Advent(ADN) - 2022 Q4 - Annual Report

PART I Business Advent develops HT-PEM fuel cell systems for off-grid, defense, and mobility, expanding via acquisitions and EU funding - Advent develops, manufactures, and assembles complete fuel cell systems and critical components, focusing on high-temperature proton exchange membranes (HT-PEM) technology[15][16] - The company's core principle is "Any Fuel. Anywhere.", highlighting the fuel flexibility (hydrogen, methanol, natural gas, e-fuels) and operational resilience of its HT-PEM technology in extreme conditions (-20°C to +55°C)[23][24][40] - Current revenue is primarily from fuel cell systems and the sale of MEAs, membranes, and electrodes. The company plans to expand into the mobility market (heavy-duty automotive, marine, aerospace) through joint development agreements with Tier 1 suppliers and OEMs[17][29] - Key strategic acquisitions include UltraCell LLC for the portable and defense markets, and SerEnergy A/S and fischer eco solutions GmbH (FES) to bolster production capabilities and presence in the off-grid market[31][32][59] - The company received official ratification from the European Commission for the Green HiPo project, which includes €782.1 million in funding over six years to develop and manufacture HT-PEM fuel cells and electrolyzers in Greece[34][67] Risk Factors The company faces substantial going concern risks from recurring losses, operational challenges, market adoption, and international issues - The company has a history of losses and expects to continue incurring them, with audited financial statements including a "going concern" explanatory paragraph due to insufficient cash and recurring losses[74][79][80] - Future growth is highly dependent on the market's willingness to adopt its hydrogen-powered fuel cell technology, which is influenced by factors like perceptions of safety, cost, availability of service, and government incentives[86][88] - The company faces risks in integrating acquired companies, such as SerEnergy and FES, which could lead to loss of key employees, disruption of business, and failure to realize anticipated benefits[94][95] - International operations in Europe and Asia expose the company to risks including unfavorable regulatory, political, tax, and labor conditions, as well as currency fluctuations and geopolitical instability[98] - There is a risk that the company's securities could be delisted from NASDAQ if it fails to maintain certain financial, distribution, and stock price levels (e.g., a stock price of at least $1 per share)[136][137] - A goodwill impairment charge of $38.9 million was recognized in the year ended December 31, 2022, related to the acquisition of SerEnergy and FES, and further write-offs are possible[123] Unresolved Staff Comments The company reports no unresolved staff comments - None[158] Properties The company operates from various leased and owned properties, including a key R&D and manufacturing center in Charlestown, MA - The company leases a 21,401 sq. ft. product development and manufacturing center at Hood Park in Charlestown, MA, with a lease term of eight years and five months, which commenced in October 2022[158] - Through the Fischer Acquisition, the company acquired an 8,600 sq. ft. facility in Aalborg, Denmark, and leases additional space in Denmark, Germany, and the Philippines for office, production, and warehouse purposes[158] Legal Proceedings The company is involved in ordinary course legal proceedings, none of which are considered material to its financial condition - The company reports no material pending legal proceedings that are likely to have a material adverse effect on its future operating results, financial condition, or cash flows[159] Mine Safety Disclosures This item is not applicable to the company - Not applicable[160] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock and warrants trade on Nasdaq; the company has 31 record holders and does not plan to pay dividends - Common stock and public warrants are traded on the Nasdaq Capital Market under symbols "ADN" and "ADNW"[161] - As of March 31, 2023, there were approximately 31 record holders of common stock[162] - The company has never paid dividends and does not plan to in the foreseeable future, retaining earnings for business operations[163] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased to $7.8 million in 2022, but net loss widened to $74.3 million due to impairment and R&D costs - The company received official EU ratification for the Green HiPo project, providing for €782.1 million in funding over six years for HT-PEM fuel cell and electrolyser development in Greece[178] - A Joint Development Agreement was signed with Hyundai Motor Company to develop the HMC-Advent Ion Pair™ MEA for heavy-duty and stationary applications[183] - The company launched its HB50 portable fuel cell system and fulfilled its first shipment order to the U.S. Department of Defense[194] Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $7,837 | $7,069 | $768 | 10.9% | | Gross profit / (loss) | ($744) | $1,663 | ($2,407) | (144.7)% | | Research and development expenses | ($9,796) | ($3,541) | ($6,255) | 176.6% | | Administrative and selling expenses | ($35,915) | ($41,877) | $5,962 | (14.2)% | | Impairment loss - intangible assets and goodwill | ($38,922) | - | ($38,922) | N/A | | Operating loss | ($85,427) | ($44,111) | ($41,316) | 93.7% | | Fair value change of warrant liability | $9,375 | $22,743 | ($13,368) | (58.8)% | | Net loss | ($74,337) | ($20,523) | ($53,814) | 262.2% | | Basic loss per share | ($1.44) | ($0.45) | ($0.99) | N/A | Consolidated Cash Flows (2022 vs. 2021) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash used in Operating Activities | ($32,125) | ($35,837) | | Net Cash used in Investing Activities | ($14,517) | ($25,556) | | Net Cash (used in) provided by Financing Activities | ($40) | $141,501 | | Net (decrease) / increase in cash | ($46,682) | $80,108 | | Cash at end of year | $33,619 | $79,764 | Quantitative and Qualitative Disclosures About Market Risk The company faces minimal interest rate and inflation risks but is exposed to unhedged foreign exchange risk from international operations - Interest rate risk is not considered material as of December 31, 2022, with an unrestricted cash balance of approximately $32.9 million held in non-interest-sensitive accounts[284] - The company is exposed to foreign exchange risk from transactions in Euros, Danish krone, and Philippine pesos, but does not currently hedge this exposure[286] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and related notes, located on pages F-1 to F-51 - The required financial statements and supplementary data are located on pages F-1 through F-51 of the annual report[287] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants on financial disclosure - None[287] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[289] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[292] Other Information The company reports no other information - None[293] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company reports no disclosures regarding foreign jurisdictions that prevent inspections - None[293] PART III Directors, Executive Officers and Corporate Governance The company's seven-member Board of Directors includes four independent directors and operates with three key committees - The Board of Directors is comprised of seven members, divided into three classes with staggered three-year terms[310] - four of the seven directors are determined to be independent: Anggelos Skutaris, Lawrence Epstein, Wayne Threatt, and Von McConnell[312][367] - The board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance, each chaired by an independent director[314] Executive Compensation Executive compensation decreased significantly in 2022 due to the absence of prior year's one-time bonuses, with no performance payouts Summary Compensation Table (2022 vs. 2021) | Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Vassilios Gregoriou (Chairman & CEO) | 2022 | 800,000 | - | 479,500 | 418,250 | 1,697,750 | | | 2021 | 800,000 | 3,000,000 | 9,553,142 | 4,647,475 | 19,200,617 | | James Coffey (COO & General Counsel) | 2022 | 475,000 | - | - | - | 475,000 | | | 2021 | 475,000 | 770,000 | 3,582,426 | 1,742,802 | 7,045,228 | | Kevin Brackman (CFO) | 2022 | 375,000 | - | - | - | 375,000 | | | 2021 | 187,500 | - | 1,756,631 | 995,885 | 3,355,016 | - Management decided there would be no performance-related bonus payouts for fiscal year 2022[330] - The company maintains stock ownership guidelines requiring the CEO to hold 6.0x base salary in stock and other executives to hold 3.0x base salary[341][342] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Directors and executive officers collectively owned 26.0% of common stock, with key beneficial owners including the CEO Beneficial Ownership as of March 29, 2023 | Name of Beneficial Owner | Shares | Percentage (%) | | :--- | :--- | :--- | | Directors and Executive Officers (as a group) | 13,827,688 | 26.0% | | Vassilios Gregoriou (CEO) | 6,210,343 | 11.8% | | Christos Kaskavelis (CMO) | 4,049,909 | 7.7% | | Five Percent Holders: | | | | BNP Paribas Asset Management UK Ltd. | 5,549,573 | 10.6% | | F.E.R. fischer Edelstahlrohre GmbH | 5,124,846 | 9.8% | | Charalampos Antoniou | 2,775,049 | 5.3% | Certain Relationships and Related Transactions, and Director Independence No material related party transactions were reported, and four of the seven directors are deemed independent - No related party transactions exceeding $120,000 occurred since January 1, 2022, outside of described compensation arrangements[366] - The Board has determined that four directors are independent: Messrs. Skutaris, Epstein, Threatt, and McConnell[367][369] Principal Accounting Fees and Services Ernst & Young served as the auditor, with total fees of $0.76 million in 2022 and $0.86 million in 2021 Fees Paid to Ernst & Young (EY) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $660,790 | $851,573 | | Audit-Related Fees | $95,750 | $11,827 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total Fees | $756,540 | $863,400 | PART IV Exhibits, Financial Statement Schedules This section lists financial statements, notes omitted schedules, and provides a comprehensive list of 10-K exhibits - A list of financial information is provided, pointing to the Index to the Financial Statements on page F-1[373] - All financial statement schedules have been omitted because they are not applicable or required[373] - A comprehensive list of exhibits filed with the 10-K is provided, including merger agreements, corporate governance documents, and employment contracts[374][375] Form 10-K Summary This item is not applicable - None[378] Financial Statements Consolidated Balance Sheets Total assets decreased to $89.6 million in 2022, driven by reduced cash and impairment, leading to lower equity Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $49,500 | $97,351 | | Cash and cash equivalents | $32,869 | $79,764 | | Goodwill | $5,742 | $30,030 | | Intangibles, net | $6,062 | $23,344 | | Total Assets | $89,588 | $163,031 | | Total Current Liabilities | $13,666 | $18,871 | | Warrant liability | $998 | $10,373 | | Total Liabilities | $25,440 | $32,830 | | Total Stockholders' Equity | $64,148 | $130,201 | Consolidated Statements of Operations Net loss widened to $74.3 million in 2022, primarily due to a $38.9 million impairment charge and higher R&D expenses Consolidated Statement of Operations (in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue, net | $7,837 | $7,069 | | Gross profit (loss) | ($744) | $1,663 | | Impairment loss - intangible assets and goodwill | ($38,922) | - | | Operating loss | ($85,427) | ($44,111) | | Fair value change of warrant liability | $9,375 | $22,743 | | Net loss | ($74,337) | ($20,523) | | Basic loss per share | ($1.44) | ($0.45) | Consolidated Statements of Cash Flows Net cash used in operations improved slightly to $32.1 million, while investing and financing activities significantly decreased cash Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($32,125) | ($35,837) | | Net cash used in investing activities | ($14,517) | ($25,556) | | Net cash (used in) provided by financing activities | ($40) | $141,501 | | Net increase/(decrease) in cash | ($46,682) | $80,108 | | Cash, beginning of year | $79,764 | $516 | | Cash, end of year | $33,619 | $79,764 | Notes to the Consolidated Financial Statements Notes disclose going concern doubt, details on acquisitions and impairment, and information on various financial arrangements - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern for one year from the financial statement issuance date due to insufficient cash and recurring operating losses[420] - In Q4 2022, the company recorded an impairment charge of $14.6 million for patents and $24.3 million for goodwill related to the SerEnergy and FES reporting unit[579] - The company has a Cooperative Research and Development Agreement (CRADA) with entities linked to the U.S. Department of Energy, requiring a $1.2 million cash contribution and $0.6 million of in-kind contributions from Advent[652] - The company has minimum purchase commitments for membranes from BASF, electrodes from De Nora, and bipolar plates from Shin-Etsu, totaling approximately $9.0 million in obligations as of December 31, 2022[674][675][676]