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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-10 · 157 added, 122 removed, 136 unchanged (67% of the section changed)

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We are a development stage advanced materials company dedicated to the development of technology and processes that, if successful, will allow for the enrichment of natural isotopes into higher concentration products, which could be used in several industries.

Our proprietary technology, the Aerodynamic Separation Process (“ASP technology”), originally developed by Klydon Proprietary Ltd (“Klydon”), is designed to enable the production of isotopes used in several industries.

Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Molybdenum-100 (“Mo-100”) and Silicon-28 (“Si-28”).

We have commissioned an isotope enrichment plant for the enrichment of C-14 located in Pretoria, South Africa, which will be ready for production upon the final installation of essential components.

We anticipate completion and commissioning of a multi-isotope enrichment plant in Pretoria, South Africa in mid-2024.

In addition, we have started planning additional isotope enrichment plants.

Our proprietary technologies, the Aerodynamic Separation Process (“ASP technology”) and Quantum Enrichment technology (“QE technology”), are designed to enable the production of isotopes used in several industries.

Our initial focus is on the production and commercialization of enriched Carbon-14 (“C-14”), Silicon-28 (“Si-28”) and Ytterbium-176 (“Yb-176”).

We have completed the commissioning phase and are commencing commercial production at our C-14and Si-28 enrichment facilities in Pretoria, South Africa.

We are in the process of commissioning and commencing commercial production at our Yb-176 enrichment facility in Pretoria, South Africa.

Our C-14 and Si-28 enrichment facilities utilize the ASP technology and our Yb-176 enrichment facility utilizes QE technology.

We expect our first three enrichment facilities to generate commercial product during 2025.

In addition, we have started planning additional isotope enrichment plants both in South Africa and in other jurisdictions, including Iceland and the United States.

We believe the C-14 we may produce using the ASP technology could be used in the development of new pharmaceuticals and agrochemicals.

We believe the Mo-100 we may produce using the ASP technology could have significant potential advantages for use in the preparation of nuclear imaging agents by radiopharmacies and others in the medical industry.

We believe the Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing.

In addition, we are considering the future development of the ASP technology for the separation of Zinc-68, Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for possible use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market.

We are also developing Quantum Enrichment technology to produce enriched Ytterbium-176, Nickel-64, Lithium 6, Lithium7 and Uranium-235 (“U-235”).

Quantum enrichment is an advanced isotope enrichment technique that is currently in development that uses lasers.

We believe that the U-235 we may produce using quantum enrichment technology may be commercialized as a nuclear fuel component for use in the new generation of HALEU- fueled small modular reactors that are now under development for commercial and government uses.

We believe the Yb-176 we may produce using the QE technology may be used to create radiotherapeutics that treat various forms of oncology.

We anticipate shipping the first commercial batches of enriched Carbon-14 in mid-2025 and enriched Silicon-28 during the second quarter of 2025.

We expect to commence commercial production of Ytterbium-176 during the second quarter of 2025.

In addition, we are considering the future development of the ASP technology for the separation of Zinc-68 and Xenon-129/136 for potential use in the healthcare end market, Germanium 70/72/74 for potential use in the semiconductor end market, and Chlorine -37 for potential use in the nuclear energy end market.

We are also considering the future development of QE technology for the separation of Nickel-64, Gadolinium-160, Ytterbium-171, Lithium 6 and Lithium7.

We are currently pursuing an initiative to apply our enrichment technologies to the enrichment of Uranium-235 (“U-235”) in South Africa.

We believe that the U-235 we may produce using quantum enrichment technology may be commercialized as a nuclear fuel component for use in the new generation of high-assay low-enriched uranium (HALEU)-fueled small modular reactors that are now under development for commercial and government uses.

In furtherance of our uranium enrichment initiative, in October 2024, we entered into a term sheet with TerraPower, LLC which contemplates the parties entering into definitive agreements pursuant to which TerraPower would provide funding for the construction of a HALEU production facility and agree to purchase all HALEU produced at the facility over a 10-year period after the planned completion of the facility in 2027.

In addition, in November 2024, we entered into a memorandum of understanding with The South African Nuclear Energy Corporation (Necsa), a South African state-owned company responsible for undertaking and promoting research and development in the field of nuclear energy and radiation sciences, to collaborate on the research, development and ultimately the commercial production of advanced nuclear fuels.

Subject to the receipt of funding and all required permits and licenses to begin enrichment of U-235 in South Africa, it is anticipated that the research, development and ultimate construction of a HALEU production facility will take place at South Africa’s main nuclear research center at Pelindaba in Pretoria.

Our Subsidiaries

We operate principally through our subsidiaries.

ASP Isotopes Guernsey Limited (the holding company for subsidiaries in the Cayman Islands, South Africa, Iceland and the United Kingdom) is focused on the development and commercialization of high-value, low-volume isotopes for highly specialized end markets (such as C-14, Mo-100, and Si-28).

ASP Isotopes UK Ltd is the owner of our technology.

In September 2023, we formed Quantum Leap Energy LLC, or “QLE,” which also has subsidiaries in the United Kingdom (Quantum Leap Energy Limited) and South Africa (Quantum Leap Energy (Pty) Limited), to focus on the development and commercialization of advanced nuclear fuels such as HALEU and Lithium-6.

Although no assurance can be given, we plan to spin-out QLE as a separate public company and list the shares of QLE on a U.S.

national exchange and distribute a portion of QLE’s common equity to ASPI’s stockholders as of a to-be-determined future record date, in each case subject to obtaining applicable approvals and consents and complying with applicable rules and regulations and public market trading and listing requirements.

The regulatory landscape and supply chain for nuclear fuel production differs

significantly from that of medical isotopes, hence we and QLE have different business models and we believe that both companies would benefit if QLE is independently managed and financed.

In connection with the anticipated spin-out, in February 2024, we entered into a number of agreements with QLE, including a License Agreement, pursuant to which QLE has licensed from us the rights to technologies and methods used to separate Uranium 235 and Lithium 6 (including but not limited to the quantum enrichment and ASP technologies) in exchange for a perpetual royalty in the amount of 10% of all future QLE revenues, and an EPC Services Framework Agreement, pursuant to which we will provide services for the engineering, procurement and construction of one or more turnkey Uranium-235 and Lithium-6 enrichment facilities in locations to be identified by QLE and owned or leased by QLE, and commissioning, start-up and test services for each such facility, subject to the receipt of all applicable regulatory approvals, permits, licenses, authorizations, registrations, certificates, consents, orders, variances and similar rights.

In addition, in February 2024, we assigned to QLE certain existing memoranda of understanding with U.S.-based small modular reactor companies for the use of Quantum Enrichment for the production of High-Assay Low Enriched Uranium (HALEU).

The MOUs provide for substantial financial support for the development of HALEU production facilities that should be capable of supplying metric ton quantities of HALEU by 2027.

We have a 51% ownership stake in PET Labs Pharmaceuticals Proprietary Limited (PET Labs), a South African radiopharmaceutical operations company focused on the production of fluorinated radioisotopes and active pharmaceutical ingredients, through which we entered the downstream medical isotope production and distribution market.

Under the terms of the Share Purchase Agreement pursuant to which we acquired the shares in PET Labs, we agreed to pay a total of $2,000,000 for the shares in two installments.

The first installment of $500,000 was paid in November 2023.

In January 2024, we paid $264,750 towards the balance due.

The remaining balance of $1,235,250 is due upon demand any time after October 31, 2024, and is expected to be paid in 2025.

Beginning in 2024, primarily as a result of the increased business activities of QLE, we have two operating segments:

(i) nuclear fuels, and (ii) specialist isotopes and related services.

On November 15, 2022, we completed an IPO of our common stock and issued and sold 1,250,000 shares of common stock at a public offering price of $4.00 per share, resulting in net proceeds of $3.8 million after deducting underwriting discounts and commissions and offering expenses.

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We incurred $506,390 in cash issuance costs and issued warrants to purchase up to an aggregate of 221,519 shares of common stock with an exercise price of $1.975 per share to the placement agent with an initial fair value of $179,116.

In October 2023, the Company entered into Securities Purchase Agreements with certain institutional and other accredited investors and certain directors of the Company to issue and sell an aggregate of 9,952,510 shares of the Company’s common stock, for aggregate cash consideration of $9,129,461, as follows:

In October 2023, we entered into Securities Purchase Agreements with certain institutional and other accredited investors and certain directors of ours to issue and sell an aggregate of 9,952,510 shares of our common stock, for aggregate cash consideration of $9,129,495, as follows:

(i) 8,459,093 shares to investors at a purchase price per share of $0.9105, (ii) 1,190,239 shares to investors at a purchase price per share of $0.9548, and (iii) 303,178 shares to directors at a purchase price per share of $0.96.

The Company incurred issuance costs equivalent to 5% of the gross proceeds from new investors which was settled in stock through the issuance of 472,582 shares to the placement agent and additional cash issuance costs totaling $57,083.

Acquisition of 51% of PET Labs Pharmaceuticals

In October 2023, the Company entered into a Share Purchase Agreement with Nucleonics Imaging Proprietary Limited, a company incorporated in South Africa, to purchase 51% of the ordinary shares in Nucleonics’ wholly-owned subsidiary, Pet Labs Pharmaceuticals Proprietary Limited, a company incorporated in South Africa and dedicated to nuclear medicine and the science of radiopharmaceutical production.

Per the Share Purchase Agreement, the Company has agreed to pay a total of $2,000,000 for the shares in two installments.

The first installment of $500,000 was paid in November 2023.

The remaining balance of $1,500,000 is due upon demand any time after October 31, 2024 and is expected to be paid in November 2024.

In March 2024, the Company’s wholly owned subsidiary Quantum Leap Energy received gross proceeds of $20,550,000 through the issuance of Convertible Promissory Notes with a stated interest rate of 6% for the first year and 8% thereafter.

We incurred issuance costs equivalent to 5% of the gross proceeds from new investors which was settled in stock through the issuance of 472,582 shares to the placement agent and additional cash issuance costs totaling $57,083.

In March 2024, our wholly owned subsidiary Quantum Leap Energy received gross proceeds of $20,550,000 through the issuance of Convertible Promissory Notes.

These convertible notes have a stated interest rate of 6% for the first year and 8% thereafter.

The maturity date of these convertible promissory notes is March 7, 2029.

These convertible promissory notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap.

In June 2024, our wholly owned subsidiary Quantum Leap Energy received gross proceeds of $5,386,228 through this issuance of additional Convertible Promissory Notes with a stated interest rate of 6% for the first year and 8% thereafter.

One of the notes totaling $108,167 was issued to the placement agent in lieu of cash issuance costs.

The maturity date of the Convertible Promissory Notes is March 7, 2029.

The Convertible Promissory Notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualifying public transaction at 80% of the share price taking into consideration a valuation cap.

In April 2024, the Company received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants.

Acquisition of Assets and Agreements with Klydon

To date, we have purchased certain assets of Molybdos Proprietary Limited, a South Africa company (Molybdos), and entered into a number of agreements with Klydon (Pty) Limited, a South Africa company (Klydon).

Below is a summary of the key terms for our former licenses and other agreements with Klydon.

Acquisition of Molybdos Assets.

On September 30, 2021, our subsidiary, ASP Isotopes South Africa (Proprietary) Limited (“ASP South Africa”), participated in and was declared the winner of a competitive auction process under Section 45 of the South Africa Consumer Protection Act, 2008 related to the sale and assignment of the assets of Molybdos (the “Molybdos Business Rescue Auction”).

On October 12, 2021, ASP South Africa acquired the assets of Molybdos for ZAR 11,000,000 (which at the then current exchange rate was approximately $734,000), plus value added tax (VAT) levied by the government of South Africa at the rate of 15% and auctioneers’ commission at the rate of 10%.

Acquisition of Silicon-28 Plant Assets.

On July 26, 2022, we acquired assets comprising a dormant Silicon-28 aerodynamic separation processing plant from Klydon for ZAR 6,000,000 (which at the then current exchange rate was approximately $364,000), which will be payable to Klydon on the later of 180 days of the acquisition and the date on which the assets generate any revenues of any nature.

Exclusive Mo-100 License (superseded and replaced by new license (see “Omnibus Klydon License” below)).

On September 30, 2021, ASP South Africa, as licensee, entered into a license with Klydon, as licensor, pursuant to which ASP South Africa acquired from Klydon an exclusive license to use, subcontract and sublicense certain intellectual property rights relating to the ASP technology for the development and/or otherwise disposing of the ASP technology and production, distribution, marketing and or sale of Mo-100 isotope produced using the ASP technology (as amended on June 8, 2022, the “Mo-100 license”).

The intellectual property rights granted to us through the Mo-100 license included all existing and/or future proprietary rights of Klydon relating to the ASP technology, whether or not such rights have been registered, including the copyright, designs, know-how, patents and trademarks (although Klydon currently has no such patents, patent applications or copyrights).

The exclusive Mo-100 license was royalty-free, had a term of 999 years and was for the global development of the ASP Technology and production of the Mo-100 Isotope and global for the distribution, marketing and sale of the Mo-100 Isotope.

No upfront or other payment was made or is owed in connection with the Mo-100 license.

Klydon had the right to terminate the exclusivity of the Mo-100 license in the event that the licensee ceased carrying on activities of Mo-100 enrichment for a period longer than 24 consecutive months.

Klydon had no other rights to terminate the Mo-100 license.

Effective July 26, 2022, the parties agreed to terminate the Mo-100 license, which was superseded and replaced by a new license agreement (described under the heading “Omnibus Klydon License” below).

Exclusive U-235 License (superseded and replaced by new license (see “Omnibus Klydon License” below)).

On January 25, 2022, ASP South Africa, as licensee, entered into a license with Klydon, as licensor, pursuant to which ASP South Africa acquired from Klydon an exclusive license to use, subcontract and sublicense certain intellectual property rights relating to the ASP technology for the development and/or otherwise disposing of the ASP technology and production, distribution, marketing and or sale of U-235 produced using the ASP (as so amended, the “U-235 license”).

The intellectual property rights granted to us through the U-235 license included all existing and/or future proprietary rights of Klydon relating to the ASP technology, whether or not such rights have been registered, including the copyright, designs, know-how, patents and trademarks (although Klydon currently has no such patents, patent applications or copyrights).

The exclusive U-235 license had a term of 999 years and was for the global development of the ASP technology and production of U-235 and global for the distribution, marketing and sale of U-235.

In connection with the U-235 license we made an upfront payment of $100,000 and agreed to pay certain royalties (the greater of $50 per k.g.

of U-235 and 10% of profits) and a 33% sublicensing revenue share of any cash consideration we may receive for any sublicenses we may grant.

Klydon had the right to terminate the exclusivity of the U-235 license in the event that the licensee ceased carrying on activities of U-235 enrichment for a period longer than 24 consecutive months.

Klydon had no other rights to terminate the U-235 license.

Effective July 26, 2022, the parties agreed to terminate the U-235 license, which was superseded and replaced by a new license agreement (described under the heading “Omnibus Klydon License” below).

Omnibus Klydon License.

On July 26, 2022, ASP Isotopes UK Ltd, as licensee, entered into a license agreement with Klydon, as licensor, pursuant to which ASP Isotopes UK Ltd acquired from Klydon an exclusive license to use, develop, modify, improve, subcontract and sublicense certain intellectual property rights relating to the ASP technology for the production, distribution, marketing and sale of all isotopes produced using the ASP technology (the “Klydon license agreement”).

The intellectual property rights granted to us through the Klydon license agreement included all existing and/or future proprietary rights of Klydon relating to the ASP technology, whether or not such rights have been registered, including the copyright, designs, know-how, patents and trademarks (although Klydon currently has no such patents, patent applications or copyrights).

The Klydon license agreement was royalty-free, had a term of 999 years and was worldwide for the development of the ASP technology and the distribution, marketing and sale of isotopes.

Future production of isotopes is limited to member countries of the Nuclear Suppliers Group.

In connection with the Klydon license agreement, we agreed to make an upfront payment of $100,000 (to be included within the payments we made under the Turnkey Contract (described below) and deferred payments of $300,000 over 24 months.

Effective April 4, 2023, pursuant to the Acknowledgement of Debt Agreement described below, we acquired the ASP technology, among other things, from Klydon, and the Klydon license agreement is no longer in effect.

Turnkey Contract.

On November 1, 2021, ASP South Africa and Klydon, as the contractor, entered into a contract under which Klydon has been appointed to supply to ASP South Africa a complete turnkey isotope enrichment plant (the “Turnkey Contract”).

The activities to be undertaken or performed by Klydon include:

taking control of the assets acquired in the Molybdos Business Rescue Auction;

the design of an isotope enrichment facility;

the supply of components, equipment and labor required for the construction;

the installation, testing and commissioning of the isotope enrichment plant;

securing all required approvals, regulatory authorizations and other required consents for the operation of the plant;

providing training to local ASP Isotopes South Africa (Proprietary) Limited personnel to enable them to operate the plant going forward;

and providing warranties in relation to the performance targets of the plant which are required to be met.

Klydon was responsible for liaising with the relevant South African authorities, including the South African Non Proliferation Council, the Nuclear Suppliers Group and International Atomic Energy Agency to ensure that the Turnkey Contract and the isotope enrichment plant are compliant with international laws and guidelines.

Acknowledgement of Debt Agreement.

Klydon performed a portion of the services required under the Turnkey Contract described above;

however, services were incomplete and many of the services were not completed within the time frame required.

As a result, Klydon and ASP South Africa entered into an Acknowledgement of Debt Agreement dated November 30, 2022, whereby Klydon (i) agreed to pledge its assets (the “Pledged Assets”) to ASP South Africa to secure its performance of the Turnkey Contract by December 31, 2022, and (ii) acknowledged that ASP South Africa would suffer damages in the amount of $6,050,000 (“Damage Amount”) should it fail to perform.

Under the Acknowledgement of Debt Agreement, the Pledged Assets would serve as collateral for Klydon’s obligation to pay the Damage Amount should Klydon fail to perform.

In connection therewith, also on November 30, 2022, ASP South Africa and Klydon entered into a Deed of Security Agreement whereby, if Klydon failed to complete its obligations under the Turnkey Contract by December 31, 2022, all of Klydon’s rights of any nature to and interests of any nature in the Pledged Assets would be transferred to ASP South Africa.

Klydon failed to complete its obligations under the Turnkey Contract by December 31, 2022.

On April 4, 2023, the Company perfected its interests in the assets under the Acknowledgement of Debt Agreement, pursuant to which the Company acquired the Pledged Assets, including certain intellectual property, from Klydon and settled all amounts due to Klydon, including the ZAR 6,000,000 for the acquisition of the Silicon-28 plant assets.

In April 2024, we received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants.

In July 2024, we issued 13,800,000 in a public offering at a public offering price of $2.50 per share resulting in net proceeds of approximately $32.3 million after deducting underwriting discounts, commissions and offering expenses.

In October 2024, a warrant to purchase 151,741 shares of common stock was exercised and the Company received gross proceeds of $299,688.

In November 2024, we issued 2,754,250 shares of common stock at a public offering price of $6.75 per share resulting in net proceeds of approximately $17.1 million after deducting underwriting discounts, commissions and offering expenses.

TerraPower, LLC

On April 4, 2024, we entered into an agreement with TerraPower LLC ("TerraPower") to develop a conceptual design, refined cost/schedule/financing, risk register, and term sheet for a High Assay Low Enriched Uranium (“HALEU”) facility (the “TerraPower Agreeement”).

The TerraPower Agreement may be terminated for (a) breach or default, (b) our convenience or (c) TerraPower’s convenience.

TerraPower is obligated to make all payments for milestones completed by us and these payments are nonrefundable.

On October 18, 2024, we signed a term sheet with TerraPower (the “TerraPower Term Sheet”) that provides for the execution of two definitive agreements:

(1) an agreement pursuant to which TerraPower will provide funding for our construction of a uranium enrichment facility capable of producing HALEU using our proprietary aerodynamic separation process technology to be located in the Republic of South Africa and (2) An agreement pursuant to which we will deliver to TerraPower the full capacity of the enrichment facility.

For the year ended December 31, 2024, $200,000 has been recognized as collaboration revenue in the consolidated statements of operations and comprehensive loss.

Other Commercial Agreements

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On April 1, 2023, ASP South Africa entered into an agreement of lease with the landlord of facility located in Pretoria where we plan to perform production activities.

The initial term of the lease ended on March 31, 2024.

The Company intends to maintain the monthly extensions allowed in the lease.

The initial term of the lease was set to end on March 31, 2024.

We entered into a new agreement of lease with the landlord.

The terms of the new lease ends on February 28, 2026.

Lease for additional laboratory space.

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The term of the lease ends on October 30, 2026.

Lease for PET Labs Pharmaceutical operations .

Commencing with our acquisition of PET Labs Pharmaceuticals in October 2023, this facility has an initial term set to expire in March 2026 with automatic monthly extensions thereafter.

Lease for PET Labs operations .

Commencing with our acquisition of PET Labs in October 2023, this facility has an initial term set to expire in March 2026 with automatic monthly extensions thereafter.

This space is used for office and production activities.

Lease for additional PET Labs Pharmaceutical operations .

Commencing with our acquisition of PET Labs Pharmaceuticals in October 2023, this facility had an initial term which expired in December 2023 and is currently under automatic monthly extensions.

Lease for additional PET Labs operations .

Commencing with our acquisition of PET Labs in October 2023, this facility had an initial term which expired in December 2023 and is currently under automatic monthly extensions.

This space is used for production activities.

Political Risk Insurance Policy with Optio Group.

On October 25, 2021, ASP Guernsey entered into a contract of insurance to cover against political risk and expropriation, to off-set the risk of events detrimental to the company occurring in the Republic of South Africa for a period of three years.

The insurer is Optio Group Limited which is 100% underwritten by one or more syndicates at Lloyd’s of London.

The specific risks covered in the policy are:

(i) permanent and total abandonment of operations, (ii) deprivation of assets or shareholding, (iii) physical damage due to political violence, (iv) non-transfer or inconvertibility, (v) business interruption, (vi) non-honouring of arbitration award, and (vii) crisis management support.

The limit of cover is equal to or in excess of the projected amount of investment required to complete the initial stage of the first planned Molybdenum enrichment plant.

The limit of cover is capable of being increased and extended by mutual agreement with the insurer.

Components of Results of Operations

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Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

As described above, Klydon charged us for expenses associated with these research and development functions under the Turnkey Contract.

We expect that our research and development expenses will increase substantially for the foreseeable future as we continue the development of our future isotopes.

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We expect that our ongoing selling, general and administrative expenses will increase substantially for the foreseeable future to support our increased research and development activities and increased costs of operating as a public company and in building our internal resources.

These increased costs will include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs associated with operating as a public company.

These increased costs will include increased expenses related to audit, legal, regulatory and tax-related

services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor and public relations costs associated with operating as a public company.

Segment Information

As of December 31, 2023, we managed our operations as a single segment, specialist isotopes and related services.

Beginning in 2024, primarily as a result of the increased business activities of our subsidiary, Quantum Leap Energy LLC, we have two operating segments:

(i) nuclear fuels, and (ii) specialist isotopes and related services.

The nuclear fuels segment is focused on research and development of technologies and methods used to produce high-assay low-enriched uranium (HALEU) and Lithium-6 for the advanced nuclear fuels target end market.

The specialist isotopes and related services segment is focused on research and development of technologies and methods used to separate high-value, low-volume isotopes (such as C-14, Mo-100 and Si-28) for highly specialized target end markets other than advanced nuclear fuels, including pharmaceuticals and agrochemicals, nuclear medical imaging and semiconductors, as well as services related to these isotopes, and this segment includes PET Labs.

The financial information is regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources.

Our CODM is our chief executive officer.

We manage assets on a total company basis, not by operating segment, as the assets are shared or commingled.

Therefore, the chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, asset information is not reported on a segment basis.

Select information from the consolidated statements of operations and comprehensive loss as of the years ended December 31, 2024 and 2023 is as follows:

Net Loss Before

Allocation to Noncontrolling Interest

Year Ended December 31,

Specialist isotopes and related services

Nuclear fuels

Results of Operations

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The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

Year Ended December 31,

Cost of goods sold

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Change in fair value of share liability

Interest expense

Change in fair value of convertible notes payable

Interest income

Total other (expense) income

Interest expense

Total other expense

Loss before income tax expense

$ (16,300,259 )

$ (4,945,139 )

Revenue and Cost of Goods Sold

Effective with the acquisition of 51% of PET Labs Pharmaceuticals, the Company has recognized revenue from the sale of nuclear medical doses for PET scanning for the two month period since the acquisition was effective on October 31, 2023 and December 31, 2023.

In addition, the Company has recognized the related cost of goods sold, operating expenses and other income and expenses for the same period.

Effective with the acquisition of 51% of PET Labs, we have recognized revenue from the sale of nuclear medical doses for PET scanning for the two month period since the acquisition was effective on October 31, 2023 and December 31, 2023 and the year ended December 31, 2024.

In addition, we have recognized the related cost of goods sold, operating expenses and other income and expenses of PET Labs for the same periods.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023:

Direct costs:

Indirect costs:

Year Ended December 31,

Personnel-related costs

Consulting, facility and other expenses

Consulting and professional

Facility and depreciation expenses

Other expenses

Total research and development expenses

Research and development expenses were $764,581 for the year ended December 31, 2023.

These expenses include $495,034 of personnel-related costs, including $364,924 in stock-based compensation, and $269,547 in consulting, facility and other expenses.

Research and development expenses were $1,273,536 for the year ended December 31, 2022.

These expenses include $6,645 in consulting expenses related to advancing development activities for Mo-100, $429,270 of personnel-related costs, including $201,270 in stock-based compensation, $495,503 in license fees and $342,118 in consulting, facility and other expenses.

The increase in stock-based compensation is due to a full year of expense in 2023 versus a partial year in 2022 since a majority of the awards were made in the second half of 2022.

The decrease in consulting, facility and other expenses is mainly due to lower consulting costs in 2023 as the Company focused its activities in 2023 on completing the construction of the plant.

Research and development expenses were $3,138,978 for the year ended December 31, 2024, compared to $764,581 for the year ended December 31, 2023.

The overall increase of $2,374,397 was primarily due to the following:

• an increase in personnel-related costs of $676,433 is mainly due to the increase in headcount and related costs;

• an increase in consulting and professional fees of $655,895 due to increased outsourced development activity for new specialty isotopes;

• an increase in facility and depreciation expenses of $519,297 due to an increase in space dedicated to development;

• an increase in other expenses of $522,772 primarily related to repairs and maintenance and other general research and development expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $15,416,388 for the year ended December 31, 2023.

These expenses include $10,422,994 of personnel-related costs, including $8,378,875 in stock-based compensation, $2,747,486 of professional services and legal related fees and $2,245,909 in facility and other corporate expenses.

Selling, general and administrative expenses were $3,825,512 for the year ended December 31, 2022.

These expenses include $560,789 of personnel-related costs, $1,798,043 in stock-based compensation, $1,010,187 of professional services and legal related fees and $456,493 in facility and other corporate expenses.

The increase in stock-based compensation is due to a full year of expense in 2023 versus a partial year in 2022 since a majority of the awards were made in the second half of 2022.

The increase in professional services and legal related fees and in facility and other expenses is mainly due to increased costs related to being a public entity and the expansion of our operations in 2023.

Selling, general and administrative expenses were $24,814,288 for the year ended December 31, 2024, compared to $15,416,388 for the year ended December 31, 2023.

The overall increase of $9,397,900 was primarily due to the following:

• an increase in personnel-related costs is mainly due to the increase in headcount and salaries of $1,779,619 and travel related costs of $459,644;

• an increase in professional services and legal related fees of $4,029,537 primarily due to the timing of corporate activity and an increase in legal fees associated with the current campaign of misinformation and potential shareholders class actions lawsuits;

• an increase in commissions and fees of $1,143,364 primarily due to the issuance of convertible notes in 2024;

• an increase in facility and depreciation expenses of $850,982 due to the expansion of our operations in 2024;

• an increase in other selling, general and administrative expenses of $1,091,483, including insurance of $170,351 and franchise taxes of $191,663.

Other Income and Expense

Other expense for the year ended December 31, 2024 was $5,957,625, which includes a $6,875,041 change in the fair value of the convertible notes, a $132,273 change in the fair value of the share liability related to the shares issuable to a placement agent, $1,238,691 in interest income earned on our cash and cash equivalents and interest expense of $258,867.

Other expense for the year ended December 31, 2023 was $258,260, which includes a $194,540 change in the fair value of the share liability related to the shares issuable to a placement agent and other consultants and interest expense of $118,547.

Other income for the year ended December 31, 2022 was $153,909, which includes a $150,527 change in the fair value of the share liability related to the shares issuable to a placement agent.

Liquidity and Capital Resources

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We have principally financed our operations to date through the issuance of our common stock, including our IPO.

On March 7, 2024, the Company’s wholly owned subsidiary Quantum Leap Energy received gross proceeds of $20,550,000 through the issuance of Convertible Promissory Notes with a stated interest rate of 6% for the first year and 8% thereafter.

The maturity date of the Convertible Promissory Notes is March 7, 2029.

The Convertible Promissory Notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualified public transaction at 80% of the share price taking into consideration a valuation cap.

On April 9, 2024, the Company received approximately $5,500,000 from the issuance of 3,164,557 shares of common stock upon the exercise of warrants.

In March and June 2024, the Company’s wholly owned subsidiary Quantum Leap Energy received gross proceeds of $20,550,000 and $5,386,228, respectively, through the issuance of convertible promissory notes with a stated interest rate of 6% for the first year and 8% thereafter.

The maturity date of these convertible promissory notes is March 7, 2029.

These convertible promissory notes automatically convert into common shares upon Quantum Leap Energy’s closing of an IPO or other qualified public transaction at 80% of the share price taking into consideration a valuation cap.

On April 9, 2024, the Company received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants.

In July 2024, we issued 13,800,000 shares of common stock in a public offering at a public offering price of $2.50 per share resulting in net proceeds of approximately $32.3 million after deducting underwriting discounts, commissions and offering expenses.

In November 2024, we issued an additional 2,754,250 shares of common stock in a public offering at a public offering price of $6.75 per share resulting in net proceeds of approximately $17.1 million after deducting underwriting discounts, commissions and offering expenses.

As of December 31, 2024, we had cash of $61.9 million.

We do not have any isotopes approved for sale, we have not generated any revenue from the sale of isotopes, and our ability to generate product revenue from the sale of isotopes sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future isotopes.

We have not generated any revenue from the sale of our enriched isotopes, and our ability to generate product revenue from the sale of enriched isotopes sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future enriched isotopes.

Effective with the acquisition of 51% of PET Labs Pharmaceuticals on October 31, 2023, we have begun to recognize revenue from the sale of nuclear medical doses for PET scanning in South Africa.

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Future Funding Requirements

Based on our current operating plan, we estimate that our existing cash, will not be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the date the financial statements are issued.

Based on our current operating plan, we estimate that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months from the date the financial statements are issued.

However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

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The following table summarizes our sources and uses of cash for each of the periods presented:

Year Ended December 31,

Net cash provided by (used in):

Operating activities

$ (5,412,392 )

$ (2,939,893 )

Investing activities

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Operating Activities

Net cash used in operating activities was $5,412,392 for the year ended December 31, 2023 and was primarily due to our net loss of $16,294,126, adjusted for stock-based compensation expense of $8,743,799, amortization of right-of-use asset of $104,528, issuance of common stock to a consultant with a fair value of $669,700, change in fair value of share liability of $194,540, and a $1,176,383 change in our operating assets and liabilities.

Net cash used in operating activities was $2,939,893 for the year ended December 31, 2022 and was primarily due to our net loss of $4,945,139, adjusted for stock-based compensation expense of $1,999,313, amortization of right-of-use asset of $72,570, issuance of common stock to a consultant with a fair value of $50,000 and change in fair value of share liability of $150,527, partially offset by a $33,890 change in our operating assets and liabilities.

Net cash used in operating activities was $16,695,365 for the year ended December 31, 2024 and was primarily due to our net loss of $32.4 million, adjusted for stock-based compensation expense of $8,561,404, non-cash issuance costs for the convertible notes payable of $621,915, amortization of right-of-use asset of $473,202, depreciation expense of $471,421, issuance of common stock to consultants with a fair value of $1,314,200, change in fair values for the convertible notes payable of $6,875,041 and change in fair value of share liability of $132,273, partially offset by a $2,622,890 change in our operating assets and liabilities.

Net cash used in operating activities was $5,412,392 for the year ended December 31, 2023 and was primarily due to our net loss of $16,294,126, adjusted for stock-based compensation expense of $8,743,799, amortization of right-of-use asset of $104,528, issuance of common stock to consultants with a fair value of $669,700, change in fair value of share liability of $194,540, and a $1,159,728 change in our operating assets and liabilities.

Investing Activities

Net cash used in investing activities was $11,372,399 for the year ended December 31, 2024 and was comprised of the purchases of machinery and equipment, vehicles and construction in progress.

Net cash used in investing activities was $2,453,191 for the year ended December 31, 2023 and was comprised of the purchase of machinery and equipment and construction in progress totaling $2,331,343 and $121,848 for the acquisition of PET Labs net of cash acquired.

Net cash used in investing activities was $4,473,164 for the year ended December 31, 2022 and was comprised of construction in progress.

Financing Activities

Net cash provided by financing activities was $13,385,491 for the year ended December 31, 2023 and was comprised primarily of net proceeds of $13,566,022 from the sale and issuance of 13,117,067 shares of our common stock.

Net cash provided by financing activities was $6,641,052 for the year ended December 31, 2022 and was comprised primarily of net proceeds of $3,790,504 from the sale and issuance of 1,250,000 shares of our common stock in our IPO, net proceeds of $2,863,595 from the sale and issuance of 1,559,780 shares of our common stock prior to our IPO and the repayment of notes payable of $13,046.

Net cash provided by financing activities was $82,533,640 for the year ended December 31, 2024 and was comprised primarily of net proceeds of $53,091,187 from the sale and issuance of our common stock, gross proceeds of $25,936,228 from the issuance of convertible notes payable, proceeds of $5,837,663 from the issuance of common stock for a warrant exercise, contributions from noncontrolling interest in VIE of $920,336, proceeds from collection of receivable from noncontrolling interest in VIE of $706,774, partially offset by costs to issue common stock of $3,648,385, principal payments on notes payable, finance leases and bank loans of $561,176, $100,611 and $51,381, respectively, and distribution to noncontrolling interest in VIE of $97,918.

Contractual Obligations and Commitments

We lease our main facility in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $9,000 with a term expiring on December 31, 2030.

We also lease additional space on a short term basis in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $12,000 with an initial term that expired on March 31, 2024 and the Company is continuing to occupy that space under the monthly extensions.

We also lease additional space on a short term basis in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $18,000 with a term expiring on February 28, 2026 and the Company is continuing to occupy that space under the monthly extensions.

We also lease additional space in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $2,000 with a term expiring on October 30, 2026.

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PET Labs Pharmaceuticals also rents space at a local hospital in Pretoria, South Africa for which there was a lease with a base monthly rent payment of approximately $5,000 which expired on December 31, 2023 and is currently in automatic monthly extensions.

In November 2024 and 2023, the Company executed a promissory note payable with a finance company to fund its directors and officers’ insurance policy for $500,923 and $526,282, respectively.

During 2024, the Company entered into several loans to purchase motor vehicles and certain equipment totaling $2,020,511.

These loans are secured by the underlying assets included in property and equipment.

Refer to Note 6 (Notes Payable) to our consolidated financial statements included in Part II, Item 8.

for information regarding interest rates and maturities.

In addition, we enter into contracts in the normal course of business with vendors for services and products for operating purposes.

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Critical Accounting Policies and Significant Judgments and Estimates

See Note 2 to our consolidated financial statements which discusses new accounting pronouncements.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S.

In preparing these financial statements, management is required to make estimates and assumptions that affect the reported amount of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities.

Actual results may differ from these estimates.

Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations.

We have critical accounting estimates in the areas of accounting for the acquisition including goodwill, loss contingencies, stock-based compensation and convertible notes payable at fair value.

Refer to Note 2 (Basis of Presentation and Summary of Significant Accounting Policies) to our consolidated financial statements included in Part II, Item 8.

for a summary of significant accounting policies

Business Combinations

Assets acquired and liabilities assumed as part of a business acquisition are generally recorded at their fair value at the date of acquisition.

The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset.

Accounting for business acquisitions requires management to make judgments as to whether a purchase transaction is a multiple element contract, meaning that it includes other transaction components such as a settlement of a preexisting relationship.

This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

We test goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

If it is determined that carrying values of goodwill cannot be recovered, the unrecoverable amounts are charged against current earnings.

Recoverability is dependent upon assumptions and judgments regarding market conditions, or business strategies.

Other assumptions used in the calculation of recoverable amounts are discount rates, future cash flows and profit margins.

A material change in assumptions may significantly impact the potential impairment of goodwill.

Loss Contingencies

We are currently involved in various claims and legal proceedings.

The outcomes of legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty.

We accrue a charge against income when our management determines that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated.

In addition, we accrue for the authoritative judgments or assertions made against us by government agencies at the time of their rendering regardless of our intent to appeal.

In determining the appropriate accounting for loss contingencies, we consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss.

We regularly evaluate current information available to us to determine whether an accrual should be established or adjusted.

Estimating the probability that a loss will occur and estimating the amount of a loss or a range of loss involves significant judgment.

Stock-Based Compensation

We account for stock-based compensation by measuring and recognizing as compensation expense the fair value of all share-based payment awards made to employees, including employee stock options and restricted stock awards, based on estimated grant date fair values.

These fair values are calculated by applying a valuation model, which is in itself judgmental, and takes into account certain inherently uncertain assumptions.

Convertible Notes Payable at Fair Value

The fair values assigned to convertible notes payable carried at fair value are based upon available information at the time and do not necessarily represent amounts that might ultimately be paid.

Because of the inherent uncertainty of valuation, these estimated fair values may differ significantly from the values that would have been used had a ready market for this debt existed, and those differences could be material.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis