FREYR Battery (FREY) 10-Q2024 Q3 Quarterly report

We make forward-looking statements in this Quarterly Report on Form 10-Q (this “Report”) and in documents incorporated herein by reference. All statements, other than statements of present or historical fact included in or incorporated by reference in this Report, regarding FREYR Battery, Inc.’s future financial performance, as well as our strategy, future operations, financial position, estimated revenues and losses, projected costs, expected cash spending, planned capital expenditures, prospects, plans, and objectives of management are forward-looking statements. When used in this Report, the words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intends”, “may”, “might”, “plan”, “possible”, “potential”, “predict”, “project”, “should”, “will”, “would”, the negative of such terms, and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions, and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to our business.

These forward-looking statements are based on information available as of the date of this Report, and current expectations, forecasts, and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements in this Report and in any document incorporated herein by reference should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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 our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 29, 2024 and in our other filings with the SEC. We do not assume any obligation to update any forward-looking statements.

As of September 30, 2024, we have not yet initiated commercial manufacturing or derived revenue from our principal business activities.

The unaudited condensed consolidated interim financial statements have been prepared in conformity with the accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, these financial statements do not include all of the information required by U.S. GAAP for complete consolidated financial statements.

The condensed consolidated financial statements include the accounts of FREYR, its wholly owned subsidiaries, majority-owned subsidiaries, and variable interest entities (“VIE”) of which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated. Certain prior period balances and amounts have been reclassified to conform with the current period’s presentation.

Restricted Cash

The Company’s significant accounting policies were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Supplemental accounting policy disclosures are included above.

In September 2024, FREYR implemented a restructuring process (the “2024 Restructuring”), to reduce overhead costs and better align the organization to current opportunities. We accrued severance and other termination benefits of $4.5 million related to the 2024 Restructuring, which was recognized in Restructuring charge in the consolidated statements of operation and comprehensive loss for the three and nine months ended September 30, 2024. No cash payments or other adjustments to the accrued restructuring charge balance have been made in 2024.

In November 2023, FREYR announced a restructuring process (the “2023 Restructuring”), which focused on preserving Company liquidity as we advanced our strategies on the Customer Qualification Plant (“CQP”) and at the manufacturing project in the U.S. (“Giga America”), while continuing to fund critical initiatives. We accrued severance and other termination benefits of $6.0 million related to the 2023 Restructuring which was recognized in Restructuring charge in the consolidated statements of operation and comprehensive loss for the year ended December 31, 2023.

Accrued and unpaid severance and personnel costs are included within accrued liabilities and other on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023.

Other current assets consisted of the following (in thousands):

Depreciation expense was $2.5 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively, and $7.0 million and $1.8 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company’s equity investments consisted of the following (in thousands):

In March 2023, the Company contributed $1.7 million to obtain a 33% equity interest in Nidec Energy AS (the “Nidec JV”), a joint venture with Nidec Europe BV (“Nidec”). The Nidec JV was formed to develop, manufacture, and sell battery modules and battery packs for industrial and utility-grade ESS applications. The Company determined that the Nidec JV was a VIE, and that the Company was not the primary beneficiary. Additionally, the Company is able to exercise significant influence but not control over the operating and financial policies of the Nidec JV. Therefore, the Company has recorded its investment in the Nidec JV as an equity method investment.

On October 8, 2021, we invested in an unsecured convertible note receivable (the “Convertible Note”) from 24M. On March 24, 2023, we converted the Convertible Note to preferred stock of 24M. As the 24M preferred stock does not have a readily determinable fair value and does not provide the Company with control or significant influence, we have elected to account for the 24M preferred stock under the measurement alternative. There have been no adjustments to the fair value of the 24M preferred stock since its conversion.

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 if such loss or a range of losses is estimable, often involves significant judgment, including estimates and assumptions about future events.

To the knowledge of our management, as of September 30, 2024 there is 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. 

As of September 30, 2024 and December 31, 2023, we had 24.6 million warrants outstanding (the “Warrants”), consisting of 14.7 million public warrants (the “Public Warrants”) and 9.9 million private warrants (the “Private Warrants”) as of September 30, 2024 and 14.6 million Public Warrants and 10.0 million Private Warrants as of December 31, 2023. Each Warrant entitles the holder thereof to purchase one share of our common stock 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. 

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 common stock 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 common stock and qualify for classification within stockholders’ equity. As such, the Public Warrants are presented as part of additional paid-in capital on the condensed consolidated balance sheets.

As of September 30, 2024 and December 31, 2023, we had 0.7 million and 2.2 million warrants, respectively, held by EDGE Global LLC (“EDGE”) or its co-owners that were outstanding and exercisable. These warrants entitle the holder thereof to purchase one share of our common stock at the exercise price, subject to adjustments. The EDGE warrants outstanding as of September 30, 2024 have an exercise price of $1.22 and expire on September 30, 2025. During the nine months ended September 30, 2024, 1.5 million warrants with an exercise price of $0.95 were exercised and settled in shares, net of shares withheld to satisfy the exercise price.

We measured our warrant liabilities for Private Warrants, 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 in making the same valuation. Changes in the fair value of the Private Warrants were recognized as a warrant liability fair value adjustment within the condensed consolidated statements of operations and comprehensive loss. 

As of September 30, 2024 and December 31, 2023, the carrying value of all other financial assets and liabilities approximated their respective fair values. 

The Private Warrants 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 required the use of subjective assumptions, including: 

The fair value of the Private Warrants was determined using this approach, an exercise price of $11.50 and a share price of $0.97 as of September 30, 2024 and $1.87 as of December 31, 2023. 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.

As of September 30, 2024 and December 31, 2023, 355.0 million shares of common stock were authorized with a par value of $0.01 per share. As of September 30, 2024, 140.5 million shares of common stock were issued and outstanding and as of December 31, 2023, 139.7 million shares of common stock were issued and outstanding. Holders of common stock are entitled to one vote per share and to receive dividends when, as, and if, declared by our Board of Directors. As of September 30, 2024, we have not declared any dividends.

As of September 30, 2024 and December 31, 2023, 10.0 million preferred shares with a par value of $0.01 per share were authorized and none were outstanding.

On September 30, 2024, the Company completed the purchase of 100% of its U.S. joint venture through the acquisition of the remaining 4% non-controlling interest.

In June 2021, we adopted the 2021 Equity Incentive Plan (amended and restated as of April 22, 2024), (the “2021 Plan”). The 2021 Plan provides for the grant of stock options, restricted stock, restricted stock units (“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 expire five years after the grant date. Options are typically forfeited when the employment relationship ends for employees and they do not typically forfeit for directors. Generally, our RSUs are equity classified awards that are expected to be settled in shares. All exercised options are expected to be settled in shares, net of shares withheld to satisfy the award exercise price.  As of September 30, 2024, 34.9 million shares were authorized for issuance to satisfy share-based compensation awards made under the 2021 Plan.

During the nine months ended September 30, 2024, 15.1 million options were granted, 6.9 million options were forfeited, 1.6 million RSUs were granted, 402,000 RSUs were forfeited and 59,000 RSUs vested.

The 2019 Incentive Stock Option Plan (the “2019 Plan”) was issued on September 11, 2019. All stock options and warrants granted under the 2019 Plan are fully vested and no further awards can be issued. Outstanding awards under the 2019 Plan are required to be cash settled. The awards granted under the 2019 Plan are liability-classified awards, and as such, these awards are remeasured to fair value at each reporting date with changes to the fair value recognized as stock compensation expense in general and administrative expense or research and development expense within the condensed consolidated statements of operations and comprehensive loss. Cumulative stock compensation expense cannot be reduced below the grant date fair value of the original award.

In June 2021, our then Chief Executive Officer (“CEO”), Tom Einar Jensen, entered into a stock option agreement, as an appendix to an employment agreement. In accordance with the stock option agreement, on July 13, 2021 Mr. Jensen was granted 850,000 performance stock options to acquire our shares at an exercise price of $10.00 (the “Jensen Options”), of which the performance criteria for a total of 661,000 of the stock options were met by December 31, 2023 and the remaining stock options were forfeited.

For the three and nine months ended September 30, 2024, we recognized grant income of $0.2 million and $0.4 million in other income, net within the condensed consolidated statements of operations and comprehensive loss. For the three and nine months ended September 30, 2023, we recognized grant income of less than $0.1 million and $0.2 million in other income, net within the condensed consolidated statements of operations and comprehensive loss.

As of both September 30, 2024 and December 31, 2023, we had $0.2 million in short-term deferred income from grants recorded in accrued liabilities and other on our condensed consolidated balance sheets. As of both September 30, 2024 and December 31, 2023, we had $27.0 million in long-term deferred income from grants recorded in other long-term liabilities on our condensed consolidated balance sheets.

The provision for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. The Company has incurred taxable losses in each year since inception, and maintains a full valuation allowance against its loss carryforwards and other deferred tax assets. The Company’s effective income tax rate was 0% for both the three and nine months ended September 30, 2024, and 0% and (1)% for the three and nine months ended September 30, 2023, respectively. 

Under the terms of the Transaction Agreement, within 6 months of closing, FREYR will use its reasonable efforts to dispose, divest, transfer or otherwise sell the assets and operations that constitute its European business.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 “Financial Statements” and the other disclosures in this Quarterly Report on Form 10-Q and with the disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023.

Under the terms of the Transaction Agreement, within 6 months of closing, FREYR will use its reasonable efforts to dispose, divest, transfer or otherwise sell the assets and operations that constitute its European business.

The following table sets forth information on FREYR’s condensed consolidated results of operations (in thousands except percentages):

General and administrative expenses decreased by $9.3 million or 33%, to $18.5 million for the three months ended September 30, 2024, from $27.8 million for the three months ended September 30, 2023. General and administrative expenses decreased by $24.0 million or 28%, to $61.4 million for the nine months ended September 30, 2024, from $85.4 million for the nine months ended September 30, 2023. These decreases are primarily due to decreases in personnel costs and professional fees.

R&D expenses consist primarily of personnel and personnel-related expenses for employees engaged in research and development activities, internal and external engineering, depreciation for R&D equipment and facilities, 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 by $1.5 million or 22%, to $8.6 million for the three months ended September 30, 2024, from $7.1 million for the three months ended September 30, 2023. R&D expenses increased by $12.6 million or 69%, to $30.9 million for the nine months ended September 30, 2024, from $18.3 million for the nine months ended September 30, 2023. This is primarily due to an increase in personnel costs, depreciation and spending on R&D operations at the CQP, which started operations late in the second quarter of 2023.

Restructuring charge consists primarily of accrued severance and other termination benefits related to the reduction in force programs that began in September 2024 and November 2023. Restructuring costs were $4.5 million for the three months ended September 30, 2024 and $4.6 million for the nine months ended September 30, 2024, with no corresponding charges incurred in the comparable periods in 2023. See further discussion in Note 2 – Restructuring to our condensed consolidated financial statements.

Share of net loss of equity method investee consists of our proportionate share of the net earnings (losses) and other comprehensive income (loss) from Nidec Energy AS. See further discussion in Note 5 - Long-Term Investments to our condensed consolidated financial statements.

Other income (expense) primarily consists of the fair value adjustments on our warrant liability, convertible note, interest income and expense, net foreign currency transaction gains and losses, and grant income.

Other income decreased by $20.8 million or 83%, to $4.2 million for the three months ended September 30, 2024, from $25.0 million for the three months ended September 30, 2023. Other income decreased by $42.0 million or 75%, to $14.0 million for the nine months ended September 30, 2024, from $55.9 million for the nine months ended September 30, 2023. These decreases are primarily due to a $(0.1) million and $1.2 million net foreign currency transaction (loss) gain for the three and nine months ended September 30, 2024, respectively, compared to a $3.2 million and $20.5 million gain for the three and nine months ended September 30, 2023, respectively as well as a $1.1 million and $1.3 million Warrant liability fair value adjustment for the three and nine months ended September 30, 2024, respectively compared to a $24.4 million and $23.2 million for the three and nine months ended September 30, 2023.

As of September 30, 2024, we had approximately $184.1 million of cash, cash equivalents, and restricted cash and current liabilities of approximately $31.4 million. To date, our principal sources of liquidity have been proceeds received from our 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. 

Our future liquidity requirements depend on many factors, including the timing and extent of the following: capital expenditures for construction of future facilities and purchase of related equipment; spending to support licensing and R&D efforts; spending on other growth initiatives or expansion into new geographies, including through joint ventures; spending to support our future revenue generating activities; and general 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 September 30, 2024.

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, our ability to invest in further facilities or other 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 common stock. 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 common stock.

In November 2024, the Company estimated that a five gigawatt solar cell manufacturing facility in the U.S. would have a total cost of approximately $850 million. The estimated costs of construction remain subject to site selection, technology and product specification decisions, ongoing business, financing, and operational changes, and changes to the overall macroeconomic environment. We will continue to provide updates to reflect material developments, including approvals or commitments for spending that differ materially from our previous estimates.

Our planned capital expenditures are based on management’s current estimates and may be subject to change. There can be no assurance that we will execute our capital expenditure plans as currently estimated, without addition, reduction, or modification. We may also from time to time reduce or increase planned spending on specific capital projects and/or adjust the timing of planned capital expenditures due to factors both within and outside of our control, including the availability of financing. As a result, actual capital expenditures in future years may differ materially from the amounts discussed above.

Net cash used in operating activities was $72.6 million for the nine months ended September 30, 2024, compared to $54.0 million for the nine months ended September 30, 2023. The increase in cash used in operating activities was primarily driven by an increase in cash used for working capital, largely due to the receipt in 2023 of $23.5 million in government grants with no corresponding amount in 2024, partially offset by a decrease in net loss, adjusted for non-cash items.

Net cash used in investing activities was $11.9 million for the nine months ended September 30, 2024, compared to $168.0 million for the nine months ended September 30, 2023. The decrease in cash used in investing activities was primarily driven by a decrease in purchases of property and equipment due to lower construction activity in the current year period, and proceeds from the return of property and equipment deposits of $22.7 million for the nine months ended September 30, 2024 with no corresponding amount for the nine months ended September 30, 2023.

Net cash used in financing activities was $4.1 million for the nine months ended September 30, 2024 relating to the purchase of the Company’s non-controlling interest in its U.S. joint venture and zero for the nine months ended September 30, 2023.

As a “smaller reporting company” we are not required to disclose information under this Item.

Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, were effective. 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None of the Company’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2024, as such terms are defined under Item 408(a) of Regulation S-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.