FREYR BATTERY, INC. ThisFREYR Battery's "Management's Discussion and Analysis" ofFREYR Battery's results operations and financial condition should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2021 and the unaudited interim condensed consolidated financial statements and the accompanying notes included as part of this Quarterly Report on Form 10-Q for the period endedJune 30, 2022 . The financial information contained herein is taken or derived from such audited annual consolidated financial statements and unaudited interim condensed consolidated financial statements, unless otherwise indicated. The following discussion contains forward-looking statements and actual results could differ materially from those that are discussed in these forward-looking statements. See also "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in this Form 10-Q and ourDecember 31, 2021 Annual Report on Form 10-K for more information on factors that could cause or contribute to such differences. Unless the context otherwise requires, all references in this section to "FREYR" refer to FREYR Legacy prior to the closing of the Business Combination and toFREYR Battery following the closing of the Business Combination. OverviewFREYR Battery ("FREYR," the "Company", "we", or "us") is a developer of clean, next-generation battery cell production capacity. Our mission and vision are to accelerate the decarbonization of global energy and transportation systems by producing clean, cost-competitive batteries. We are in the design and testing phase related to our battery production process and we have initiated construction of our Customer Qualification Plant ("CQP") and groundworks and foundation structures for our inaugural gigafactory ("Giga Arctic"), both located in Mo i Rana,Norway . As ofJune 30, 2022 , we have not yet initiated manufacturing or derived revenue from our principal business activities. Our initial CQP production line is expected to be based on our licensed Semi-SolidTM technology and partnership with 24M and lithium-ion chemistry. Future development and expansion could incorporate alternative chemistry models and additional advances in battery technology both through our ongoing partnership with 24M, joint ventures, and licensing opportunities. We will initially target market opportunities in energy storage systems ("ESS"), marine applications, commercial vehicles, and electric vehicles ("EV") with slower charge requirements, with plans to target additional markets, including faster charge battery cells for the broader consumer EV market. We expect our capital and operating expenditures to increase significantly in the second half of 2022 and 2023 in connection with our ongoing activities
and to prepare for growth, as we:
? Construct manufacturing facilities and purchase related equipment;
? Commercialize products;
? Make additional investments in technology;
? Maintain and improve operational, financial, and management information
systems;
? Hire additional personnel; and
? Operate as a public company.
Recent Developments
? In
Arctic, a combination of our previously announced Gigafactory 1 & 2, the
Company's first full scale battery manufacturing facility currently under
development in Mo i Rana,
capacity of 29 Gigawatt hours ("GWh") and a total estimated capital cost of
$1.7 billion .
? In
debt financing support based on visibility from export credit agencies,
multilateral development finance institutions, and commercial banking partners.
? In
European energy technology company for 25 GWh of battery cells from 2024 to
2028.
17
? In
("Changzhou") to supply battery materials for its CQP and Giga Arctic
facilities through 2028, with an optional extension until 2031. Subject to the
terms and conditions of the reservation agreement,
supply capacity of separator materials through 2028 to align with FREYR's
estimated demand.
? In
largest producer of renewable energy, which was finalized as a long-term
physical supply agreement in
hydropower renewable energy to cover all of FREYR's currently anticipated
electricity needs for the period of 2024 to 2031 and ensures physical delivery
of energy from the central grid in Mo i Rana to FREYR's CQP and Giga Arctic
facilities. The agreement will be effective upon our meeting certain requirements related to the status of our construction and financing activities.
Comparability of Financial Information
Our results of operations and reported assets and liabilities may not be comparable between periods as a result of the Business Combination and becoming a public company. As a result of the Business Combination, we became aNew York Stock Exchange ("NYSE") listed company, which has required and will continue to require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees, internal and external accounting, legal and administrative resources, including increased audit, compliance, and legal fees. Share Repurchase Program InMay 2022 , the board of directors approved a share repurchase program (the "Share Repurchase Program"). The shares purchased under the program are to be used to settle the exercise of employee options granted under the Company's equity compensation plans. We were authorized to repurchase up to 150,000 of the Company's Ordinary Shares, or approximately 0.13% of the current outstanding share capital. The Share Repurchase Program had no time limit and was able to be suspended or discontinued at any time. We purchased 150,000 ordinary shares at an average price of$6.97 per share, excluding fees, during the three and six months endedJune 30, 2022 (no comparative amounts for the three and six months endedJune 30, 2021 ). As ofJune 30, 2022 , the authorized share repurchase was completed and no ordinary shares remain available for repurchase under the program. Results of Operations
The following table sets forth
Three months ended June 30, Six months ended June 30,
2022 2021 Change (%) 2022 2021 Change (%)
Operating expenses: General and administrative$ 28,150 $ 7,176 292 %$ 52,764 $ 16,188 226 % Research and development 3,082 3,045 1 % 5,941 5,952 0 % Equity in losses from investee 296 - NM 463 - NM Total operating expenses 31,528 10,221 208 % 59,168 22,140 167 % Loss from operations (31,528 ) (10,221 ) 208 % (59,168 ) (22,140 ) 167 % Other income (expense) 36,199 2,185 NM 28,932 2,217 NM Income (loss) before income taxes 4,671 (8,036 ) 158 % (30,236 ) (19,923 ) 52 % Income tax expense - - - - Net income (loss)$ 4,671 $ (8,036 ) 158 %$ (30,236 ) $ (19,923 ) 52 % NM - Not meaningful 18 Operating expenses
General and administrative
General and administrative expenses consist of personnel and personnel-related expenses, including share-based compensation, fees paid for contractors and consultants assisting with growing the business, office space related costs, travel costs, public relations costs, legal, accounting, and audit fees, and depreciation expense.
General and administrative expenses increased by$21.0 million or 292%, to$28.2 million for the three months endedJune 30, 2022 , from$7.2 million for the three months endedJune 30, 2021 . General and administrative expenses increased by$36.6 million or 226%, to$52.8 million for the six months endedJune 30, 2022 , from$16.2 million for the six months endedJune 30, 2021 . General and administrative expenses increased primarily due to higher headcount and increased spending associated with the ramp up of activities as we continue to invest in building our business and move closer to start-up of manufacturing operations. Overhead costs also increased due to the professional fees and other costs related to operating as a public company. We expect general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of increased expenses to operate as a public company, including compliance with the rules and regulations of theUnited States Securities and Exchange Commission , additional legal, audit, and insurance expenses, investor relations activities, and other administrative and professional services.
Research and development ("R&D")
R&D expenses consists primarily of compensation to employees engaged in research and development activities, including share-based compensation, internal and external engineering, supplies and services, and contributions to research institutions. R&D expenses also include development costs related to our technology license with 24M. R&D expenses increased slightly to$3.1 million for the three months endedJune 30, 2022 , from$3.0 million for the three months endedJune 30, 2021 . R&D expenses decreased slightly to$5.9 million for the six months endedJune 30, 2022 , from$6.0 million for the six months endedJune 30, 2021 .
We expect R&D expenses to increase in future periods as we increase our personnel and research activities.
Equity in losses from investee
Equity in losses from investee consists of our proportionate share of the net earnings or losses and other comprehensive income fromFREYR Battery KSP JV LLC , which is accounted for under the equity method, as we exercise significant influence but not control, over its operating and financial policies. Equity in losses from investee of$0.3 million and$0.5 million were recognized for the three and six months endedJune 30, 2022 , respectively. There was no equity in losses from investee for the corresponding periods in 2021. Other income (expense)
Other income (expense) primarily consists of the fair value adjustments on our warrant liability, convertible note, and redeemable preferred shares, interest income and expense, net foreign currency transaction gains and losses, and
grant proceeds received. Other income increased by$34.0 million to$36.2 million for the three months endedJune 30, 2022 from$2.2 million for the three months endedJune 30, 2021 . Other income increased by$26.7 million to$28.9 million for the six months endedJune 30, 2022 from$2.2 million for the six months endedJune 30, 2021 . The increase in other income is primarily due to the$33.4 million gain on the revaluation of the warrant liability recorded during the second quarter of 2022 as a result of a decrease in our stock price.
Financial Condition, Liquidity and Capital Resources
Liquidity and Capital Resources
As ofJune 30, 2022 , we had approximately$488.4 million of cash, cash equivalents, and restricted cash and current liabilities of approximately$45.7 million . To date, our principal sources of liquidity have been proceeds received from the Business Combination, issuance equity securities, and amounts received from government grants. Historically, these funds have been used for constructing and equipping our battery manufacturing facilities, including the CQP and Giga Arctic, technology licensing, R&D activities, and general corporate purposes. 19 Our future liquidity requirements depend on many factors, including the timing and extent of the following: capital expenditures for construction of our battery manufacturing facilities and purchase of related equipment, spending to support technology licensing and R&D efforts, spending on other growth initiatives or expansion into new geographies, our future revenue generating activities, including market acceptance of our products and services, and overall economic conditions. Until we can generate sufficient revenue to adequately support our liquidity requirements, we expect to fund short-term cash needs through our existing cash balances. We believe that we have sufficient liquidity to meet our contractual obligations and commitments for at least the 12 months followingJune 30, 2022 . Our long-term operating needs and planned investments in our business and manufacturing footprint, as currently devised, will require significant financing. Such financing may not be available at terms acceptable to us, or at all. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing. If we are unable to raise substantial additional capital in the near term, our ability to invest in Giga Arctic and other gigafactories or development projects will be significantly delayed or curtailed which would have a material adverse impact on our business prospects and results of operations. If we raise funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of holders of our ordinary shares. The terms of debt securities or other borrowings could impose significant restrictions on our operations. If we raise funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of our ordinary shares. Cash Flow Summary
The following table summarizes our cash flows (in thousands):
Six months ended June 30,
2022 2021 Change (%)
Net cash (used in) provided by:
Operating activities $ (50,430 ) $ (10,317 ) 389 %
Investing activities (24,546 ) (119 ) NM
Financing activities (1,052 ) 7,500 (114 %)
NM - Not meaningful
Operating Activities
Net cash used in operating activities was$50.1 million for the six months endedJune 30, 2022 , compared to$10.3 million for the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , the increase in cash used in operating activities was driven by a$38.0 million increase in net loss, adjusted for non-cash items. The increase in net loss, adjusted for non-cash items was primarily due to higher operating expenses from higher headcount and increased spending associated with the ramp up of activities as we continue to invest in building our business and move closer to the start-up of manufacturing operations. Investing Activities
Net cash used in investing activities was$24.5 million for the six months endedJune 30, 2022 , compared to$0.1 million for the six months endedJune 30, 2021 . The change in cash used in investing activities was primarily driven by$26.4 million in purchases of property and equipment compared to$0.1 million for the six months endedJune 30, 2022 and 2021, respectively. In addition, for the six months endedJune 30, 2022 , we used$3.0 million in cash for an investment inFREYR Battery KSP JV, LLC , our equity method investee and received proceeds of$4.9 million from grants funding our property and equipment construction. 20 Financing Activities Net cash used in financing activities was$1.1 million for the six months endedJune 30, 2022 , compared to cash provided by financing activities of$7.5 million for the six months endedJune 30, 2021 . Net cash used during 2022 was related to the purchase of treasury shares during the second quarter. Net cash provided during 2021, consisted of$7.5 million in proceeds from the issuance of redeemable preferred shares.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are consistent with those described in the Management's Discussion and Analysis section of ourDecember 31, 2021 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies during the six months endedJune 30, 2022 .
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements for information concerning new accounting standards and the impact of the implementation of these standards on our financial statements.
Emerging Growth Company Status
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We qualify as an emerging growth company, as defined in the JOBS Act, and therefore intend to take advantage of certain exemptions from various public company reporting requirements, including delaying adoption of new or revised accounting standards until those standards apply to private companies. This may make a comparison of our condensed consolidated financial statements with another public company that is either not an emerging growth company or is an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
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