
|
2,197 |
|
|
1,513 |
|
Changes in valuation allowance |
|
|
|
|
|
45,572 |
|
|
16,605 |
|
Other permanent tax items - net |
|
|
|
|
|
3,642 |
|
|
(282) |
|
Income tax expense |
|
|
|
|
|
$ |
— |
|
|
$ |
— |
|
Effective tax rate |
|
|
|
|
|
0 |
% |
|
0 |
% |
Deferred tax assets and liabilities are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
|
2022 |
|
2021 |
Deferred tax assets |
|
|
|
|
|
|
|
|
Tax losses carryforwards |
|
|
|
|
|
$ |
61,205 |
|
|
$ |
16,295 |
|
Stock-based compensation |
|
|
|
|
|
4,080  |