Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with Part I, Item I, “Business” and Item 8, ‘Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements, see “Special Note Regarding Forward-Looking Statements,” and Part I, Item 1A, ‘Risk Factors.”
Overview
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 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 Si-28 we may produce using the ASP technology may be used to create advanced semiconductors and in quantum computing. 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.
QLE . 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
53
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.
PET Labs . 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.
Financings
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.
In March 2023, we issued 3,164,557 shares of our common stock at a purchase price of $1.58 per share and warrants to purchase up to an aggregate of 3,164,557 shares of our common stock with an exercise price of $1.75 per share for gross proceeds of $5.0 million. 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, 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. 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, we received approximately $5.5 million from the issuance of 3,164,557 shares of common stock upon the exercise of warrants.
54
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
Below is a summary of the key terms of our other commercial agreements.
Lease for Molybdenum Processing Plant. On October 12, 2021, ASP South Africa entered into an agreement of lease with the landlord of the facility located at 33 Eland Street, Koedoespoort Industrial, Pretoria where we operate our Molybdenum processing plant where gaseous Molybdenum compound will be treated (which process comprises several stages of compression and expansion during which the product is purified). The term of the lease ends on December 31, 2030.
Lease for additional production space . 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 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. On November 1, 2023, ASP South Africa entered into an agreement of lease with the landlord of the facility located in Pretoria where we perform research and development activities. The term of the lease ends on October 30, 2026.
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 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.
Components of Results of Operations
Revenue
Effective with the acquisition of 51% of PET Labs Pharmaceuticals, the Company recognizes revenue from the sale of nuclear medical doses for PET scanning.
Cost of Goods Sold
Cost of goods sold associated with the sale of nuclear medical doses for PET scanning consist of labor, delivery and materials.
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Operating Expenses
Our operating expenses consist of (i) research and development expenses and (ii) selling, general and administrative expenses.
Research and Development
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development activities for our future isotopes.
Direct costs include:
• external research and development expenses; and
• costs related to designing the development processes of isotope production.
Indirect costs include:
• personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation, for personnel engaged in research and development functions; and
• facilities and other various expenses.
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.
We expect that our research and development expenses will increase substantially for the foreseeable future as we continue the development of our future isotopes. We cannot determine with certainty the timing of initiation, the duration or the completion costs of development activities. Actual development timelines, the probability of success and development costs can differ materially from expectations.
We will need to raise substantial additional capital in the future. In addition, we cannot forecast which future isotopes may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our research and development expenses may vary significantly based on a variety of factors, such as:
• the scope, rate of progress, expense and results of our development activities;
• the phase of development of our future isotopes;
• the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and foreign regulatory authorities;
• significant and changing government regulation and regulatory guidance;
• the cost and timing of designing the development processes of isotope production;
• the extent to which we establish additional strategic collaborations or other arrangements; and
• the impact of any business interruptions to our operations or to those of the third parties with whom we work.
A change in the outcome of any of these variables with respect to the development of any of our future isotopes could significantly change the costs and timing associated with the development of that future isotope.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation, for personnel in executive, sales, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and facility-related costs.
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
56
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:
Revenues
Net Loss Before
Allocation to Noncontrolling Interest
Year Ended December 31,
Year Ended December 31,
Segment
2024
2023
2024
2023
Specialist isotopes and related services
$
3,944,226
$
433,026
$
(21,367,787
)
$
(16,145,339
)
Nuclear fuels
200,000
—
(10,881,084
)
—
Corporate
—
—
(173,857
)
(148,787
)
$
4,144,226
$
433,026
$
(32,422,728
)
$
(16,294,126
)
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Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:
Year Ended December 31,
2024
2023
Change
Revenue
$
4,144,226
$
433,026
$
3,711,200
Cost of goods sold
2,544,614
294,056
2,250,558
Gross profit
1,599,612
138,970
1,460,642
Operating expenses:
Research and development
3,138,978
764,581
2,374,397
Selling, general and administrative
24,814,288
15,416,388
9,397,900
Total operating expenses
27,953,266
16,180,969
11,772,297
Other (expense) income:
Foreign exchange transaction gain
69,865
45,753
24,112
Change in fair value of share liability
(132,273
)
(194,540
)
62,267
Change in fair value of convertible notes payable
(6,875,041
)
—
(6,875,041
)
Interest income
1,238,691
9,074
1,229,617
Interest expense
(258,867
)
(118,547
)
(140,320
)
Total other expense
(5,957,625
)
(258,260
)
(5,699,365
)
Loss before income tax expense
$
(32,311,279
)
$
(16,300,259
)
$
(16,011,020
)
Revenue and Cost of Goods Sold
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:
Year Ended December 31,
2024
2023
Change
Personnel-related costs
$
1,171,467
$
495,034
$
676,433
Consulting and professional
655,895
—
655,895
Facility and depreciation expenses
766,960
247,663
519,297
Other expenses
544,656
21,884
522,772
Total research and development expenses
$
3,138,978
$
764,581
$
2,374,397
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; and
• 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 $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:
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• 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; and
• 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.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred net losses and negative cash flows from operations since our inception, and we expect to continue to incur significant and increasing net losses for the foreseeable future. We have principally financed our operations to date through the issuance of our common stock, including our IPO. 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 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. Our ability to generate product revenue from the sale of nuclear medical doses for PET scanning sufficient to achieve profitability will depend on the successful expansion of production capabilities and commercialization of the results of that expansion.
Future Funding Requirements
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. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of developing isotopes is costly, and the timing of progress and expenses in these development activities is uncertain.
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Our future capital requirements will depend on many factors, including:
• the type, number, scope, progress, expansions, results, costs and timing of, our development activities for our future isotopes;
• the outcome, timing and costs of regulatory review of our future isotopes;
• the costs and timing of manufacturing for our future isotopes;
• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
• the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;
• the costs and timing of establishing or securing sales and marketing and distribution capabilities, whether alone or with third parties, to commercialize future isotopes for which we may obtain regulatory approval, if any;
• our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
• the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
• the costs of obtaining, expanding, maintaining and enforcing our patent and other intellectual property rights; and
• costs associated with any products or technologies that we may in-license or acquire.
Developing isotopes is a time-consuming, expensive and uncertain process that takes years to complete, and we may never achieve the necessary results required or obtain applicable regulatory approval for any isotopes or generate revenue from the sale of any future isotopes (assuming applicable regulatory approval is received). In addition, our future isotopes (assuming applicable regulatory approval is received) may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of isotopes that we do not expect to be commercially available in substantial quantities until at least 2025. If we receive permits and licenses to enrich U-235 (which in itself is highly uncertain), we do not expect U-235 to be commercially available for at least several years, if ever. As a result, we may need substantial additional financing to support our continuing operations and further the development of and commercialization of our future isotopes.
Expansion of the production and distribution of nuclear medical doses for PET scanning is a time-consuming, expensive and uncertain process that may take years to complete. As a result, we may need substantial additional financing to support our continuing operations and further the development of and commercialization of future nuclear medical doses for PET scanning.
Until such time as we can generate significant revenue from sales of our future isotopes or nuclear medical doses for PET scanning, if ever, we expect to finance our cash needs through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting severely diminished liquidity and credit availability, increased interest rates, inflationary pressures, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our future isotopes, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our future isotopes even if we would otherwise prefer to develop and market such isotopes ourselves.
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Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Year Ended December 31,
2024
2023
Net cash provided by (used in):
Operating activities
$
(16,695,365
)
$
(5,412,392
)
Investing activities
(11,372,399
)
(2,453,191
)
Financing activities
82,533,640
13,385,491
Net increase (decrease) in cash and cash equivalents
$
54,465,876
$
5,519,908
Operating Activities
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.
Financing Activities
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.
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 our common stock.
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 $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.
PET Labs Pharmaceuticals operates in a facility in Pretoria, South Africa is under a lease with a base monthly rent payment of approximately $27,000 with a term expiring on March 30. 2026 with automatic monthly extension afterwards. 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.
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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. These contracts do not contain any minimum purchase commitments and generally provide for termination after a notice period and, therefore, are not considered long-term contractual obligations. Payments due upon cancellation consist only of payments for services provided and expenses incurred up to the date of cancellation.
Off-balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. 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.
Goodwill
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.
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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.