Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless otherwise indicated or the context otherwise requires, references in this section to the “Company,” “Amprius,” “we,” “us,” “our” and other similar terms refer (i) prior to the Closing Date, to Legacy Amprius and (ii) after the Closing Date, to Amprius Technologies, Inc.
Overview
We have developed and, since 2018, been in commercial production of ultra-high energy density lithium-ion batteries for mobility applications leveraging a disruptive silicon anode. Our silicon anode technology enables batteries with higher energy density, higher power density, and extreme fast charging capabilities over a wide range of operating temperatures, which results in our batteries providing superior performance compared to conventional graphite lithium-ion batteries. Our silicon anode is a direct drop-in replacement of the graphite anode in traditional lithium-ion batteries, and our manufacturing process leverages the manufacturing process for conventional lithium-ion batteries and the related supply chain.
Currently, our batteries are primarily used for existing and emerging aviation applications, including unmanned aerial systems, such as drones and high-altitude pseudo satellites. We believe our proprietary technology has the potential for broad application in electric transportation. Our batteries and their performance specifications have been tested and validated for application by over 100 customers, including AALTO Airbus, AeroVironment, BAE Systems, the U.S. Army
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and Teledyne FLIR, and from inception through December 31, 2023, we have shipped approximately 50,000 batteries, which have enabled mission critical applications. Our proprietary silicon anode structures, battery cell designs and manufacturing processes are defended by our portfolio of patents, trade secrets and know-how developed over 10 years of research and development.
We currently offer high performance silicon anode batteries under the following product platforms: SiMaxx and SiCore.
Our SiMaxx batteries are currently manufactured at our headquarters in Fremont, California, where we believe demand for our SiMaxx batteries exceeds our manufacturing capacity. By the end of 2023, we had made significant progress in expanding our current kWh-scale manufacturing line into a MWh-scale manufacturing facility. Once our expansion is in full operation, which we expect to achieve exiting 2024, we anticipate that we will manufacture SiMaxx batteries up to 2 MWh capacity, which is about 10 times our production capacity in 2023. Our SiCore batteries are developed in collaboration with Berzelius. We are also working to meet the expected demand in several rapidly growing addressable markets by designing and building out our newly leased large-scale facility in Brighton, Colorado that can manufacture at a GWh+ scale through an automated, high-volume manufacturing line.
Business Combination
On September 14, 2022, we completed the Business Combination pursuant to the Business Combination Agreement, dated May 11, 2022, by and among the Company, Legacy Amprius, Kensington and Kensington Capital Merger Sub Corp. We accounted for the Business Combination as a reverse recapitalization, with Legacy Amprius deemed to be the acquirer and Kensington deemed to be the acquiree for financial statement reporting purposes. As a result, the assets, liabilities and results of operations of Legacy Amprius became the historical financial statements after the Business Combination. Our assets and liabilities continued to be stated at historical cost and there were no goodwill or other intangible assets recorded. Immediately prior to the closing of the Business Combination, a number of PIPE Investors purchased from us an aggregate of 2,052,000 units at a price of $10.00 per share, pursuant to separate subscription agreements. Each PIPE unit consisted of (i) one share of common stock and (ii) one PIPE warrant to purchase one share of common stock at an exercise price of $12.50 per share. Our net proceeds from the Business Combination and the PIPE were $70.9 million, after deducting transaction and issuance costs.
At Market Issuance Sales Agreement
On October 2, 2023, we entered into the Sales Agreement with the Sales Agents, pursuant to which we may offer and sell, from time to time, through or to any Sales Agent, shares of our common stock with an aggregate offering price of not more than $100.0 million, as described in the prospectus supplement dated October 10, 2023 filed with the Securities and Exchange Commission.
During the year ended December 31, 2023, we sold a total of 89,383 shares of our common stock for an aggregate net proceeds of $0.4 million under the Sales Agreement.
Committed Equity Financing
On September 27, 2022, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“ BRPC II”), pursuant to which BRPC II was committed to purchase up to $200.0 million of shares of common stock until January 1, 2025 (the “Committed Equity Financing”) . Under the Purchase Agreement, we had the right to direct BRPC II to purchase a specified maximum number of shares of common stock, not to exceed certain limitations.
As consideration for BRPC II’s commitment to purchase shares of common stock, we issued 84,793 shares of common stock to BRPC II upon execution of the Purchase Agreement. Shares of common stock issued under the Committed Equity Financing to BRPC II other than the Commitment Shares were purchased by BRPC II at current market prices less a 3.0% fixed discount. During the year ended December 31, 2023, we sold an aggregate of 2,952,763 shares of our common stock for aggregate net proceeds of $19.1 million under the Purchase Agreement.
On October 2, 2023, we and BRPC II mutually agreed to terminate the Purchase Agreement concurrent with our execution of the Sales Agreement. The termination of the Purchase Agreement became effective on October 10, 2023, upon the effectiveness of our registration statement on Form S-3 filed with the SEC in connection with our entrance into the Sales Agreement.
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Known Trends, Demands, Commitments, Events, or Uncertainties Impacting Our Business
We believe that our performance and future success depends on several factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled “Risk Factors.”
Establishing Manufacturing Capacity
In January 2023, we entered into an amendment to the lease agreement of our facility in Fremont, California, pursuant to which we leased approximately 25,000 square feet of additional space located in the same building as our current headquarters. The additional space enables us to increase our manufacturing line in Fremont, California to MWh-scale capacity. Once our expansion is in full operation, which we expect to achieve exiting 2024, we anticipate that we will manufacture SiMaxx batteries up to 2 MWh capacity, which is about 10 times our production capacity in 2023. This expansion is expected to accelerate our development of technological processes for building batteries at a GWh-scale as we prepare for the design and build out of our high-volume manufacturing facility. In addition , in order to support our customers’ roadmaps and supply forecasts, w e entered into an Exclusive Supply Agreement with Berzelius, which gives us exclusive rights to purchase its proprietary silicon anode materials in the United States, Canada and Mexico, and allows us to leverage its existing large-scale production line and manufacturing partners to produce SiCore batteries. Our SiCore batteries will complement our existing SiMaxx batteries and serve as a capacity bridge until our GWh-scale manufacturing facility becomes operational.
On April 15, 2023, we entered into a lease agreement for premises consisting of approximately 774,000 square feet of space located in Brighton, Colorado. In order to meet increased demand for our products, we plan to design and build our GWh-scale manufacturing facility on these premises.
To achieve capacity at commercial scale, we need to establish supply relationships for necessary materials, components and equipment to mass produce our silicon technology for our prospective markets, which will allow us to develop an automated, high-volume manufacturing line to increase production volume. We plan to procure manufacturing equipment that allows for anode and cathode fabrication, battery assembly, and battery testing. The capacity and timing of our future manufacturing requirements, and related capital expenditures, remain uncertain and will depend on a variety of factors, including: our ability to design and construct new manufacturing sites and develop an automated, high-volume manufacturing line for our silicon anode, to mitigate supply chain constraints and manage a new labor force, to utilize planned capacity in our existing facilities, to obtain the required regulatory and zoning permits and approvals, to realize the benefits of any government incentives, and to operate in new geographic areas apart from our current headquarters. Our potential suppliers and other equipment vendors may also encounter delays, including to our expected initial production capacity of up to 500 MWh, along with additional costs, and other obstacles in building our manufacturing line, which are currently unknown. To the extent we are unable to develop an automated, high-volume manufacturing line for our silicon anode, our ability to grow will be adversely affected. Additionally, although we already received and are currently testing the large-scale anode production equipment from centrotherm for our manufacturing line expansion in Fremont, California, the equipment required certain modifications for our needs and there is uncertainty as to whether our planned manufacturing line will be successful. We expect our operating requirements and capital expenditures to increase as we ramp up our manufacturing capacity and expand operations.
Achieving capacity at commercial scale of our high energy density lithium-ion batteries will require us to make significant and increasing capital expenditures to scale our manufacturing capacity and improve our supply chain processes. Based on our current expectations, we estimate that our capital equipment expenditures will range between $75.0 million and $100.0 million to achieve up to 500 MWh per year of manufacturing capacity, which estimate does not include costs related to the construction and build-out of the new manufacturing facility. Because our SiMaxx silicon anode process requires different equipment than traditional anode manufacturing, our capital equipment costs are likely to be higher than equipment used for production of graphite anodes. Our ability in the future to generate revenue sufficient to achieve profitability will depend largely on our ability to scale production to meet the expected market demand for our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations.
Reducing Costs of Manufacturing
We believe focusing on reducing the manufacturing costs of our batteries on a $/kWh basis is an important factor to accelerate the demand for our batteries and the expansion of our customer base. As a result, we will continue to work to develop further and validate our manufacturing processes to enable high-volume manufacturing and reduce manufacturing costs. As the production of our SiMaxx silicon anode requires different equipment than traditional graphite anode manufacturing, our capital equipment costs are likely to be initially higher than equipment used for the production of
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graphite anodes. As we scale, we believe we will benefit from reduced per-unit fixed costs, such as overhead, labor and capital expenditures, tool utilization improvements and volume pricing for equipment and materials. We will also seek to reduce costs by optimizing material utilization, throughput and yield. This is complemented by our plans to continue to invest in research and development to improve both battery performance and manufacturing processes. However, until we are able to successfully design and implement an automated, high-volume manufacturing line for our silicon anode and manufacture our batteries at scale, we cannot accurately forecast our manufacturing costs, which may adversely affect our ability to achieve reduced costs in our manufacturing processes. In addition, high inflation may affect our manufacturing costs. If our costs become subjected to significant inflationary pressures, we may not be able to fully offset such higher costs through the increase in prices of the products we sell.
Highly Competitive Market
Our competition includes both established manufacturers and new entrants that are developing new battery technologies and chemistries to address the growing market for electrified transportation solutions. We believe the manufacturers of these batteries will continue to invest funds, time and effort to improve the capabilities of their batteries with the recent developments of silicon anode batteries as a potential alternative to conventional graphite batteries. Currently, we are the only known manufacturer using a 100% silicon anode that is free of any inactive additives. We believe we are the leading company in the market that has a high-performance battery that can meet the requirements of aviation applications. We are not currently producing batteries for EVs. The EV battery industry has a limited number of commercially available batteries that meet the minimum performance specifications. This creates a fast-growing and highly competitive industry for many battery manufacturers to claim market share for commercially acceptable batteries. We believe that there is significant room for improvement in the EV industry in driving range and fast charging capabilities that our silicon technology may address. To compete in the EV industry, we expect that we will need to significantly reduce our manufacturing costs, increase form factors and increase production quantity. One or more of our competitors and potential future entrants may be better capitalized to expand production capacities, have greater resources to commercialize and have greater access to customers in either or both the aviation and EV markets. As such, we may be at a competitive disadvantage and be unable to retain or grow our market share.
Product Development
We expect to continue investing in the development of battery technology with the goal of enabling commercial production. We continue to develop customized battery solutions and deliver standardized samples (i.e., prototypes) of batteries to industry leading manufacturers as well as the federal government. We plan to focus our research and development on the following key areas:
• Improving battery life. To continue to meet the specific needs of our customers and drive adoption of our batteries in new areas of electrified transportation, including the EV space. We are working with chemical compounds as potential additives to the silane gas we use to produce our silicon anodes, which have demonstrated the potential to improve cycle life without negatively impacting other performance characteristics such as energy density.
• Further improvements to energy density. We are engaged in ongoing development activities to explore different cathode materials, including a conversion cathode, to further improve the energy density of our batteries.
• Larger cell form factors. The batteries we have developed and are developing for our customers are typically approximately up to 15Ah for small-sized aircraft. As we expand our customer base, we expect to develop larger form factor batteries for broader electrified transportation applications.
As a result of these efforts, our goal is to fully realize the benefits of our silicon anode technology and develop the highest performing products in the market.
Regulatory Landscape
We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time. As we process, store, dispose of, transport, and use hazardous materials, we are subject to laws and regulations surrounding battery safety and transportation, as well as health and production safety laws and regulations governing hazardous materials. We expect that environmental regulations under the current administration could, if adopted, facilitate market demand and revenue growth, while other potential regulations, if adopted, could result in additional operating costs. If we fail to comply with existing and future laws and regulations, our business and results of operations could be adversely affected, such as the imposition of fines, litigation, criminal charges, sanctions by regulators,
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or other liabilities. As future regulatory changes are uncertain, we are unable to measure the impact of such changes on our business and our results of operations.
Global Risks
Abrupt political change, terrorist activity, and armed conflict has had an adverse impact on the global economy and financial markets. Although our business has not been directly impacted by such events, as we have no assets or operations, and we have not purchased materials from Russia, Belarus, Ukraine or the Middle East, it is impossible to predict the extent to which our operations, or those of our customers, suppliers and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of military action, sanctions and resulting market disruptions and inflationary pressures, and the impact of such changes on our business and our results of operations are impossible to predict, but could be material.
The COVID-19 pandemic has been unpredictable and unprecedented and resulted in significant national and global economic disruption. The extent to which public health emergencies such as the COVID-19 pandemic may impact our business, financial condition, prospects and results of operations is highly uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any economic recession that has occurred or may occur in the future.
Comparability of Financial Information
Our future results of operations and financial position may not be comparable to historical results as a result of the Business Combination. Since the closing of the Business Combination, we have incurred, and expect to continue to incur, higher capital expenditures related to both the design and build out of our new GWh-scale manufacturing facility and the development of an automated, high-volume manufacturing line for our silicon anode, as well as higher costs for continued research and development efforts, compliance with regulatory matters and other general and administrative expenses, including those related to being a public company.
Basis of Presentation
Our consolidated financial statements included elsewhere in this Annual Report on Form 10-K were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We carry on our business through one operating segment. Given that Amprius Holdings, which held approximately 99.6% of the Legacy Amprius common stock prior to the Business Combination, has not historically prepared financial statements for Legacy Amprius, the historical results for Legacy Amprius have been prepared from the financial records of Amprius Holdings on a carve-out basis derived from the accounting records of Amprius Holdings using the historical results of operations and the historical basis of assets and liabilities of our business, adjusted as necessary to conform to U.S. GAAP.
Components of Our Results of Operations
Revenue
We generate revenue from the (i) sale of finished battery products and (ii) arrangements for customization design services. The customization design services generally include designing and developing custom batteries by applying our existing technology into a customer’s required specifications and delivery of prototype batteries. We recognize revenue at the point in time when control is transferred to the customers, which is generally (i) upon shipment, in the case of sale of finished battery products, and (ii) upon completion and/or delivery of prototype batteries, in the case of customization design services. We also generate revenue from a U.S. federal government expense reimbursement grant that is recognized in the period when we have the right to bill and collect the payment, which is the period in which the qualifying costs have been incurred.
Cost of Revenue
Cost of revenue, which includes the cost of finished goods sold and the cost of customization design services, are comprised primarily of costs of raw materials, labor costs, and the allocation of overhead costs incurred in producing batteries or performing the customization development work and the costs of SiCore batteries purchased from Berzelius. Labor costs consist of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense. Overhead and other costs consist primarily of outside services, utilities, rent, depreciation expense and other facilities-related costs. Costs related to batteries and design services are recognized in the same period as the associated revenue is recognized. In addition, we include under cost of revenue certain non-capitalizable expenses incurred during the
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preliminary stage of our plan to construct a GWh-scale manufacturing facility in Brighton, Colorado, such as re-zoning costs and engineering studies. We expect that our cost of revenue will increase as we ramp up manufacturing in our existing facility and when we start building a GWh-scale manufacturing facility.
Research and Development (“R&D”) Expenses
R&D expenses consist mainly of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense of our R&D personnel, outside contractors, materials, R&D equipment for which there is no alternative future use, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. R&D activities relate to the conceptual formulation and design of preproduction experimental prototypes and models. R&D expenses are expensed as incurred. We expect that our R&D expenses will increase for the foreseeable future as we continue to invest in activities to develop and enhance product capabilities, as well as build and test battery prototypes to meet the expected market demand.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist mainly of personnel-related expenses such as salaries, employee benefits and stock-based compensation expense of our executive and administrative employees, as well as fees for professional and advisory services such as legal, accounting and audit. Selling, general and administrative expenses also include corporate insurance expense, including directors and officers insurance costs, and allocation of overhead costs, which include utilities, rent, depreciation expense and other facilities-related costs. We expect that our selling, general and administrative expenses will increase due to the additional costs for compliance-related requirements resulting from being a public company and investment in additional sales, general and administrative personnel to support the growth of our business.
Other Income, Net
Other income consists mainly of interest income. Other expense during the year ended December 31, 2023 pertains to the loss on write-off of deferred stock issuance costs.
Provision for Income Taxes
Our provision for income tax consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in tax law. We maintain a valuation allowance against the full value of our U.S. federal and state net deferred tax assets because it is not more likely that our deferred tax assets will be recoverable.
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Results of Operations
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
The following table summarizes our results of operations during the years ended December 31, 2023 and 2022 (amounts in thousands):
Year ended December 31, Change
2023 2022 $ %
Revenue $ 9,053 $ 4,409 $ 4,644 105 %
Cost of revenue 23,729 10,063 13,666 136 %
Gross loss (14,676) (5,654) (9,022) 160 %
Gross margin (162) % (128) %
Operating expenses:
Research and development 3,677 2,027 1,650 81 %
Selling, general and administrative 20,356 10,360 9,996 96 %
Total operating expenses 24,033 12,387 11,646 94 %
Loss from operations (38,709) (18,041) (20,668) 115 %
Other income (expense):
Interest and other income 2,514 709 1,805 255 %
Loss on write-off of deferred stock issuance costs (581) — (581) — %
Total other income, net 1,933 709 1,224 173 %
Net loss $ (36,776) $ (17,332) $ (19,444) 112 %
Cost of revenue and operating expenses reported above include stock-based compensation as follows (amounts in thousands):
Year ended December 31, Change
2023 2022 $ %
Cost of revenue $ 865 $ 516 $ 349 68 %
Research and development expense 186 27 159 589 %
Selling, general and administrative expense 2,829 2,166 663 31 %
Total stock-based compensation $ 3,880 $ 2,709 $ 1,171 43 %
Revenue
Revenue increased by $4.6 million, or 105%, to $9.1 million during the year ended December 31, 2023 from $4.4 million in the prior year. The increase was primarily due to a $2.6 million increase in sales of batteries resulting from an increase in volume of orders from existing and new customers and a $2.0 million increase in non-recurring development service revenue due to the completion of customization design services for certain customers. The increase in product revenue during the year ended December 31, 2023 included a $1.9 million increase in sales of SiCore batteries.
Cost of Revenues
Cost of revenues increased by $13.7 million, or 136%, to $23.7 million during the year ended December 31, 2023 from $10.1 million in the prior year. The increase was primarily due to a $10.3 million increase in our production costs, which included a $4.8 million increase in outside services and consulting fees, a $1.6 million increase in direct costs, a $1.6 million increase in personnel-related costs and a $2.3 million increase in other indirect and overhead costs, primarily shared-facility costs, equipment and utility costs. The increase in outside services and consulting fees included nonrecurring fees incurred in connection with our plan to construct a GWh-scale manufacturing facility in Brighton, Colorado.
The increase in cost of revenues was also due to a $1.4 million increase in purchases of SiCore batteries from Berzelius and a $2.0 million increase in service costs due to the completion of non-recurring customization design services for certain customers.
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Research and Development Expense
Research and development expense increased by $1.7 million, or 81%, to $3.7 million during the year ended December 31, 2023 from $2.0 million in the prior year. The increase was primarily due to a $0.7 million increase in personnel-related costs, including stock-based compensation expense, due to the hiring of additional personnel involved in research and development activities, and a $1.0 million increase in outside service fees and allocation of overhead costs, primarily shared-facility costs, equipment and utility costs.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by $10.0 million, or 96%, to $20.4 million during the year ended December 31, 2023 from $10.4 million in the prior year. The increase was primarily due to our transition to operating as a public company. Drivers of this increase include a $5.2 million increase in professional and consulting fees as we obtained additional outside service assistance related to management initiatives after we became a public company, a $3.0 million increase in personnel-related and compensation costs, including stock-based compensation expense, due to the hiring of additional administrative personnel, a $1.2 million increase in corporate insurance costs, including director and officer insurance costs, and a $0.6 million increase in other general and administrative spend.
Other Income, Net
Other income, net increased by $1.2 million, or 173%, to $1.9 million during the year ended December 31, 2023 from $0.7 million in the prior year. The increase was primarily due to a $1.8 million increase in interest income attributed to a higher amount of funds held, offset by a $0.6 million loss on write-off of deferred stock issuance costs.
Liquidity and Capital Resources
Sources and Uses of Liquidity
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. To meet our obligations, we must continually have sufficient liquid assets.
Prior to the Business Combination, we financed our operations primarily through capital contributions from Amprius Holdings and revenue generated from operations. Since the Business Combination, we have financed our operations primarily though revenue generated from operations, the proceeds from the Business Combination and sale of shares of our common stock under our Purchase Agreement with BRPC II. We expect to rely on our cash and cash equivalents, which was $45.8 million as of December 31, 2023 , cash flows from operations and proceeds from the At Market Issuance Sales Agreement to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date our financial statements included in this Annual Report on Form 10-K are issued.
We may receive additional funds from the offering and sale of our shares of our common stock, from time to time, under the At Market Financing with an aggregate offering price of not more than $100.0 million. The At Market Financing became available for use on October 10, 2023. As of December 31, 2023, aggregate proceeds from the At Market Financing were $0.4 million through the sale of 0.1 million shares and subsequent to December 31, 2023, aggregate proceeds were approximately $6.5 million through the sale of approximately 2.0 million shares as of March 18, 2024. Actual sales, if any, of shares of common stock in the At Market Financing will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our common stock and determinations by us as to appropriate sources of funding for our business and operations. We cannot guarantee the extent to which we may be able to raise funds through the At Market Financing.
Concurrent with the execution of the Sales Agreement, we mutually agreed with BRPC II to terminate the Purchase Agreement. From January 1, 2023 through the termination of the Purchase Agreement on October 10, 2023, we received aggregate proceeds of $19.1 million from sale of shares of our common stock under the Purchase Agreement.
In addition, we may receive up to $550.8 million from the exercise in full of all outstanding warrants. The exercise price of our public warrants and private warrants is $11.50 per share, and the exercise price of the PIPE warrants is $12.50 per share. As of December 31, 2023, we had an aggregate of 45,668,236 public warrants and private warrants and 2,052,500 PIPE warrants outstanding. The likelihood that warrant holders will exercise the warrants and any cash proceeds that we would receive is dependent upon the market price of our common stock. If the market price for our common stock
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is less than $11.50 per share, in the case of the public warrants or private warrants, or $12.50 per share, in the case of the PIPE warrants, we believe warrant holders will be unlikely to exercise their warrants.
Furthermore, while we have been successful in obtaining certain external funding through government grants or incentives, future efforts to obtain such funds may be unsuccessful. For example, in October 2022, we were awarded a $50.0 million cost sharing grant from the U.S. Department of Energy (“DOE”). The cost sharing grant was dependent on the successful negotiation of a final contract. In June 2023, we and the DOE mutually agreed to discontinue the negotiation of the cost sharing contract.
Our ability to become profitable is dependent upon future events, including obtaining adequate financing to fund our business plan, completing the design and build out of our GWh-scale manufacturing facility, obtaining adequate supplier relationships, building our customer base, successfully executing our business and marketing strategy and hiring appropriate personnel.
We expect our capital expenditures and working capital requirements to increase materially in the near future. At our headquarters in Fremont, California, we currently operate a kWh-scale manufacturing line that we are expanding in order to achieve production on a MWh-scale. To meet the demand for our batteries, we are in the process of designing and then building a new GWh-scale manufacturing facility in Brighton, Colorado. Based on our current expectations, we estimate that our capital equipment expenditures will range between $75.0 million and $100.0 million to achieve up to 500 MWh per year of manufacturing capacity, which estimate does not include costs related to the construction and the build-out of the new manufacturing facility. We are continuing the design and pre-construction work of the initial phase of up to 500 MWh that will allow us to be operational in 2025, and we expect to build out additional manufacturing in phases thereafter.
We have incurred net losses to date. During the year ended December 31, 2023, we incurred a net loss of $36.8 million. We expect to incur additional losses and increased expenses in future periods, including those associated with the design and build out of our GWh-scale manufacturing facility, continued research and development, and increased employee headcount to support those efforts.
As of December 31, 2023, our contractual obligations consisted primarily of our noncancellable operating lease agreements for our corporate headquarters and manufacturing facilities in Fremont, California and in Brighton, Colorado. As of December 31, 2023, the total future minimum lease payments under these operating lease agreements were approximately $71.3 million over a weighted-average lease term of 14.4 years, of which a total of $1.1 million is payable over the next twelve months. For additional information about our leases, please refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by reducing or delaying our production facility expansion, which may adversely affect our business, operating results, financial condition and prospects. For example, because we expect to expand through a Copy Exact methodology, to the extent we have less cash than expected and additional financing is unavailable on acceptable terms, we expect that we would reduce the initial production capacity of our large-scale facility and thereafter add capacity as appropriate. Any such reduction or delay may have an adverse impact on our business plan and our results of operations.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods presented (in thousands):
Year ended December 31, Change
2023 2022 $
Net cash used in operating activities $ (25,553) $ (13,882) $ (11,671)
Net cash used in investing activities $ (17,550) $ (1,481) $ (16,069)
Net cash provided by financing activities $ 19,168 $ 73,626 $ (54,458)
Net Cash Used in Operating Activities
Our primary source of cash provided by operations is revenue from the sale of batteries and customization design services. Our uses of cash in our operating activities primarily include payments for personnel-related costs, procurement
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of finished batteries or materials used to produce our batteries, professional and outside service fees, and other general corporate expenses.
Net cash used in operating activities increased to $25.6 million during the year ended December 31, 2023 from $13.9 million during the year ended December 31, 2022 primarily due to increases in personnel-related costs as we hired additional employees, professional and consulting fees as we utilized additional outside services after we became a public company, and corporate insurance costs, including directors’ and officers’ insurance costs. We also incurred non-capitalizable preliminary design costs related to our GWh-scale manufacturing facility in Brighton, Colorado.
Net Cash Used in Investing Activities
Our primary use of cash in investing activities is for purchases of property, plant and equipment.
Net cash used in investing activities increased to $17.6 million during the year ended December 31, 2023 from $1.5 million during the year ended December 31, 2022 primarily due to purchases of production equipment and improvements made to expand our manufacturing facility in Fremont, California as well as initial designs costs for our manufacturing facility in Brighton, Colorado.
Net Cash Provided by Financing Activities
Our primary source of cash provided by financing activities consists of proceeds from issuance of common stock. Our primary cash usage for financing activities consists of payments related to the issuance of common stock.
Net cash provided by financing activities decreased to $19.2 million during the year ended December 31, 2023 from $73.6 million during the year ended December 31, 2022. Net cash provided by financing activities during the year ended December 31, 2023 consisted primarily of the net proceeds from the issuance of common stock in connection with the Purchase Agreement and Sales Agreement. The decrease was due primarily to the approximately $70.9 million non-recurring net proceeds from the consummation of the Business Combination and PIPE investment in September 2022.
Related Party Transactions
Prior to the closing of the Business Combination, we had a service agreement with Amprius Holdings whereby Amprius Holdings provided certain services to us, such as management and administrative services, access to information technology and engineering services. The expenses incurred by Amprius Holdings in connection with the service agreement were allocated to us and were deemed as capital contributions. Amprius Holdings also provided cash advances to support our working capital requirements. Those cash advances were forgiven and deemed as capital contributions. The total deemed capital contributions during the year ended December 31, 2022 was $0.5 million and none during the year ended December 31, 2023.
We also had a licensing agreement with Amprius Holdings to use their patents and licenses. In February 2023, Amprius Holdings assigned to us all of its patents, patent applications, registered trademarks and trademark applications. The transfer of Amprius Holdings’ intellectual properties to us had no impact on our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Additionally, we purchased and may continue to purchase raw materials and development materials from two previous related parties that were owned and controlled by Amprius Holdings, including finished batteries for our SiCore product platform from Berzelius. We do not have purchase commitments with these previous related parties.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. This means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, we have the option to adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We have elected to use the extended transition period for complying with new or revised accounting standards unless we otherwise early adopt selected standards.
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We are also a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our common stock held by non-affiliates exceeds $250.0 million as of the prior June 30 or (ii) our annual revenue exceeds $100.0 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700.0 million as of the prior June 30.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions. Our critical accounting estimates include estimates that require significant assumptions or that involve a significant level of uncertainty at the time the estimate was made, and changes in them may likely have a material effect on our financial condition or results of operations. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
Our summary of significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Leases
We recognize on the commencement date a right-of-use (“ROU”) asset and a lease liability on our lease agreements, or agreements that contains a lease. The lease liability is estimated based upon the present value of the fixed lease payments over the non-cancelable lease term. The ROU asset is estimated based on the amount of initial lease liability recorded and adjustment for certain lease-related transactions. When we estimate the lease liability, we use an incremental borrowing rate(“IBR”) if the implicit rate of the lease is not determinable. The IBR is estimated by using a recovery rate approach, which includes certain subjective assumptions such as performing a credit analysis on the company, leveraging the corporate default and recovery rates published by a credit rating agency, and using risk-free and undiscounted rates of comparable companies based on our credit analysis. Changes in the IBR, or the assumptions used to estimate the IBR, may significantly affect the amount of lease liability and ROU asset that we recognize.
Stock-Based Compensation
We measure stock-based compensation for stock options at fair value on the date of grant using the Black-Scholes option-pricing model, which requires the use of certain assumptions such as the expected term, expected volatility, risk-free interest rate and expected dividend. The inputs used in the Black-Scholes option-pricing model are based on subjective estimates. Additionally, the Black-Scholes option-pricing model requires us to input the fair value of our common stock. Prior to becoming a public company, we estimated the fair value of our common stock based on the determination of the board of directors, input from management and a contemporaneous valuation analysis from a third-party. Due to the subjective nature of the inputs used to measure the grant-date fair value of stock options, any changes in those inputs may significantly affect the amount of stock-based compensation expense that we recognize.
• Expected Term — Since we do not have sufficient historical experience for determining the expected term, we derive the expected term based on the simplified method for awards that qualify as plain-vanilla options.
• Expected Volatility — Since we have limited trading history on our common stock, we estimate volatility for stock option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the option grant’s expected term.
• Risk-Free Interest Rate — We base the risk-free interest rate on the implied yield available on the U.S. Treasury zero coupon issues with a remaining term equivalent to the expected term of the option.
• Expected Dividend — We estimate expected dividend yield to be zero because we have not paid dividends in the past and have no plans to pay dividends on our common stock.
• Fair Value of Common Stock — For stock option grants made prior to the Business Combination, we estimated the fair value of Legacy Amprius common stock based on the determination of our board of directors at the date of the stock option grant, with inputs from management and third-party valuations. The third-party valuations were performed in accordance with the American Institute of Certified Public Accountants’ Accounting and
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Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “Practice Aid”). The Practice Aid identifies various available methods for allocating the enterprise value across classes of capital stock in determining the fair value of Legacy Amprius’ common stock at each valuation date. The probability-weighed expected return method and the Option Pricing Method were the most appropriate methods used for determining the fair value of Legacy Amprius’ common stock. In addition to the third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of the grant date, including:
• stage of development;
• external market conditions affecting the industry and trends within the industry, including a review of the performance and metrics of guideline public companies;
• financial position, including cash on hand, and historical and forecasted performance and operating results;
• the lack of an active public market for such common stock;
• the likelihood of achieving a liquidity event, such as a “Special Purpose Acquisition Company” transaction or sale of our company in light of prevailing market conditions; and
• an analysis of initial public offerings and the market performance of similar companies in the industry.
Carve-out Basis of Historical Financial Statements
Prior to the Business Combination, our financial statements were presented on a carve-out basis using our historical results of operations and historical basis of assets and liabilities derived from the accounting records of Amprius Holdings and adjusted as necessary to conform with U.S. GAAP. Those carve-out basis financial statements include certain general and administrative expenses that were allocated to us from Amprius Holdings. Those allocations were based on estimates, and if those estimates were not accurate or not complete, the amounts reported on our historical balance sheet and statements of operations prior to the Business Combination may not be reasonable. We believe that the assumptions we used were reasonable and consistently applied for the periods presented prior to the Business Combination.
Recent Accounting Pronouncements
See Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide information under Item 7A.
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