Brenmiller Energy(BNRG) - 2022 Q4 - Annual Report

Introduction Brenmiller Energy Ltd. develops bGen™ Thermal Energy Storage (TES) systems using crushed rocks to store high-temperature heat, facilitating renewable energy integration - The company develops, produces, and sells Thermal Energy Storage (TES) systems using its patented bGen™ technology to increase energy efficiency and reduce carbon emissions[216] - The bGen™ technology stores heat in crushed rocks at temperatures up to 1400°F, comprising a thermal storage unit, heat exchangers, and a steam generator, chargeable from diverse sources[218] - Brenmiller Energy was incorporated in Israel in 2012, listed on the TASE in August 2017, and began trading on Nasdaq on May 25, 2022[219] Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements regarding company objectives, plans, and projections, subject to risks that may cause actual results to differ materially - The report includes forward-looking statements regarding plans, strategies, financial projections, and product development[221][222] - Key factors that could cause actual results to differ include planned revenues, capital expenditures, product marketing ability, partner relationships, and intellectual property protection[88][224][268] Summary Risk Factors The company faces significant business, financial, intellectual property, share ownership, and Israeli operational risks, including a going concern uncertainty and high dependence on proprietary technology - Business and Industry Risks: High dependence on proprietary technology, key employees, third-party suppliers, and the nascent TES field[1][73] - Financial Condition and Capital Requirements: A "going concern" uncertainty exists due to historical operating losses and the need for substantial additional funding[2][74] - Intellectual Property Risks: Potential inability to obtain and maintain effective patent rights and protect crucial trade secrets for competition[3][5] - Risks Related to Ordinary Shares: Market price may be highly volatile, with principal shareholders (approx. 36.9%) exerting substantial control[6] - Risks Related to Israeli Operations: Potential political, economic, and military instability in Israel, where headquarters are located, and restrictions on government grants[7] PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This section is not applicable as per the report - The report states that this item is not applicable[10] ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This section is not applicable as per the report - The report states that this item is not applicable[11] ITEM 3. KEY INFORMATION This section details significant business, financial, intellectual property, stock ownership, and Israeli geopolitical risks that could materially affect the company's condition - The company's business faces significant risks that could adversely affect its financial condition and the price of its Ordinary Shares[17] Risks Related to Our Business and Industry Success depends on proprietary technology, key personnel, and navigating the nascent TES market, facing risks from third-party reliance, regulatory changes, and cybersecurity threats - The company is highly dependent on the successful development, marketing, and sale of its proprietary TES systems and faces competition from potentially better-capitalized competitors[18][19] - Success is heavily reliant on key employees, particularly CEO Avraham Brenmiller, and the loss of their services could harm the business plan[22] - The business has pivoted to the bGen™ TES system, making it difficult to evaluate future prospects and increasing the risk of failure if pilot projects are not successful[27][32] - Dependence on third-party manufacturers and suppliers creates vulnerability to supply shortages, increased costs, and quality control issues[39][40][42] - The company relies on certain raw materials like metal parts and stainless-steel pipes, exposed to price and availability fluctuations from external factors[47][49] - Operations require obtaining and maintaining various regulatory permits, certifications, and authorizations, and regulatory changes could increase costs or cause delays[53][54][56] - The company's IT systems are vulnerable to cybersecurity incidents, potentially leading to data loss, operational disruptions, and liabilities[65][66][78] Risks Related to Our Financial Condition and Capital Requirements Financial stability is pressured by a "going concern" warning, historical losses, and the need for substantial additional funding, compounded by royalty obligations and restrictive loan covenants - Management and auditors concluded a material uncertainty exists regarding the company's ability to continue as a going concern due to historical net losses and negative operating cash flows[79][80] - The company requires substantial additional capital for research, development, and commercialization, and failure to obtain it could curtail business plans[82][83][85] - The company has not generated significant revenue, expects future operating losses, and may never achieve profitability[86][87][91] - The company is obligated to pay royalties on revenues to various government bodies (IIA, BIRD Foundation, NYPA) and the EIB, impacting profitability[100][101][104] - The facility agreement with the EIB contains restrictive covenants limiting the company's ability to sell assets, pay dividends, merge, or incur additional debt[96][97][99] Risks Related to Our Intellectual Property Competitive position depends on intellectual property protection, facing risks of failing to secure patent rights, infringing third-party patents, and costly global enforcement challenges - The company's ability to compete effectively depends on obtaining and maintaining patent rights and protecting trade secrets[106][107] - The company could be adversely affected by third-party intellectual property rights, potentially requiring costly litigation or unfavorable licenses[112][113][115] - Lawsuits to protect or enforce the company's own intellectual property could be expensive, time-consuming, and ultimately unsuccessful[120][121][122] - Protecting intellectual property rights worldwide is prohibitively expensive, and foreign laws may offer less protection than in the United States[126][128] Risks Related to Ownership of our Ordinary Shares Ordinary Share ownership risks include high price volatility, concentrated control by principal shareholders, less stringent disclosure as a foreign private issuer, potential PFIC classification, and dual listing price variations - The market price of the company's Ordinary Shares is likely to be highly volatile, which could result in substantial losses for investors[129][165] - Principal shareholders, officers, and directors beneficially own approximately 36.8% of Ordinary Shares, enabling significant control over shareholder matters[136][137] - The company may be classified as a "passive foreign investment company" (PFIC), potentially resulting in negative U.S. federal income tax consequences for U.S. taxpayers[145][146] - As a "foreign private issuer" and "emerging growth company," the company is subject to less stringent disclosure and corporate governance requirements than U.S. domestic companies[150][154][155] - The dual trading of Ordinary Shares on both the TASE (in NIS) and Nasdaq (in USD) may result in price variations due to different currencies, time zones, and trading days[179] Risks Related to our Incorporation and Our Operations in Israel Israeli operations face political, economic, and military instability risks, government grant restrictions on technology transfer, currency exchange rate fluctuations, and differences in legal frameworks affecting shareholder rights - The company's headquarters, production facilities, and key management are located in Israel, making operations susceptible to regional political, economic, and military instability[181][182][184] - Grants from the Israel Innovation Authority (IIA) and other government bodies require royalty payments and restrict intellectual property or manufacturing transfer outside Israel without approval[192][193][194] - The company is exposed to currency exchange rate fluctuations, with most expenses in NIS and significant revenues expected in USD and other currencies[188][189] - Enforcing a U.S. court judgment against the company or its management in Israel may be difficult, and shareholder rights are governed by Israeli law, differing materially from U.S. law[227][228][229] - Provisions of Israeli law and agreements, such as the EIB facility requiring the founder to maintain at least 25% ownership, may delay or prevent a merger or acquisition[198][225]