UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to ___________
Commission File Number:
(Exact name of registrant as specified in its charter)
|
|
|
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
|
|
|
|
(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
|
☒ |
Smaller reporting company |
|
|
Emerging growth company |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
As of February 12, 2025, there were
Table of Contents
|
|
|
Page
|
|
Part I - Financial Information |
|
|
|
|
|
|
|
Item 1. |
4 |
|
|
|
4 |
|
|
|
5 |
|
|
|
6 |
|
|
|
7 |
|
|
|
Notes to the Unaudited Condensed Consolidated Financial Statements |
8 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
|
Item 3. |
31 |
|
|
Item 4. |
31 |
|
|
|
|
|
|
Part II - Other Information |
|
|
|
|
|
|
|
Item 1. |
33 |
|
|
Item 1A. |
33 |
|
|
Item 2. |
37 |
|
|
Item 3. |
37 |
|
|
Item 4. |
37 |
|
|
Item 5. |
37 |
|
|
Item 6. |
38 |
|
|
39 |
||
2
References herein to the “Company,” “we,” “our,” “us,” and "5E" refer to 5E Advanced Materials, Inc., and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the period ended December 31, 2024 and documents incorporated by reference herein (this “Form 10-Q) include statements that express our and our subsidiaries’ opinions, expectations, beliefs, plans, goals objectives, assumptions or projections regarding future events or future financial performance and results, financial condition, business strategy, including certain projections, milestones, targets, business trends and other statements that are not historical facts. These statements constitute forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “forecasts,” “budgets,” “targets,” “aims,” “intends,” “plans,” “may,” “will,” “should,” “could,” “would,” “will be,” “will continue,” “will likely result” and similar expressions, and in each case including their negative or other variations of comparable terminology. However, not all forward-looking statements contain these identifying words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation, statements regarding our results of operations and financial position, business strategy, plans and prospects, our ability to secure additional financing and continue as a going concern, our ability to consummate successfully the out-of-court restructuring and recapitalization transactions contemplated by the Restructuring Support Agreement (as defined herein), our intention to implement the reverse stock split of our common stock and the impact of the foregoing transactions on our ability to regain compliance with Nasdaq listing rules, our ability to operate the SSF and the Project (each as defined herein), and our ability to maintain a minimum cash balance under the Convertible Notes. Forward-looking statements reflect management’s expectations regarding our future growth, results of operations, operational and financial performance and business prospects and opportunities. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting our business.
The forward-looking statements in this Form 10-Q are only predictions. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, assumptions, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including risks described under the heading “Item 1A. – Risk Factors” in this Quarterly Report on Form 10-Q, and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.
Other sections of this Quarterly Report on Form 10-Q include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference or incorporate by reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. You are advised, however, to consult any additional disclosures we make in our reports to the U.S. Securities and Exchange Commission (the “SEC”). All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in our latest Annual Report on Form 10-K for the fiscal year ended June 30, 2024, and this Form 10-Q.
3
Part I - Financial Information
Item 1. Financial Statements.
5E ADVANCED MATERIALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2024 |
|
|
2024 |
|
||
|
ASSETS |
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
|
Mineral rights and properties, net |
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
Properties, plant and equipment, net |
|
|
|
|
|
|
|
|
|
Reclamation bond deposit |
|
|
|
|
|
|
|
|
|
Right of use asset |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
|
||
|
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
|
Lease liabilities, current |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
|
Long-term debt, net |
|
|
|
|
|
|
|
|
|
Convertible note derivative liabilities |
|
|
|
|
|
|
|
|
|
Lease liabilities |
|
|
|
|
|
|
|
|
|
Asset retirement obligations |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
Stockholders’ equity: |
|
|
|
|
|
|
||
|
Common stock, $
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
Retained earnings (accumulated deficit) |
|
|
(
|
) |
|
|
(
|
) |
|
Total stockholders’ equity |
|
|
(
|
) |
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
5E ADVANCED MATERIALS, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
|
|
|
Three months ended December 31, |
|
|
Six months ended December 31, |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Project expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Small-scale facility operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative gain (loss) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Other expense |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Total non-operating income (expense) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income (loss) before income taxes |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Income tax provision (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) per common share — basic and diluted |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Weighted average common shares outstanding — basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
5E ADVANCED MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
Six months ended December 31, |
|
|||||
|
|
|
2024 |
|
|
2023 |
|
||
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
||
|
Net income (loss) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Share based compensation |
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on convertible note derivatives |
|
|
(
|
) |
|
|
|
|
|
Accretion of asset retirement obligations |
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discount — convertible notes |
|
|
|
|
|
|
|
|
|
Amortization of right of use asset |
|
|
|
|
|
|
|
|
|
Interest earned on reclamation bond |
|
|
(
|
) |
|
|
|
|
|
Change in: |
|
|
|
|
|
|
||
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
||
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
||
|
Construction in progress |
|
|
(
|
) |
|
|
(
|
) |
|
Properties, plant and equipment additions |
|
|
(
|
) |
|
|
(
|
) |
|
Refund on previously acquired equipment |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
||
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
||
|
Proceeds from issuance of common stock and warrants, net of offering costs |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes |
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
(
|
) |
|
|
|
|
|
Payments on note payable |
|
|
(
|
) |
|
|
(
|
) |
|
Taxes withheld for equity award vesting |
|
|
(
|
) |
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
||
|
Net increase (decrease) in cash and cash equivalents |
|
|
(
|
) |
|
|
(
|
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
||
|
Accounts payable and accrued liabilities change related to capital additions |
|
$ |
(
|
) |
|
$ |
|
|
|
Accounts payable and accrued liabilities change related to debt issuance costs |
|
|
(
|
) |
|
|
|
|
|
Interest paid through issuance of additional convertible notes (Note 7) |
|
|
|
|
|
|
|
|
|
Increase in asset retirement costs |
|
$ |
|
|
|
$ |
|
|
|
Convertible note derivatives liability reclassification to equity (Note 8) |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
5E ADVANCED MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|||||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
|
Balance at June 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Vesting of restricted share units |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Share based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at September 30, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Vesting of restricted share units |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Share based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at December 31, 2023 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|||||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders’ |
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
|
Balance at June 30, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Issuance of common stock, net of offering costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Issuance of warrants, net of offering costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted share units |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Share based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at September 30, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
Vesting of restricted share units |
|
|
|
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
(
|
) |
|
Share based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Convertible note derivative liability reclassification |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance at December 31, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
5E ADVANCED MATERIALS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Presentation
These unaudited condensed consolidated financial statements (herein after referred to as “financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and should be read in the context of the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the Securities and Exchange Commission (“SEC”) on September 9, 2024. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of December 31, 2024, results of operations for the three and six months ended December 31, 2024 and 2023 and cash flows for the six months ended December 31, 2024 and 2023 have been included. Operating results for the three and six months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2025.
Effective April 1, 2024, the Company placed the Small-Scale Facility (the “SSF”) into full operation, and accordingly all direct operating costs associated with the SSF, including raw materials, labor, and maintenance, have been separately classified as Small-scale operating costs within the Company’s condensed consolidated statements of operations after such date. Prior to April 1, 2024, these direct costs have not been reclassified and remain either as Project expenses or General and administrative costs, as appropriate.
Basis of Consolidation
The unaudited condensed consolidated financial statements comprise the financial statements of 5E Advanced Materials, Inc. and its wholly owned subsidiaries, American Pacific Borates Pty Ltd. and 5E Boron Americas, LLC (formerly Fort Cady (California) Corporation, (“5EBA”)), (collectively, “we,” “our,” or the “Company”). The Company holds
Restructuring Support Agreement and Related Agreements
On January 14, 2025, the Company entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with BEP Special Situations IV LLC (“Bluescape”), Meridian Investments Corporation (“Meridian”) and Ascend Global Investment Fund SPC, for and on behalf of Strategic SP (together with Meridian, “Ascend”) in connection with certain restructuring and recapitalization transactions with respect to the Company’s capital structure (collectively the “Transaction”), including the Company’s Convertible Notes (as defined in Note 7– Debt ) issued pursuant to the Amended and Restated Note Purchase Agreement (as defined in Note 7– Debt ) by and among the Company, Bluescape, Ascend, the Guarantors from time to time party thereto and Alter Domus (US) LLC, as collateral agent.
Pursuant to the Restructuring Support Agreement, the parties agreed to implement the Transaction either as an:
8
Going Concern
Management evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date that these condensed consolidated financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company's ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the condensed consolidated financial statements are issued. In performing this analysis, management concluded there continues to exist substantial doubt regarding the Company’s ability to continue as a going concern.
Although the August 2024 Equity Offering (as further described and defined in Note 10–
Equity
) provided net cash proceeds of approximately $
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, the Convertible Notes (as further described and defined in Note 7– Debt ), vehicle notes, and accounts payable and accrued liabilities. Management believes the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of these instruments, due to their short-term nature, with the exception of the Convertible Notes and vehicle notes, approximate their carrying value. See Note 7– Debt fo r fair value information related to the Convertible Notes.
9
Concentrations of Risk
The Company maintains cash deposits at several major banks, which at times may exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation. Management monitors the financial health of the banks and believes the Company is not exposed to any significant credit risk, and the Company has not experienced any such losses.
The Company’s operations are predominately focused on the Project, which results in the Company being dependent upon a single mining operation in a single geographic region in the western United States in California. The geographic concentration of the Company’s operations may disproportionately expose it to disruptions if the region experiences severe weather, transportation capacity constraints, constraints on the availability of required equipment, facilities, personnel or services, significant governmental regulation, or natural disasters.
Risks and Uncertainties
The Company is subject to a number of risks that its management believes are similar to those of other companies of similar size and industry, including but not limited to, the success of its exploration activities, need for significant additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and dependence on key individuals. The Company currently generates no revenue from operations and will need to rely on raising additional capital or financing to sustain operations in the long term. There can be no assurance that management will be successful in its efforts to raise additional capital on terms favorable to the Company, or at all, or in management's ability to adequately reduce expenses, if necessary, to maintain sufficient liquidity or capital resources. Refer to the Going Concern discussion above for additional details.
Recently Issued and Adopted Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”). ASU 2023-07 is intended to enhance reportable segment disclosure requirements, including significant segment expenses and interim disclosures. The guidance allows for disclosure of multiple measures of a segment’s profit or loss, and it requires that public entities with a single reportable segment provide all disclosures required by ASU 2023-07 and all existing disclosures required by the existing segment disclosure guidance. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments are to be applied retrospectively, and early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-07 will have on the consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve income tax disclosures primarily through enhanced disclosure of income tax rate reconciliation items, and disaggregation of income (loss) from continuing operations, income tax expense (benefit) and income taxes paid, net disclosures by federal, state, and foreign jurisdictions, among others. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, and early adoption is permitted. The Company is evaluating the impact that ASU 2023-09 will have on the consolidated financial statements and its plan for adoption, including the adoption date and transition method.
In November 2024, the FASB issued ASU 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation of certain expenses in the notes of the financials, to provide enhanced transparency into the expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027 and may be applied either prospectively or retrospectively. The Company is currently evaluating the impact that ASU 2024-03 will have on its related disclosures, including the adoption date and transition method.
In November 2024, the FASB issued ASU 2024-04, Debt–Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversion of Convertible Debt Instruments (“ASU 2024–04”), which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06, which includes the Company. Adoption can be on a prospective or retrospective basis. The Company adopted ASU 2024-04 effective January 1, 2025 on a prospective basis.
Reverse Stock Split
On January 21, 2025, the Company’s stockholders approved amendments to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s Common Stock at a ratio ranging from any whole number between
10
1-for-
2. Mineral Rights and Properties, Net
Mineral rights and properties, net consisted of the following at the end of each period presented.
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2024 |
|
|
2024 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Mineral properties |
|
$ |
|
|
|
$ |
|
|
|
Hydrology wells |
|
|
|
|
|
|
|
|
|
Asset retirement cost, net of accumulated amortization of
|
|
|
|
|
|
|
|
|
|
Mineral rights and properties, net |
|
$ |
|
|
|
$ |
|
|
3. Construction in Progress
Construction in progress consisted of the following at the end of each period presented.
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2024 |
|
|
2024 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Engineering services |
|
$ |
|
|
|
$ |
|
|
|
Capitalized interest |
|
|
|
|
|
|
— |
|
|
Total construction in progress |
|
$ |
|
|
|
$ |
|
|
4. Properties, Plant and Equipment, Net
Properties, plant and equipment, net consisted of the following at the end of each period presented.
|
|
|
Depreciation |
|
Estimated useful |
|
December 31, |
|
|
June 30, |
|
||
|
Asset category |
|
method |
|
life (in years) |
|
2024 |
|
|
2024 |
|
||
|
|
|
|
|
|
|
(in thousands) |
|
|||||
|
Land |
|
|
|
— |
|
$ |
|
|
|
$ |
|
|
|
Small-scale facility — plant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Injection and recovery wells |
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Properties, plant and equipment, net |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The Company recognized depreciation expense of approximately $
The Company recognized depreciation expense of
$
11
5. Asset Retirement Obligations
The change in the Company’s asset retirement obligations during the period presented and the balance of its accrued reclamation liabilities at the end of the period are set forth below.
|
|
|
Six months ended |
|
|
|
|
|
December 31, 2024 |
|
|
|
|
|
(in thousands) |
|
|
|
Asset retirement obligation — beginning of period |
|
$ |
|
|
|
Obligation incurred during the period |
|
|
|
|
|
Revisions to previous estimates |
|
|
|
|
|
Accretion |
|
|
|
|
|
Asset retirement obligation — end of period |
|
$ |
|
|
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at the end of each period presented.
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2024 |
|
|
2024 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Accounts payable - trade (1) |
|
$ |
|
|
|
$ |
|
|
|
Accrued expenses |
|
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
|
|
|
|
|
|
|
|
Accrued payroll |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
|
|
7. Debt
Long Term Debt
Long-term debt consisted of the following at the end of each period presented.
|
|
|
December 31, |
|
|
June 30, |
|
||
|
|
|
2024 |
|
|
2024 |
|
||
|
|
|
(in thousands) |
|
|||||
|
August 2022 notes |
|
$ |
|
|
|
$ |
|
|
|
June 2024 notes |
|
|
|
|
|
|
|
|
|
September 2024 notes |
|
|
|
|
|
|
|
|
|
Vehicle notes payable |
|
|
|
|
|
|
|
|
|
Total debt |
|
|
|
|
|
|
|
|
|
Current portion of debt |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
Unamortized convertible note discount |
|
|
(
|
) |
|
|
(
|
) |
|
Unamortized debt issuance costs |
|
|
(
|
) |
|
|
(
|
) |
|
Long-term debt, net |
|
$ |
|
|
|
$ |
|
|
As further discussed below, on
September 16, 2024, the Company issued an additional $
12
Interest expense consisted of the following for each period presented.
|
|
|
Three months ended December 31, |
|
|
Six months ended December 31, |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Convertible notes interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Vehicle notes payable interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amount capitalized to construction in progress |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Effective interest rate — convertible notes (1) |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Convertible Notes
On August 11, 2022, the Compa
ny executed a $
On May 28, 2024, the Company entered into a second amendment (“Amendment No. 2”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the August 2022 Notes, as amended, in an aggregate principal amount of $
On September 16, 2024, the Company entered into a third amendment (“Amendment No. 3”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the June 2024 Notes, in an aggregate principal amount of $
On January 14, 2025, the Company entered into a fourth amendment (“Amendment No. 4”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the September 2024 Notes, in an aggregate principal amount of $
In connection with its entry into the January 2024 Amended and Restated Note Purchase Agreement, May 2024 Amended and Restated Note Purchase Agreement, and September 2024 Amended and Restated Note Purchase Agreement, the Company incurred approximately $
At the Company’s election, the Convertible Notes bear interest at an annual rate of
The Convertible Notes are secured by substantially all of the Company’s assets.
13
Convertible Notes - Conversion Terms
The Convertible Notes, including accrued interest paid-in-kind, may be converted into shares of the Company’s Common Stock at any time before the Convertible Notes mature. The August 2022 Notes are convertible into the Company’s Common Stock based upon a conversion rate of
The Conversion Rate applicable to the June 2024 Notes and September 2024 Notes was subject to adjustment if, after the issuance date of the respective Convertible Notes and on or prior to December 31, 2024, the Company sold Common Stock or any other equity-linked securities in one or more transactions at an effective price per share that was less than the respective conversion price then in effect, subject to certain exemptions (a “Degressive Issuance”). In the event of a Degressive Issuance, the Conversion Rate applicable to the respective Convertible Notes was subject to adjustment based on the weighted average issuance price of the securities sold in such Degressive Issuance, as set forth in the Amended and Restated Note Purchase Agreement.
As part of the August 2024 Equity Offering (as further described and defined in Note 10–
Equity
), a Degressive Issuance provision applicable to the June 2024 Notes resulted in an adjustment to the Conversion Rate applicable only to the June 2024 Notes from
Convertible Notes - Derivatives
The terms of the Amended and Restated Note Purchase Agreement permitted a change to the Conversion Rates applicable to the June 2024 Notes and September 2024 Notes upon a Digressive Issuance by the Company on or before December 31, 2024. As a result, these conversion features were deemed to be embedded derivatives requiring bifurcation and separate accounting as stand-alone derivative instruments (the “June 2024 Convertible Note Derivative” and “September 2024 Convertible Note Derivative,” respectively, and together, the “Convertible Note Derivatives”) through December 31, 2024. The June 2024 Notes were initially recorded at their face amount of $
The provisions that resulted in separate accounting for the Convertible Note Derivatives expired on December 31, 2024, and accordingly, the fair value of the Convertible Note Derivatives on such date was transferred to additional paid-in capital. Refer to Note 8– Convertible Note Derivatives and the discussion immediately below for additional details regarding the fair values of the Convertible Note Derivatives.
14
Convertible Notes - Fair Value
Fair value and carrying value information for the Convertible Notes at each period end follows.
|
|
|
|
|
|
Unamortized Debt |
|
|
Net Liability |
|
|
|
|
|
|
||||
|
|
|
Principal |
|
|
Discount and |
|
|
Carrying |
|
|
Fair Value |
|||||||
|
|
|
Amount |
|
|
Issuance Costs |
|
|
Amount |
|
|
Amount |
|
|
Leveling |
||||
|
|
|
(in thousands) |
|
|
|
|||||||||||||
|
As of December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
August 2022 Notes, due Aug. 15, 2028 |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Level 2 |
|
June 2024 Notes, due Aug. 15, 2028 |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Level 2 |
|
September 2024 Notes, due Aug. 15, 2028 |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
As of June 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
August 2022 Notes, due Aug. 15, 2028 |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
Level 2 |
|
June 2024 Notes, due Aug. 15, 2028 |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
(1) |
Level 2 |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
|
The valuation model for the Convertible Notes and related Convertible Note Derivatives requires the input of subjective assumptions including expected share price volatility, risk-free interest rate and debt rate. Changes in the input assumptions as well as the Company's underlying share price can materially affect the fair value estimates. Changes in the reported fair value of the Convertible Notes between periods are not recognized in net income and therefore have no effect on reported net income (loss).
The significant assumptions used in the fair value model for the Convertible Notes and related Convertible Note Derivatives include the following, with changes in volatility, debt rate and stock price having the most significant impact on the related fair values.
|
|
|
|
|
Sep. 16, 2024 |
|
|
|
|
|
|
Dec. 31, 2024 |
|
(Sep. 2024 Notes) |
|
Jun. 30, 2024 |
|
|
Risk-free interest rate |
|
|
|
|
|
|
|
|
Volatility |
|
|
|
|
|
|
|
|
Debt rate |
|
|
(1) |
|
|
|
(2) |
|
Stock price per share |
|
$
|
|
$
|
|
$
|
|
8. Convertible Note Derivatives
The June 2024 Convertible Note Derivative and September 2024 Convertible Note Derivative, each which relate to the June 2024 Notes and September 2024 Notes, respectively, described above in Note 7– Debt , were valued upon initial recognition and at each reporting period at fair value using a with-and-without methodology utilizing a binomial lattice model (a model which utilizes Level 3 fair value inputs). Refer to Convertible Notes–Fair Value in Note 7– Debt for a table of certain inputs utilized in the valuation of the Convertible Notes and related Convertible Note Derivatives on certain dates. Changes in the fair value were recognized in Derivative gain (loss) in the statement of operations but had no related impact on the Company’s cash position or cash flows. The provision that resulted in separate accounting for the June 2024 Convertible Note Derivative began June 11, 2024 in connection with the issuance of the June 2024 Notes, and on September 16, 2024 for the September 2024 Convertible Note Derivative in connection with the issuance of the September 2024 Notes. Each of these provisions expired on December 31, 2024, and accordingly, the Convertible Note Derivatives were derecognized and the remaining fair values were transferred to additional paid-in capital.
The components of changes to the fair value of the Convertible Note Derivatives for the period presented are summarized below.
|
|
|
Derivative |
|
|
|
|
|
(Asset)/Liability |
|
|
|
|
|
(in thousands) |
|
|
|
Convertible note derivatives (asset) liability — June 30, 2024 |
|
$ |
|
|
|
Additions, at fair value, September 16, 2024 |
|
|
|
|
|
Fair value adjustments (gain) loss, net |
|
|
(
|
) |
|
Reclassified to additional paid-in capital, at fair value, December 31, 2024 |
|
|
(
|
) |
|
Convertible note derivatives (asset) liability — December 31, 2024 |
|
$ |
|
|
15
9. Financial Instruments and Fair Value Measurements
At December 31, 2024, cash equivalents as well as trade and other payables approximated their fair value due to their short-term nature. The Company’s financial instruments also consist of environmental reclamation bonds which are invested in certificates of deposit and money market funds which are classified as Level 1, the Convertible Notes which are classified as Level 2, and the Convertible Note Derivatives which were classified as Level 3. The reconciliation of changes in the fair value of the Convertible Note Derivatives can be found in Note 8– Convertible Note Derivatives .
10. Equity
The Company is authorized to issue up to
August 2024 Equity Offering
On August 27, 2024, the Company completed an offering (the “August 2024 Equity Offering”) of (i)
The Series A Warrants and the Series B Warrants are initially exercisable on February 27, 2025. The Series A Warrants will expire on February 27, 2030 and the Series B Warrants will expire on February 27, 2027. The Warrants contain standard adjustments to the exercise price including for stock splits, stock dividends, rights offerings and pro rata distributions. The Warrants also include certain rights upon the occurrence of a “fundamental transaction” (as described in the Warrants), including the right of the holder thereof to receive from the Company or a successor entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the holders of Common Stock in such fundamental transaction in the amount of the Black Scholes value (as described in the Warrants) of the unexercised portion of the Warrant on the date of the consummation of such fundamental transaction. The Warrants include cashless exercise rights to the extent the resale of the shares of Common Stock underlying the Warrants is not registered under the Securities Act.
Vesting of Equity Awards
During the three months ended December 31, 2024 and 2023
, the Company issued approximately
2024 Equity Distribution Agreement
On March 28, 2024, the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Canaccord Genuity LLC and D.A. Davidson Co. (the “Agents”) pursuant to which the Company may offer and sell up to $
Neither of the Agents is required to sell any specific number or dollar amount of shares of the Company’s Common Stock, but each has agreed, subject to the terms and conditions of the Equity Distribution Agreement, to use its commercially reasonable efforts, consistent with its normal trading and sales practices, to sell the shares of Common Stock on the terms agreed upon by such Agent and the Company.
The Company did not sell any shares of Common Stock nor receive any proceeds under the Equity Distribution Agreement during the three and six months ended December 31, 2024
. As a result of the August 2024 Equity Offering, the Company is precluded from utilizing the ATM Program for one year following the closing of the offering, and as a result approximately $
Out-of-Court Restructuring
As discussed in Note 1-
Basis of Financial Statement Presentation
, the proposed Out-of-Court Restructuring could result in (i) the issuance of
16
million
of Common Stock at the Subscription Price, and (iii) the issuance of Restructuring Warrants with a one-year term to purchase an aggregate number of shares of Common Stock represented by up to $
11. Share Based Compensation
Share based compensation expense is included in general and administrative expense and represents costs associated with restricted share unit (“RSU”), director restricted share unit (“DSU”) and performance share unit (“PSU”) activity and options granted to directors, employees, and consultants of the Company. Share based compensation expense consisted of the following for the periods presented.
|
|
|
Three months ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Share based compensation expense — service based |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Employee share option plan |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
2022 Equity Compensation Plan — Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Equity Compensation Plan — PSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Equity Compensation Plan — RSU and DSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of December 31, 2024
, the Company had approximately $
Stock Options
Option grants are made under the 2022 Equity Compensation Plan and vest ratably over the vesting period which is generally
|
|
|
Six months ended December 31, |
||
|
|
|
2024 |
|
2023 |
|
Exercise price |
|
$
|
|
$
|
|
Share price |
|
$
|
|
$
|
|
Volatility |
|
|
|
|
|
Expected term in years |
|
|
|
|
|
Risk-free interest rate |
|
|
|
|
|
Dividend rate |
|
|
|
|
The following table summarizes stock option activity for each of the periods presented.
|
|
|
Six months ended December 31, |
|
|||||||||||||
|
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
|
Number of Options |
|
|
Weighted Average Exercise Price |
|
|
Number of Options |
|
|
Weighted Average Exercise Price |
|
||||
|
|
|
(In thousands, except per share data) |
|
|||||||||||||
|
Outstanding at beginning of the period |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Outstanding at end of the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Vested at the end of the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the end of the period |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
17
The weighted average remaining life of vested options at December 31, 2024 and 2023
was approximately
As of December 31, 2024
, there was approximately $
The following table summarizes the activity for unvested options for each of the periods presented.
|
|
|
Six months ended December 31, |
|
|||||||||||||
|
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
|
Number of Options |
|
|
Weighted Average Grant Date Fair Value per share |
|
|
Number of Options |
|
|
Weighted Average Grant Date Fair Value per share |
|
||||
|
|
|
(In thousands, except per share data) |
|
|||||||||||||
|
Unvested at beginning of the period |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Expired/forfeited |
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
Unvested at end of the period |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
As of December 31, 2024 and 2023
, all outstanding stock options and vested stock options had
Full Value Awards (Restricted Share Units, Director Share Units and Performance Share Units)
The following table summarizes RSU, DSU and PSU activity for each of the periods presented.
|
|
|
Serviced-Based Shares |
|
|
Weighted Average Grant Date Fair Value per Share |
|
|
Performance- Based Shares |
|
|
Weighted Average Grant Date Fair Value per Unit |
|
|
Total Shares |
|
|||||
|
|
|
(In thousands, except per share data) |
|
|||||||||||||||||
|
Non-vested shares/units
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Non-vested shares/units
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Serviced-Based Shares |
|
|
Weighted Average Grant Date Fair Value per Share |
|
|
Performance- Based Shares |
|
|
Weighted Average Grant Date Fair Value per Unit |
|
|
Total Shares |
|
|||||
|
|
|
(In thousands, except per share data) |
|
|||||||||||||||||
|
Non-vested shares/units
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
|
|
|
|
|
|
|
Vested |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
Forfeited |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Non-vested shares/units
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
18
During the three months ended December 31, 2024
, the vesting of approximately
12. Earnings (Loss) Per Common Share
Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if DSUs, RSUs, PSUs, stock options and convertible securities such as the Convertible Notes (excluding any Additional Shares as the probability of a Make-Whole Fundamental Change cannot be predicted) and Warrants were exercised or converted into common stock at the end of the respective period. Diluted loss per share equals basic loss per share for the three and six months ended December 31, 2024 and 2023 as the effect of including dilutive securities in the calculation would be anti-dilutive.
For the three and six months ended December 31, 2024 and 2023, the following effects are excluded from the computation of dilutive loss per share as such effects would have an anti-dilutive effect.
|
|
|
Three months ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Interest expense on Convertible Notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Derivative gain (loss) — Convertible Note Derivatives |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Additional shares assuming conversion of Convertible Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional shares assuming exercise of Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and unvested restricted stock units and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse Stock Split – Pro Forma Earnings (Loss) Per Common Share
As discussed in Note 1–
Basis of Financial Statement Presentation
, on February 3, 2025, the Board approved a 1-for-
|
|
|
Three months ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
|
(in thousands, except per share data) |
|
|||||||||||||
|
Pro forma basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) - numerator |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Pro Forma weighted-average shares — denominator (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per share |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
Subsequent Issuance of January 2025 Notes
As discussed in Note 7–
Debt
, subsequent to December 31, 2024 the Company issued the January 2025 Notes. The January 2025 Notes were initially convertible into
19
approval being obtained. The impact of the January 2025 Notes is not reflected in the computation of earnings per share or pro forma earnings per share for the three and six months ended December 31, 2024 and 2023.
Proposed Out-of-Court Restructuring
As discussed in Note 1–
Basis of Financial Statement Presentation
and Note 10–
Equity
, the proposed Out-of-Court Restructuring could result in (i) the issuance of
13. Commitments and Contingencies
Purchase Obligations
As of December 31, 2024
, the Company had purchase order commitments of approximately $
Litigation
On July 17, 2023, the Company filed a complaint (the “Complaint”) against a previous construction contractor in the United States District Court for the Central District of California, Eastern Division, alleging, among other things, numerous breaches by the contractor of its contractual obligations to 5EBA under the Procurement and Construction Contract, effective April 26, 2022, by and between 5EBA and the contractor, relating to the construction of the SSF in California (the “Contract”). On August 10, 2023, the contractor filed an answer to the Complaint as well as a counterclaim for, among other things, alleged breaches by 5EBA of its contractual obligations to the contractor under the Contract and has requested relief in the approximate amount of $
14. Subsequent Events
Restructuring Support Agreement and Related Agreements
As further described in Note 1– Basis of Financial Statement Presentation and Note 10– Equity , on January 14, 2025, the Company entered into a Restructuring Support Agreement with Bluescape, Meridian and Ascend in connection with a restructuring and recapitalization transaction, including the Convertible Notes issued pursuant to the Amended and Restated Note Purchase Agreement by and among the Company, Bluescape, Ascend, the Guarantors from time to time party thereto and Alter Domus (US) LLC, as collateral agent. The Restructuring Support Agreement contemplates either an Out-of-Court Restructuring or In-Court Restructuring, the terms of which are described in further detail within Note 1– Basis of Financial Statement Presentation .
January 2025 Notes
As further described in Note 7–
Debt
, on January 14, 2025, the Company entered into Amendment No. 4 to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new January 2025 Notes in substantially the same form and under the same terms as the September 2024 Notes, in an aggregate principal amount of $
Reverse Stock Split
As further described in Note 1–
Basis of Financial Statement Presentation
, on January 21, 2025, the Company’s stockholders approved amendments to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s Common Stock at a ratio ranging from any whole number between 1-for-
20
Secretary of State of the State of Delaware. As of the date these financial statements were issued, the Reverse Stock Split had not yet become effective and the Company’s Common Stock had not yet begun to trade on a reverse split-adjusted basis.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MDA”) summarizes the significant factors affecting the operating results, financial condition, liquidity and capital resources, and cash flows of our Company for the three and six months ended December 31, 2024 and 2023. This MDA should be read in conjunction with, and is qualified in its entirety by, the unaudited condensed consolidated financial statements, the accompanying notes thereto and other financial information included in this Quarterly Report on Form 10-Q, and the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K, filed with the SEC on September 9, 2024 (the “Annual Report”). Except for historical information, this discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions and other important factors, which include, but are not limited to, the risks described elsewhere in this Form 10-Q under “Item 1A. Risk Factors” and elsewhere in our Annual Report filed with the SEC, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made. Additionally, you should refer to the “Cautionary Note Regarding Forward-Looking Statements.” References within this MDA to the “Company,” “we,” “our,” and “us,” refer to 5E Advanced Materials, Inc., and its subsidiaries.
Overview
5E Advanced Materials, Inc. is focused on becoming a vertically integrated global leader and supplier of specialty boron and advanced boron derivative materials whose mission is to enable decarbonization, increase food security, and ensure domestic supply of critical materials. We hold 100% of the rights through ownership in the 5E Boron Americas (Fort Cady) Complex (the “Project”) through our wholly owned subsidiary 5E Boron Americas LLC. Our Project is underpinned by a mineral resource that includes boron and lithium, with the boron being contained in a conventional boron mineral known as colemanite. In 2022, our facility was designated as Critical Infrastructure by the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency. Our vision is to safely process boric acid, lithium carbonate and industry minerals through sustainable best practices to enable decarbonization, food security and domestic supply surety.
Recent Developments
Restructuring Support Agreement and Related Agreements
On January 14, 2025, we entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with BEP Special Situations IV LLC (“Bluescape”), Meridian Investments Corporation (“Meridian”) and Ascend Global Investment Fund SPC, for and on behalf of Strategic SP (together with Meridian, “Ascend”) in connection with certain restructuring and recapitalization transactions with respect to our capital structure (collectively the “Transaction”), including our senior secured convertible promissory notes (the "Convertible Notes“) issued pursuant to the Amended and Restated Note Purchase Agreement, dated January 18, 2024 by and among us, Bluescape, Ascend, the Guarantors from time to time party thereto and Alter Domus (US) LLC, as collateral agent (as amended, the “Amended and Restated Note Purchase Agreement”).
Pursuant to the Restructuring Support Agreement, the parties agreed to implement the Transaction either as an:
22
January 2025 Notes
On August 11, 2022, the Company executed a $60.0 million private placement of senior secured convertible notes (the “August 2022 Notes”) with Bluescape. On January 18, 2024, the Company entered into an amended and restated note purchase agreement (the “January 2024 Amended and Restated Note Purchase Agreement”) which modified certain terms of the August 2022 Notes, including to extend the maturity date of the August 2022 Notes to August 15, 2028.
On May 28, 2024, the Company entered into a second amendment (“Amendment No. 2”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the August 2022 Notes, as amended, in an aggregate principal amount of $6.0 million (the “June 2024 Notes”) to Bluescape, Ascend and Meridian, and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 2 (the “May 2024 Amended and Restated Note Purchase Agreement”).
On September 16, 2024, the Company entered into a third amendment (“Amendment No. 3”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the June 2024 Notes, in an aggregate principal amount of $6.0 million (the “September 2024 Notes”) to Bluescape, Ascend and Meridian, and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 3 (the “September 2024 Amended and Restated Note Purchase Agreement”).
On January 14, 2025, the Company entered into a fourth amendment (“Amendment No. 4”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the September 2024 Notes, in an aggregate principal amount of $5.0 million (the “January 2025 Notes” and, together with the August 2022 Notes, the June 2024 Notes and the September 2024 Notes the “Convertible Notes”) to Bluescape, Ascend and Meridian, and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 4 (as amended, the “Amended and Restated Note Purchase Agreement”). The Amended and Restated Note Purchase Agreement also extended the date to which the Company must comply with a financial covenant for the Company to maintain a cash balance of at least $7.5 million from December 31, 2024 to March 31, 2025. Concurrently with the execution of Amendment No. 4, the Company entered into the Restructuring Support Agreement, and other related agreements, as discussed above). See Note 7– Debt to our financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Reverse Stock Split
On January 21, 2025, our stockholders approved amendments to our Amended and Restated Certificate of Incorporation to effect a reverse stock split of our Common Stock at a ratio ranging from any whole number between 1-for-10 and 1-for-25, with the exact ratio within such range to be determined by the Company’s Board of Directors (the “Board”) in its discretion (the “Reverse Stock Split”). On February 3, 2025, the Board approved a 1-for-23 Reverse Stock Split, which will become effective upon filing of the amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. As of the date these financial statements were issued, the Reverse Stock Split had not yet become effective and the Company’s Common Stock had not yet begun to trade on a reverse split basis. Unless otherwise specified, all share and per share figures within this Quarterly Report on Form 10-Q are presented prior to any adjustment for the Reverse Stock Split.
23
Highlights for the Three Months ended December 31, 2024
Operational Highlights
During the three months ended December 31, 2024, we optimized plant-level production rates and streamlined overall operations and production processes at our Small-Scale Facility (the “SSF”). Such efforts have resulted in operating cost reductions and an improvement in the quality and consistency of our boric acid production. We continued to maintain production of boric acid at one short ton per day with continuous improvement in production rates and product specification at the facility at a level designed to meet volumetric needs for expanded customer qualification and testing needs for our commercial strategy, while minimizing liquidity impacts.
Commercial Scale Facility
We have made the critical strategic decision to pursue calcium chloride as our byproduct and have now begun incorporating this decision into our commercial basis of design for the commercial scale facility (the “Commercial Scale Facility”) and are working towards partnership and offtake of our potential calcium chloride stream with multiple strategic players. We believe that the pursuit of calcium chloride for our by-production alongside boric acid has the potential to ultimately yield a significant decrease in the capital expenditures needed for our Commercial Scale Facility while simplifying its design, to meaningfully improve the Project’s rate of return.
We also continued to progress FEL-2 engineering for Phase 1 of the Commercial Scale Facility. We anticipate that Fluor, our EPC contractor, will provide a capital estimate for Phase 1 no later than Spring 2025. We continued to focus our efforts during FEL-2 on ensuring the project is appropriately scoped and of high quality to position the Company for success as we move toward FEL-3. We anticipate that FEL-3 engineering will be a seven-to-eight-month process which allows us to target a final investment decision in late 2025.
Commercial Strategy
We have advanced our commercial strategy, and during the quarter, we met a key milestone in our timeline through the delivery of our first truckload of boric acid super sacks to a U.S. customer. In October 2024, we added two seasoned borates sales and marketing professionals who have already driven important advancements in translating customer engagement to initial off-take discussions. We are currently in the process of negotiating contracts for a portion of our initial boric acid production in commercial Phase 1. Additionally, we have expanded the geographic reach of our commercial program to the Asia-Pacific region, with coverage over more than 80% of the global borates demand as we look to high-grade the margin profile of our commercial scale production through targeted industry segmentation.
Reduction in Work Force
During November 2024, we undertook a strategic reduction in work force, which reduced our company-wide headcount by approximately 40% with the goal of optimizing our team, reducing fixed and variable operating costs and increasing our efficiency at current production level at the SSF. We estimate that this initiative could allow us to save approximately $2.2 million in operating expenditures during calendar year 2025.
Financing Highlights
Refer to the discussion above under the headings Recent Developments – Restructuring Support Agreement and Related Agreements , and January 2025 Notes .
Financing Transactions — Liquidity Considerations
Although the January 2025 Notes improved our cash position by providing an aggregate of $5.0 million of proceeds to the Company prior to recognition of issuance costs and fees, and we continue to operate under a business plan that includes reductions in certain spending, we will need additional financing in order to continue as a going concern and, as long as the Convertible Notes are outstanding, maintain a cash balance in excess of the $7.5 million minimum cash covenant contained in the Amended and Restated Note Purchase Agreement (as discussed in Note 7– Debt to the unaudited condensed consolidated financial statements). An event of default under the September 2024 Amended and Restated Note Purchase Agreement would give the holders of the Convertible Notes the right to cause all of our Convertible Notes to become immediately due and payable, for which we would not have the resources to repay without additional financing. The receipt of potential funding cannot be considered probable at this time because these plans are not entirely within management's control as of the date of the unaudited condensed consolidated financial statements. Therefore, there exists substantial doubt regarding our ability to continue as a going concern. Even if additional financing is successfully consummated, including as part of the proposed Out-of-Court Restructuring, available liquidity may still not be sufficient to eliminate
24
the aforementioned substantial doubt regarding our ability to continue as a going concern. Refer to the “Going Concern” discussion within Note 1– Basis of Financial Statement Presentation of the unaudited condensed consolidated financial statements and “Liquidity and Capital Resources” below for more information.
Results of Operations
The following table summarizes our results of operations for the periods presented.
|
|
|
Three Months Ended December 31, |
|
|
Variance |
|
|
Six Months Ended December 31, |
|
|
Variance |
|
||||||||||||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||||||
|
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
||||||||||||||||||||
|
COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Project expenses |
|
$ |
1,679 |
|
|
$ |
1,431 |
|
|
$ |
248 |
|
|
|
17 |
% |
|
$ |
3,233 |
|
|
$ |
3,014 |
|
|
$ |
219 |
|
|
|
7 |
% |
|
Small-scale facility operating costs |
|
|
1,080 |
|
|
|
— |
|
|
|
1,080 |
|
|
N/A |
|
|
|
2,668 |
|
|
|
— |
|
|
|
2,668 |
|
|
N/A |
|
||
|
General and administrative |
|
|
3,280 |
|
|
|
7,396 |
|
|
|
(4,116 |
) |
|
|
-56 |
% |
|
|
8,077 |
|
|
|
13,434 |
|
|
|
(5,357 |
) |
|
|
-40 |
% |
|
Research and development |
|
|
— |
|
|
|
6 |
|
|
|
(6 |
) |
|
|
-100 |
% |
|
|
— |
|
|
|
45 |
|
|
|
(45 |
) |
|
|
-100 |
% |
|
Depreciation and amortization
|
|
|
4,992 |
|
|
|
53 |
|
|
|
4,939 |
|
|
* |
|
|
|
9,962 |
|
|
|
106 |
|
|
|
9,856 |
|
|
* |
|
||
|
Total costs and expenses |
|
|
11,031 |
|
|
|
8,886 |
|
|
|
2,145 |
|
|
|
24 |
% |
|
|
23,940 |
|
|
|
16,599 |
|
|
|
7,341 |
|
|
|
44 |
% |
|
LOSS FROM OPERATIONS |
|
|
(11,031 |
) |
|
|
(8,886 |
) |
|
|
(2,145 |
) |
|
|
24 |
% |
|
|
(23,940 |
) |
|
|
(16,599 |
) |
|
|
(7,341 |
) |
|
|
44 |
% |
|
NON-OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Interest income |
|
|
25 |
|
|
|
10 |
|
|
|
15 |
|
|
|
150 |
% |
|
|
48 |
|
|
|
142 |
|
|
|
(94 |
) |
|
|
-66 |
% |
|
Other income |
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
N/A |
|
|
|
4 |
|
|
|
3 |
|
|
|
1 |
|
|
|
33 |
% |
|
|
Derivative gain (loss) |
|
|
(830 |
) |
|
|
— |
|
|
|
(830 |
) |
|
N/A |
|
|
|
1,357 |
|
|
|
— |
|
|
|
1,357 |
|
|
N/A |
|
||
|
Interest expense |
|
|
(2,430 |
) |
|
|
(1,739 |
) |
|
|
(691 |
) |
|
|
40 |
% |
|
|
(4,585 |
) |
|
|
(3,526 |
) |
|
|
(1,059 |
) |
|
|
30 |
% |
|
Other expense |
|
|
— |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
-100 |
% |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
1 |
|
|
|
-17 |
% |
|
Total non-operating income
|
|
|
(3,231 |
) |
|
|
(1,730 |
) |
|
|
(1,501 |
) |
|
|
87 |
% |
|
|
(3,181 |
) |
|
|
(3,387 |
) |
|
|
206 |
|
|
|
-6 |
% |
|
NET INCOME (LOSS) |
|
$ |
(14,262 |
) |
|
$ |
(10,616 |
) |
|
$ |
(3,646 |
) |
|
|
34 |
% |
|
$ |
(27,121 |
) |
|
$ |
(19,986 |
) |
|
$ |
(7,135 |
) |
|
|
36 |
% |
* Represents a percentage change greater than +/- 300%
Comparison of the three and six months ended December 31, 2024 and 2023
Project expenses
Project expenses include drilling, plug and abandonment, site preparation, engineering, consumables, testing and sampling, hydrology, permits, surveys, and other expenses associated with further progressing our Project. Prior to April 1, 2024, Project expenses also included non-labor related costs incurred to prepare for the operation of the SSF, as these costs were incurred prior to the SSF being placed into operation. For the three months ended December 31, 2024, project expenses increased $248 thousand, or 17%, versus the comparable period in the prior year. The increase was primarily the result of increased wellfield development activity primarily related to the installation of additional observation monitoring wells ($0.4 million). This increase was offset by decreases in: (i) testing and analysis costs ($0.1 million), and (ii) insurance costs ($0.1 million).
For the six months ended December 31, 2024, project expenses increased $219 thousand, or 7%, versus the comparable period in the prior year. The increase was primarily the result of: (i) increased wellfield development activity primarily related to the installation of additional observation monitoring wells ($0.9 million), and (ii) and increase in site related costs ($0.4 million). These increases were offset by decreases in: (i) Environmental Protection Agency and other environmental compliance costs ($0.5 million), (ii) testing and analysis costs ($0.3 million), (iii) insurance costs ($0.2 million), and (iv) expenses incurred relating to our plug and abandonment program to prepare the wellfield for injection operations ($0.1 million).
Small-scale facility operating costs
Small-scale facility operating costs consists of raw materials, salaries and benefits for employees that are directly responsible for the operation of the SSF, and maintenance and upkeep related to the SSF after April 1, 2024. Prior to April 1, 2024, such costs were reported within either Project expenses or General and administrative expenses as the SSF had not yet been placed into operation. For the three months ended December 31, 2024, Small-scale facility operating costs consisted of: (i) salaries and benefits for our employees directly responsible for operating the SSF ($0.8 million), (ii) raw materials necessary to operate the SSF and produce boric acid ($0.2 million), and (iii) maintenance, upkeep and other costs incurred for the operation of the SSF ($0.1 million). There were no
25
comparable expenses for the same period in the prior year as the SSF had not yet been placed into service and such costs were reported as either Project expenses or General and administrative expenses, as appropriate.
For the six months ended December 31, 2024, Small-scale facility operating costs consisted of: (i) salaries and benefits for our employees directly responsible for operating the SSF ($2.0 million), (ii) raw materials necessary to operate the SSF and produce boric acid ($0.4 million), (iii) maintenance, upkeep and other costs incurred for the operation of the SSF ($0.2 million), and (iv) other operating costs ($0.1 million). There were no comparable expenses for the same period in the prior year as the SSF had not yet been placed into service and such costs were reported as either Project expenses or General and administrative expenses, as appropriate.
General and administrative expenses
General and administrative expenses include professional fees, costs associated with marketing, on-going SEC and public company costs, public relations, rent, salaries, share based compensation and other expenses. Prior to April 1, 2024, all salaries and benefits for the entire organization were reported in general and administrative expenses. After April 1, 2024, the date which we began operation of the SSF, salaries and benefits for employees that are directly responsible for the operation of the SSF are reported in Small-scale facility operating costs. For the three months ended December 31, 2024, general and administrative expenses decreased $4.1 million, or 56%, versus the comparable period in the prior fiscal year. The decrease was primarily due to: (i) decreases in professional fees, primarily as a result of incurring incremental legal fees in the prior year leading up to the prior-year out-of-court restructuring transaction ($2.4 million), (ii) a reduction of incentive compensation related costs, inclusive of share based compensation expense ($0.8 million), (iii) a reduction in base compensation and employee benefits, resulting from the combined impact of (a) salaries and benefits for personnel responsible for the operation of the SSF now reported as Small-scale facility operating costs, and (b) a reduction in head count across the organization (for a combined impact of $0.8 million), and (iv) a reduction in marketing related costs ($0.1 million).
For the six months ended December 31, 2024, general and administrative expenses decreased $5.4 million, or 40%, versus the comparable period in the prior fiscal year. The decrease was primarily due to: (i) decreases in professional fees, primarily as a result of incurring incremental legal fees in the prior year leading up to the prior-year out-of-court restructuring transaction ($2.8 million), (ii) a reduction in base compensation and employee benefits, resulting from the combined impact of (a) salaries and benefits for personnel responsible for the operation of the SSF now reported as Small-scale facility operating costs, and (b) a reduction in head count across the organization (for a combined impact of $1.8 million), (iii) a reduction of incentive compensation related costs, inclusive of share based compensation expense ($0.4 million), (iv) a reduction in marketing related costs ($0.3 million), and (v) other miscellaneous cost cutting measures across the organization ($0.1 million).
Research and development
Research and development expense includes costs incurred under research agreements with Georgetown University and Boston College that aim to enhance the performance of permanent magnets through increased use of boron. Both engagements were completed during the second fiscal quarter of 2024. Therefore, we incurred no research and development costs in the three and six months ended December 31, 2024.
Depreciation and amortization expense
Depreciation and amortization relates to use of our SSF, injection and recovery wells, owned or leased vehicles, buildings and equipment and the accretion of our asset retirement obligations. For the three months ended December 31, 2024, depreciation and amortization expense increased $4.9 million versus the comparable period in the prior year. For the six months ended December 31, 2024, depreciation and amortization expense increased $9.9 million versus the comparable period in the prior year. These increases were primarily due to placing the SSF and its related injection and recovery wells, facilities, and equipment into service as of April 1, 2024, corresponding with the commencement of operations.
Interest income
Interest income is derived from the investment of our excess cash and cash equivalents in short-term (original maturities of three months or less) investments of highly liquid treasury bills and certificates of deposit. For the three months ended December 31, 2024, interest income increased $15 thousand, or 150%, versus the comparable period in the prior fiscal year. For the six months ended December 31, 2024, interest income decreased $94 thousand, or 66%, versus the comparable period in the prior fiscal year. Such increase and decrease correspond to an increase and decrease, respectively, in our average cash and cash equivalent balances between the periods.
Other income
Other income is derived from the third-party use of our hydrology wells, the sale of scrap and other materials, and other non-operating income. For the three months ended December 31, 2024, other income increased $4 thousand versus the comparable period in the prior fiscal year. For the six months ended December 31, 2024, other income increased $1 thousand, or 33%, versus the comparable
26
period in the prior fiscal year. The increases primarily relate to other non-operating income compared to the same periods in the prior year.
Derivative gain
Derivative gain (loss) results from changes in the fair value of the embedded conversion features relating to degressive issuance provisions originally contained in the May 2024 Amended and Restated Note Purchase Agreement, and subsequently incorporated into and continued under the September 2024 Amended and Restated Note Purchase Agreement. As a result, these conversion features were deemed to be embedded derivatives requiring bifurcation and separate accounting as stand-alone derivative instruments (the “June 2024 Convertible Note Derivative” and “September 2024 Convertible Note Derivative”) (as discussed within Note 7 -Debt and Note 8- Convertible Note Derivatives to the unaudited condensed consolidated financial statements).
The unrealized derivative gain (loss) during the three months ended December 31, 2024, was primarily due to an increase in our stock price during the period, which resulted in losses on the June 2024 Convertible Note Derivative and September 2024 Convertible Note Derivative. Our stock price on September 30, 2024 (the last trading day of our prior fiscal quarter) and December 31, 2024 (the end of the current fiscal quarter) was $0.54 and $0.64, respectively. The observed increase in our stock price resulted in increases in the value of the embedded conversion feature liabilities and resulted in aggregate derivative losses of $0.8 million. There were no comparable embedded conversion features requiring bifurcation and separate accounting in the comparative period in the prior fiscal year and therefore there was no related Derivative gain (loss).
The unrealized derivative gain of $1.4 million during the six months ended December 31, 2024, was primarily due to a decrease in our stock price during the period, which resulted in a gain on the June 2024 Convertible Note Derivative. Our stock price on June 28, 2024 (the last trading day prior to the end of our prior fiscal year) and December 31, 2024 (the end of the current fiscal quarter) was $1.21 and $0.64, respectively. The observed decline in our stock price resulted in a decline in the value of the embedded conversion feature liability and a resulting derivative gain of $2.2 million. This derivative gain was offset, to a lesser extent, by a loss with respect to the September 2024 Convertible Note Derivative during the same period. The unrealized derivative loss was primarily due to an increase in our stock price from $0.50 on September 16, 2024 (the issuance date of the September 2024 Notes) to $0.64 on December 31, 2024 (the end of the current fiscal quarter), resulting in an increase in the value of the embedded conversion feature liability during such period and a resulting derivative loss of $0.9 million. There were no comparable embedded conversion features requiring bifurcation and separate accounting in the comparative period in the prior fiscal year and therefore there was no related Derivative gain (loss). On December 31, 2024, the conversion features associated with the June 2024 Notes and September 2024 Notes that resulted in separate accounting expired and the remaining aggregate fair value of such derivatives of $3.6 million was transferred to additional paid-in capital.
Interest expense
Interest expense primarily relates to interest expense incurred on the Convertible Notes and is net of amounts capitalized to construction-in-progress. Prior to the execution of an amended and restated note purchase agreement on January 18, 2024 (the “January 2024 Amended and Restated Note Purchase Agreement”), the August 2022 Notes accrued interest at a rate of 6% when interest was paid-in-kind through the issuance of additional notes. Subsequent to the January 2024 Amended and Restated Note Purchase Agreement and continuing under the September 2024 Amended and Restated Note Purchase Agreement, the August 2022 Notes accrue interest at a rate of 10% when interest is paid-in-kind through the issuance of additional notes, with such rate also applying to the June 2024 Notes and September 2024 Notes. We also recognize interest expense for the amortization of debt issuance costs and the amortization of debt discounts on the Convertible Notes. As part of the modification of the terms of our debt associated with the January 2024 Amended and Restated Note Purchase Agreement, the modified debt was recognized at fair value on our balance sheet which eliminated the prior debt discount and prior debt issuance costs that were amortized to interest expense.
For the three months ended December 31, 2024, interest expense increased $691 thousand, or 40%, versus the comparable period in the prior fiscal year. This increase was primarily due to the combined effect of interest accruing (i) at 10% under the terms of our January 2024 Amended and Restated Note Purchase Agreement compared to 6% under our prior agreement in the prior period, (ii) on a $12.0 million aggregate increase in the principal balance of Convertible Notes resulting from the issuance of the June 2024 Notes and September 2024 Notes, and (iii) on $2.1 million and $3.4 million of interest that was paid-in-kind during February of 2024 and August of 2024, respectively (for a combined impact of $1.1 million increase in interest expense). Interest expense also increased as a result of capitalizing less interest expense to construction-in-progress between periods as a result of the SSF being placed into service on April 1, 2024 and therefore no longer eligible for interest capitalization (an impact of $0.6 million increase in interest expense). These increases were partially offset by the effects of a reduction in the amount of debt discount amortization primarily resulting from the write-off of the remaining unamortized debt discount (established August 26, 2022) and corresponding elimination of the amortization of such amount in connection with the accounting for the January 2024 Amended and Restated Note Purchase Agreement ($1.0 million reduction in interest expense).
For the six months ended December 31, 2024, interest expense increased $1.1 million, or 30%, versus the comparable period in the prior fiscal year. This increase was primarily due to the combined effect of interest accruing (i) at 10% under the terms of our January
27
2024 Amended and Restated Note Purchase Agreement compared to 6% under our prior agreement in the prior period, (ii) on a $12.0 million aggregate increase in the principal balance of Convertible Notes resulting from the issuance of the June 2024 Notes and September 2024 Notes, and (iii) on $2.1 million and $3.4 million of interest that was paid-in-kind during February of 2024 and August of 2024, respectively (for a combined impact of $2.0 million increase in interest expense). Interest expense also increased as a result of capitalizing less interest expense to construction-in-progress between periods as a result of the SSF being placed into service on April 1, 2024 and therefore no longer eligible for interest capitalization (an impact of $1.2 million increase in interest expense). These increases were partially offset by the effects of a reduction in the amount of debt discount amortization primarily resulting from the write-off of the remaining unamortized debt discount (established August 26, 2022) and corresponding elimination of the amortization of such amount in connection with the accounting for the January 2024 Amended and Restated Note Purchase Agreement ($2.1 million reduction in interest expense).
Liquidity and Capital Resources
Overview
As of December 31, 2024, we had cash and cash equivalents of $0.8 million and a working capital deficit of $8.0 million compared to $4.9 million of cash and cash equivalents and a working capital deficit of $2.9 million as of June 30, 2024. Our predominant source of cash has been generated through equity financing from issuances of our common stock and equity-linked securities, including our Convertible Notes. Since inception, we have not generated revenues, and as such, have relied on equity financing and equity-linked instruments to fund our operating and investing activities. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions may exceed insured limits. Market conditions can impact the viability of these institutions.
A summary of our cash flows for the six months ended December 31, 2024 and 2023 follows.
|
|
|
For the six months ended December 31, |
|
|
Variance |
|
||||||||||
|
|
|
2024 |
|
|
2023 |
|
|
$ |
|
|
% |
|
||||
|
|
|
($ in thousands) |
|
|
|
|
||||||||||
|
Net cash used in operating activities |
|
$ |
(11,677 |
) |
|
$ |
(14,772 |
) |
|
$ |
3,095 |
|
|
|
-21 |
% |
|
Net cash used in investing activities |
|
|
(781 |
) |
|
|
(3,486 |
) |
|
|
2,705 |
|
|
|
-78 |
% |
|
Net cash provided by financing activities |
|
|
8,386 |
|
|
|
(20 |
) |
|
|
8,406 |
|
|
* |
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(4,072 |
) |
|
$ |
(18,278 |
) |
|
$ |
14,206 |
|
|
|
-78 |
% |
* Represents a percentage change greater than +/- 300%
Cash Flows Used For Operating Activities
Net cash used in operating activities for each of the above periods was primarily the result of general and administrative costs (exclusive of share based compensation), costs incurred in furthering the Project, preparing us for the operation of the SSF, and operating costs of the SSF. During the six months ended December 31, 2024, we used $11.7 million of cash for operating activities, a decrease of approximately $3.1 million or 21% compared to the comparable period in the prior fiscal year. The decrease in cash used in operations during the current period primarily results from the combined decrease in General and administrative and Small-scale facility operating costs, net of non-cash share based compensation expense (refer to the discussion of year-over-year changes in Project expenses and General and administrative expenses above for additional details).
Cash Flows Used For Investing Activities
Our cash flows used for investing activities primarily relate to equipment purchases, engineering, the construction and commissioning of our SSF, and FEL-2 engineering related to our commercial-scale facility. During the six months ended December 31, 2024, we used $0.8 million of cash for investing activities, a decrease of approximately $2.7 million, or 78%, compared to the comparable period in the prior fiscal year. Net cash used in investing activities during the six months ended December 31, 2024 related to engineering services for FEL-2 engineering of our commercial-scale facility. Net cash used in investing activities during the six months ended December 31, 2023 primarily related to final construction and commissioning of our SSF.
Cash Flows From Financing Activities
Our cash flows from financing activities primarily relate to equity and equity-linked financing transactions to fund our business and operations. Cash flows provided by financing activities for the six months ended December 31, 2024 were the result of (i) approximately $3.0 million of net proceeds received from the August 2024 Equity Offering, after recognition of the related costs and fees, (ii) approximately $5.5 million of proceeds received from the issuance of September 2024 Notes, after recognition of the related costs and fees, and (iii) approximately $0.1 million of taxes withheld and paid upon the vesting and release of shares for equity
28
awards. Cash flows used in financing activities during the comparable prior fiscal year were the result of payments on the Company’s vehicle loans.
January 2025 Notes Offering
Refer to the discussion above under the caption Recent Developments – January 2025 Notes for a description of the notes offering completed during January 2025.
Convertible Notes Summary
As of December 31, 2024, we had an aggregate principal amount of Convertible Notes of approximately $81.1 million outstanding. The Convertible Notes are convertible into shares of the Company’s Common Stock, are secured by substantially all of the Company’s assets and mature on August 15, 2028, as further described below. Additional details related to the Convertible Notes can be found in Note 7– Debt to the unaudited condensed consolidated financial statements.
The August 2022 Notes are convertible into 66,261,623 shares of Common Stock (including principal and accrued interest paid-in-kind until maturity) and may be convertible into a maximum of an additional 33,130,816 Additional Shares upon the occurrence of a Make-Whole Fundamental Change.
The June 2024 Notes are convertible into 6,252,367 shares of Common Stock (including principal and accrued interest paid-in-kind until maturity) and may be convertible into a maximum of an additional 3,126,184 Additional Shares upon the occurrence of a Make-Whole Fundamental Change.
The September 2024 Notes are convertible into 9,380,671 shares of Common Stock (including principal and accrued interest paid-in-kind until maturity) and may be convertible into a maximum of an additional 3,908,615 Additional Shares upon the occurrence of a Make-Whole Fundamental Change.
The January 2025 Notes are convertible into 24,317,039 shares of Common Stock (including principal and accrued interest paid-in-kind until maturity) and may be convertible into a maximum of an additional 10,113,955 Additional Shares upon the occurrence of a Make-Whole Fundamental Change.
If the Out-of-Court Restructuring transaction is consummated (refer to Recent Developments – Restructuring Support Agreement and Related Agreements above), the Convertible Notes, including accrued interest thereon, will be exchanged for 312,490,076 shares of our Common Stock, and all related rights and obligations (other than with respect to expense and reimbursement or indemnification obligations under the Amended and Restated Note Purchase Agreement, or obligations that expressly survive the termination of the Amended and Restated Note Purchase Agreement) will be extinguished.
Restructuring Support Agreement and Related Agreements
Refer to the discussion above under the caption Recent Developments – Restructuring Support Agreement and Related Agreements for a description of the restructuring support agreement we entered into during January 2025, and the potential related impacts of such agreements.
Equity Offerings
On August 27, 2024, we completed the August 2024 Equity Offering of (i) 5,333,333 Shares of Common Stock, (ii) Series A Warrants to purchase up to an aggregate of up to 5,333,333 shares of Common Stock, and (iii) Series B Warrants to purchase an aggregate of 5,333,333 shares of Common Stock. The Shares and Warrants were offered and sold on a combined basis for consideration equating to $0.75 for one Share and two Warrants.
The Series A Warrants and the Series B Warrants are initially exercisable on February 27, 2025. The Series A Warrants will expire on February 27, 2030 and the Series B Warrants will expire on February 27, 2027. The Warrants contain standard adjustments to the exercise price including for stock splits, stock dividends, rights offerings and pro rata distributions. The Warrants also include certain rights upon the occurrence of a “fundamental transaction” (as described in the Warrants), including the right of the holder thereof to receive from the Company or a successor entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the holders of Common Stock in such fundamental transaction in the amount of the Black Scholes value (as described in the Warrants) of the unexercised portion of the Warrant on the date of the consummation of such fundamental transaction. The Warrants include cashless exercise rights to the extent the resale of the shares of Common Stock underlying the Warrants are not registered under the Securities Act.
2024 Equity Distribution Agreement
On March 28, 2024, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Canaccord Genuity LLC and D.A. Davidson Co. (the “Agents”) pursuant to which we may offer and sell up to $15.0 million of shares of our Common
29
Stock from time to time through the Agents, acting as our sales agents, or directly to one or more of the Agents, acting as principal (the “ATM Program”).
Neither of the Agents is required to sell any specific number or dollar amount of shares of our Common Stock, but each has agreed, subject to the terms and conditions of the Equity Distribution Agreement, to use its commercially reasonable efforts, consistent with its normal trading and sales practices, to sell the shares of Common Stock on the terms agreed upon by such Agent and the Company.
We did not sell any shares of common stock nor receive any proceeds under the Equity Distribution Agreement during the six months ended December 31, 2024. As a result of the August 2024 Equity Offering, we are precluded from utilizing the ATM program until after August 27, 2025.
Material Cash Requirements
Our material short-term cash requirements include general and administrative expenses including recurring payroll and benefit obligations for our employees, costs necessary to further the engineering of our proposed commercial-scale complex, operating costs for the SSF, project related costs, payments under certain lease agreements and working capital needs. Our long-term material cash requirements from currently known obligations include repayment of outstanding borrowings and interest payment obligations under our Convertible Notes (which may be avoided to the extent the Convertible Notes are converted to shares of our Common Stock and/or interest is paid-in-kind) and future obligations to reclaim, remediate, or otherwise restore properties to a condition that existed prior to our operations. Refer to the “Construction in Progress,” “Asset Retirement Obligations,” “Accounts Payable and Accrued Liabilities,” “Long-term Debt” and “Commitments and Contingencies” footnotes in the unaudited condensed consolidated financial statements for more information on certain of these expenditures and obligations.
Contractual Commitments and Contingencies
Purchase Obligations
As of December 31, 2024, we had purchase order commitments of approximately $2.4 million primarily for raw materials for the operation of the SSF, engineering services for our proposed commercial-scale facility, drilling services related to wellfield development, testing and analytical services, and other services.
Future Capital Requirements
Over the next 12 months we have the following plans that will require additional capital:
Although the August 2024 Equity Offering, issuance of the September 2024 Notes and issuance of the January 2025 Notes each discussed above, improved our cash position, and we continue to operate under a business plan that includes reductions in certain spending, we will need additional financing within the next twelve months in order to continue as a going concern and, as long as the Convertible Notes remain outstanding, maintain a cash balance in excess of the $7.5 million minimum cash covenant contained in the Amended and Restated Note Purchase Agreement, which goes into effect March 31, 2025. Although the proposed Out-of-Court Restructuring (refer to the discussion above under the caption Recent Developments – Restructuring Support Agreement and Related Agreements ) may provide additional capital to us through the equity that would be issued upon consummation of the transaction, and potential proceeds that may be received by us if the Restructuring Warrants are subsequently exercised, the transaction remains subject to the satisfaction of customary conditions, including approval by the Company’s stockholders, which there can be no guarantee will occur. Absent additional financing as outlined above, we may no longer be able to meet our ongoing obligations, continue operations or achieve the milestones outlined above. If the Out-of-Court Restructuring is not consummated, and we are not able to secure additional financing and our cash balance falls below $7.5 million after March 31, 2025, an event of default under the Amended and Restated Note Purchase Agreement would occur if not cured after 30 days. An event of default would give the holders
30
of the Convertible Notes the right to cause our Convertible Notes balance outstanding to become immediately due and payable, for which we would not have the resources to repay without additional financing.
We intend to explore different potential financing strategies to help support the growth of our business and execution of our business plan, including equity or debt financing, government funding or grants, private capital, royalty agreements or customer prepayments, or other strategic alliances with third parties. However, there is no assurance that we will be able to secure additional financing on adequate terms, in a timely manner, or at all.
The receipt of any potential funding cannot be considered probable at this time because these plans are not entirely within our control as of the date of the unaudited condensed consolidated financial statements. Therefore, there exists substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q are issued. Even if additional financing is successfully consummated, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding our ability to continue as a going concern. Refer to the “Going Concern” discussion within Note 1- Basis of Financial Statement Presentation of the unaudited condensed consolidated financial statements for more information.
Critical Accounting Policies
A complete discussion of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. There have been no significant changes in our critical accounting policies during the six months ended December 31, 2024.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”). ASU 2023-07 is intended to enhance reportable segment disclosure requirements, including significant segment expenses and interim disclosures. The guidance allows for disclosure of multiple measures of a segment’s profit or loss, and it requires that public entities with a single reportable segment provide all disclosures required by ASU 2023-07 and all existing disclosures required by the existing segment disclosure guidance. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments are to be applied retrospectively, and early adoption is permitted. We are evaluating the impact that ASU 2023-07 will have on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve income tax disclosures primarily through enhanced disclosure of income tax rate reconciliation items, and disaggregation of income (loss) from continuing operations, income tax expense (benefit) and income taxes paid, net disclosures by federal, state, and foreign jurisdictions, among others. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, and early adoption is permitted. We are evaluating the impact that ASU 2023-09 will have on our consolidated financial statements and our plan for adoption, including the adoption date and transition method.
In November 2024, the FASB issued ASU 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation of certain expenses in the notes of the financials, to provide enhanced transparency into the expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027 and may be applied either prospectively or retrospectively. We are evaluating the impact that ASU 2024-03 will have on our related disclosures, including the adoption date and transition method.
In November 2024, the FASB issued ASU 2024-04, Debt–Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversion of Convertible Debt Instruments (“ASU 2024-04”), which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06, which includes the Company. Adoption can be on a prospective or retrospective basis. We adopted ASU 2024-04 effective January 1, 2025 on a prospective basis.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 3.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, 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. In addition,
31
the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management evaluated, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2024. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2024 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in the evaluation for the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
32
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Except as disclosed in Note 13– Commitments and Contingencies in the unaudited condensed consolidated financial statements of this Quarterly Report on Form 10-Q, as of the date of this filing, we are not a party to any material pending legal proceedings, nor are we aware of any material civil proceeding or government authority contemplating any legal proceeding, and to our knowledge, no such proceedings by or against us have been threatened. We anticipate that we and our subsidiaries may from time to time become subject to various claims, legal proceedings, governmental inspections, audits, or investigations arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings, and we cannot assure that their ultimate disposition will not have a material adverse effect on our business, financial condition, cash flows or results of operations.
Item 1A. Risk Factors.
Except as described below, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A., “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. You should carefully consider the factors discussed in Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, which could materially affect our business, financial condition, and future results. Additional risk and uncertainties not currently known to us may also materially adversely affect our business, financial condition, cash flows or results of operations.
We are party to a restructuring support agreement that contemplates certain restructuring and recapitalization transactions involving our outstanding convertible notes. The consummation of these transactions is subject to various closing conditions, including approval by our stockholders, and would result in substantial dilution to our existing stockholders and in a significant amount of our Common Stock being held by Ascend and Bluescape. If these transactions are not consummated, we expect to undertake a restructuring by voluntarily filing cases under chapter 11 of title of the United States Code, which, among other things, would result in the extinguishment of all of our equity interests.
As previously disclosed, on January 14, 2025, we entered into a restructuring support agreement (the “Restructuring Support Agreement”) with BEP Special Situations IV LLC (“Bluescape”), Meridian Investments Corporation (“Meridian”) and Ascend Global Investment Fund SPC, for and on behalf of Strategic SP (together with Meridian, “Ascend”) relating to certain restructuring and recapitalization transactions with respect to our capital structure (collectively the “Transaction”), including our outstanding Convertible Notes.
Pursuant to the Restructuring Support Agreement, the parties agreed to implement the Transaction either as an:
33
If the out-of-court restructuring is consummated, our stockholders will experience substantial dilution. Based on share information as of February 12, 2025, 2025 and assuming the Subscription Price is $0.2920 per share, Ascend and Bluescape would hold more than 80% of our outstanding Common Stock immediately after the Transaction, in addition to approximately 68.5 million shares they may acquire upon exercise of the Warrants. Our current stockholders would hold less than 20% of our Common Stock immediately after the Transaction. If Ascend and Bluescape were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these parties, if they choose to act together, could control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may delay, defer or prevent a change in control, entrench our management or the board of directors, or impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
These parties may have interests that are different than those of other stockholders. Additionally, Ascend and Bluescape will each have the right to designate two directors to serve on our Board immediately following the Transaction.
The consummation of the of-court restructuring is subject to various closing conditions, including approval by our stockholders. If the out-of-court restructuring is not consummated, then we will commence Chapter 11 Cases as contemplated by the Restructuring Support Agreement and seek approval to implement the Pre-Packaged Chapter 11 Plan. Under such plan, the equity interests of our stockholders would be extinguished in their entirety.
As long as the Convertible Notes remain outstanding, there are risks associated with the Convertible Notes that could adversely affect our business and financial condition.
We initially issued $60.0 million aggregate principal amount of our Convertible Notes in August 2022 pursuant to a note purchase agreement, which was subsequently amended and restated in January 2024 and then further amended and restated on May 28, 2024 (the “Amendment No. 2” and, as further, the “Amended and Restated Note Purchase Agreement”) in connection with the issuance and sale of the June 2024 Notes in an aggregate principal amount of $6.0 million pursuant to the Amended and Restated Note Purchase Agreement.
On September 16, 2024, we entered into Amendment No. 3 to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the June 2024 Notes, the September 2024 Notes in an aggregate principal amount of $6.0 million to Ascend and Bluescape.
On January 14, 2025, the Company entered into Amendment No. 4 to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell the new January 2025 Notes in substantially the same form and under the same terms as the September 2024 Notes, in an aggregate principal amount of $5.0 million to Ascend and Bluescape, and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement, which included an extension from December 31, 2024 to March 31, 2025 for date by which the Company must comply with a financial covenant for the Company to maintain a cash balance of at least $7.5 million.
The Convertible Notes bear interest at a rate of 4.50% per annum, payable semi-annually, or 10.00% per annum if we elect to pay such interest in kind through the delivery of additional Convertible Notes. The Convertible Notes are secured by substantially all of the Company’s assets and mature on August 15, 2028. The Convertible Notes are convertible into our Common Stock at a conversion rate of 650.4065 shares of Common Stock per $1,000 principal amount of Convertible Notes (the “Conversion Rate”), representing a conversion price of approximately $1.5375 per share. The June 2024 Notes are convertible into the Company’s Common Stock based upon a Conversion Rate of 692.7990 shares of Common Stock per $1,000 principal amount of June 2024 Notes, representing a conversion price of approximately $1.4434 per share. The September 2024 Notes are convertible into the Company’s Common Stock based upon a Conversion Rate of 1,066.6667 shares of Common Stock per $1,000 principal amount of September 2024 Notes, representing a conversion price of approximately $0.9375 per share. The January 2025 Notes are convertible into the Company’s Common Stock based upon a Conversion Rate of 3,424.9375 shares of Common Stock per $1,000 principal amount of January 2025 Notes, representing a conversion price of approximately $0.2920 per share. The Convertible Notes are convertible into up to an aggregate of 106,211,700 shares of our Common Stock, including accrued interest paid-in-kind through maturity, provided, however, that no shares of Common Stock will be issuable upon conversion of the January 2025 Notes that would require approval of the Company’s stockholders under the applicable listing rules of The Nasdaq Stock Market LLC (“Nasdaq”), prior to such approval being obtained.
The Amended and Restated Note Purchase Agreement provides for certain adjustments to the Conversion Rate to increase the number of shares of Common Stock issuable upon conversion (the “Additional Shares”) following certain corporate events that may occur
34
prior to the maturity date of the Convertible Notes, including a change of control transaction, liquidation of our company or any failure of our Common Stock to be listed on Nasdaq or any other eligible exchange (a “Make-Whole Fundamental Change”). Upon the occurrence of a Make-Whole Fundamental Change, the Conversion Rate will be increased by up to 325.2033, 346.3996, 444.4445 and 1,424.5016 Additional Shares per $1,000 principal amount of August 2022 Notes, June 2024 Notes, September 2024 Notes and January 2025 Notes, respectively, based on the timing of the Make-Whole Fundamental Change and the trading price of the Common Stock at such time or the cash received by holders of the Common Stock in connection with such Make-Whole Fundamental Change, as applicable, as further described in the Amended and Restated Note Purchase Agreement (the “Make-Whole Adjustment”).
The Amended and Restated Note Purchase Agreement provides for customary events of default, such as our insolvency or failure to make timely payments of principal or interest or to comply with financial or other covenants. The Convertible Notes also contain customary affirmative and negative covenants, including limitations on incurring additional indebtedness or the creation of additional liens on our assets. The Amended and Restated Note Purchase Agreement also contains a minimum cash covenant of $7.5 million, which goes into effect March 31, 2025.
Our ability to remain in compliance with the covenants under the Convertible Notes depends on, among other things, our operating performance, competitive developments, financial market conditions, and stock exchange listing of our Common Stock, all of which are significantly affected by financial, business, economic, and other factors, many of which we are not able to control. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on the convertible notes or meet our other obligations under the Amended and Restated Note Purchase Agreement. Our level of indebtedness under the Amended and Restated Note Purchase Agreement could have other important consequences, including the following:
Exercise of our outstanding Warrants will dilute the ownership interest of our existing stockholders or may otherwise depress the price of our Common Stock.
In August 2024, we issued and sold warrants to purchase an aggregate of 10,666,666 shares of our common stock at an exercise price of $0.7981 per share, including 5,333,333 Series A Warrants and 5,333,333 Series B Warrants, which will be initially exercisable on February 27, 2025. The Series A Warrants will expire on February 27, 2030 and the Series B Warrants will expire on February 27, 2027.
The exercise of some or all of the warrants will dilute the ownership interests of existing stockholders and increase the number of shares of common stock eligible for resale in the public market. Any sales in the public market of the shares of common stock issuable upon such exercise of the warrants, or the anticipation of such exercises and sales, could adversely affect the prevailing market prices of our common stock. Additionally, the existence of the warrants may encourage short selling by market participants because the exercise of the warrants could be used to satisfy short positions, or the anticipated exercise of the warrants for shares of common stock could depress the price of our common stock.
Nasdaq may de-list our securities from its exchange, which could limit investors’ ability to transact in our securities, subject us to additional trading restrictions and substantially increase the number of shares issuable upon conversion of our outstanding convertible notes .
We are required to meet the continued listing requirements of the Nasdaq Global Select Market and if we fail to satisfy such continued listing requirements, Nasdaq may take steps to delist our securities. For example, on September 12, 2024, we received written notice from Nasdaq (the “Bid Price Notice”) notifying us that, for the prior 30 consecutive business days, the bid price for our common stock had closed below the $1.00 minimum bid price requirement for continued listing on the Nasdaq Global Select Market (the “Minimum Bid Price Requirement”). The Bid Price Notice had no immediate effect on the listing of our common stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until March 11, 2025, to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share
35
for a minimum of 10 consecutive business days as required under Nasdaq Listing Rule 5810(c)(3)(A) (unless the Nasdaq staff exercises its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H)) during the 180-day period prior to March 11, 2025).
If we do not regain compliance by March 11, 2025, we may be eligible for an additional 180-calendar day compliance period by transferring the listing of our common stock to the Nasdaq Capital Market and satisfying certain other requirements. If we fail to regain compliance during the compliance period (including a second compliance period provided by a transfer to the Nasdaq Capital Market, if applicable), then Nasdaq will notify us of its determination to delist our common stock, at which point we may appeal Nasdaq’s delisting determination to a Nasdaq hearing panel.
We intend to actively monitor the closing bid price of our common stock and will consider all available options to regain compliance with the minimum bid price requirement, which may include transferring the listing to the Nasdaq Capital Market and/or seeking stockholder approval to effect a reverse stock split. On January 21, 2025, our stockholders approved amendments to the Company’s Amended and Restated Certificate of Incorporation to effect a Reverse Stock Split at a ratio ranging from any whole number between 1-for-10 and 1-for-25, with the exact ratio within such range to be determined by the Company’s Board in its discretion. On February 3, 2025, the Board approved a 1-for-23 Reverse Stock Split, which will become effective upon filing of the amendment to the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. As of the date of this Quarterly Report on Form 10-Q, the Reverse Stock Split had not yet become effective and the Company’s Common Stock had not yet begun to trade on a reverse split-adjusted basis. However, there can be no assurance that the Reverse Stock Split, once implemented, will increase the market price of our common stock in proportion to the reverse split ratio or result in a sustained increase in the market price of our common stock. In addition, it is possible that the reduced number of issued shares of common stock resulting from such a reverse stock split could adversely affect the liquidity of our common stock. There can also be no assurance that we will regain compliance with the Minimum Bid Price Requirement during the 180-day compliance period, secure a second 180-day period to regain compliance, maintain compliance with the other Nasdaq listing requirements, or be successful in appealing any subsequent delisting determination.
Further, on November 20, 2024, we received written notice (the “Stockholders’ Equity Notice”) from Nasdaq notifying the Company that we were not in compliance with the minimum stockholders’ equity requirement set forth in Nasdaq Listing Rule 5450(b)(1)(A), which requires companies listed on the Nasdaq Global Select Market to maintain a minimum of $10,000,000 in stockholders’ equity for continued listing (the “Stockholders’ Equity Rule”). The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2024 reported stockholders’ equity of $2,094,000 as of September 30, 2024. The Stockholders’ Equity Notice had no immediate effect on the listing of our common stock. In accordance with Nasdaq Listing Rule 5810(c)(2)(A), we were provided with 45 calendar days, or until January 6, 2025, to submit a plan to regain compliance (the “Compliance Plan”), which we timely submitted to Nasdaq. On January 10, 2025, Nasdaq accepted our Compliance Plan and granted an extension until May 19, 2025 to evidence compliance with the Stockholders’ Equity Rule. We believe the successful completion of the out-of-court restructuring is critical to regaining compliance with the Stockholders’ Equity Rule. However, there can be no assurance that we will be able to regain compliance with the Stockholders’ Equity Rule though the successful completion of the out-of-court restructuring or through other means by May 19, 2025 or that we will otherwise maintain compliance with any of the other applicable listing requirements. Moreover, there is no assurance that any actions that we take will be successful in restoring our compliance with the Stockholders Equity Rule or the Bid Price Rule will prevent future non-compliance therewith. If we fail to regain compliance with the Stockholders’ Equity Rule, Nasdaq will notify us of its determination to delist our common stock.
If our common stock is delisted from Nasdaq in the future, we expect our securities would be quoted on an over-the-counter market. If this occurs, we could face significant material adverse consequences, including:
Additionally, a delisting of our common stock from Nasdaq would constitute a Make-Whole Fundamental Change under our Amended and Restated Note Purchase Agreement (each as defined below), thereby substantially increasing the number of shares of common stock issuable upon exercise of our outstanding Convertible Notes.
Delisting also could result in, among other things, a loss of investor confidence or interest in strategic transactions or opportunities, us being subject to regulation in each state in which we offer our securities, and difficulty in recruiting and retaining personnel through equity incentive awards.
36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sale of Equity Securities
Except as previously disclosed in Current Reports on Form 8-K, there were no unregistered sales of equity securities during the three months ended December 31, 2024.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable as we do not currently operate any mines subject to the U.S. Federal Mine Safety and Health Act of 1977.
Item 5. Other Information.
(a) Disclosure in lieu of reporting on a Current Report on Form 8-K.
None.
(b) Material changes to the procedures by which security holders may recommend nominees to the board of directors.
None.
(c) Insider Trading Arrangements and Policies.
During the three months ended December 31, 2024
, none of the Company's directors or executive officers (as defined in Rule 16a-1(f) under the Exchange Act)
37
Item 6. Exhibits.
Exhibit Index
The following documents are filed as exhibits hereto:
|
Exhibit
|
Exhibit Title
|
|
3.1 |
|
|
3.2 |
|
|
4.1 |
|
|
4.2 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
10.8* |
|
|
10.9 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS* |
Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
|
101.SCH* |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
|
104* |
Cover page formatted as Inline XBRL and contained in Exhibit 101. |
* Filed herewith.
** Furnished herewith.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
5E Advanced Materials, Inc. |
|
|
|
|
|
|
Date: February 13, 2025 |
By: |
/s/ Paul Weibel |
|
|
|
Paul Weibel |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
Date: February 13, 2025 |
By: |
/s/ Joshua Malm |
|
|
|
Joshua Malm |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
39