ASP Isotopes Inc. 10-K

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 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. 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. 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, 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: (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. 53 Table of Contents 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. 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. 54 Table of Contents 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. 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 ended on March 31, 2024. The Company intends to maintain the monthly extensions allowed in the lease. 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 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. 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. 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. 55 Table of Contents 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. 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. 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. 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. 56 Table of Contents 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 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. Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 Year Ended December 31, 2022 Revenue $ 433,026 $ - Cost of goods sold 294,056 - Gross margin 138,970 - Operating expenses: Research and development 764,581 1,273,536 Selling, general and administrative 15,416,388 3,825,512 Total operating expenses 16,180,969 5,099,048 Other (expense) income: Foreign exchange transaction gain 45,753 - Change in fair value of share liability (194,540 ) 150,527 Interest expense (118,547 ) - Interest income 9,074 3,382 Total other (expense) income (258,260 ) 153,909 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. Research and Development Expenses The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022: Year Ended December 31, Year Ended December 31, 2023 2022 Direct costs: Mo-100 $ - $ 6,645 Indirect costs: Personnel-related costs 495,034 429,270 License fees - 495,503 Consulting, facility and other expenses 269,547 342,118 Total research and development expenses $ 764,581 $ 1,273,536 57 Table of Contents 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. 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. Other Income and Expense 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 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. 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. As of December 31, 2023, we had cash of $7.9 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. 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. 58 Table of Contents 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. 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. 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 2024. 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. 59 Table of Contents Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, Year Ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ (5,412,392 ) $ (2,939,893 ) Investing activities (2,453,191 ) (4,473,164 ) Financing activities 13,385,491 6,641,052 Net increase (decrease) in cash and cash equivalents $ 5,519,908 $ (772,005 ) 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. Investing Activities 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. Contractual Obligations and Commitments We lease our main facility in Pretoria, South Africa under a lease with a base monthly rent payment of approximately $8,000 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 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 $28,000 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. 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. 60 Table of Contents 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 See Note 2 to our consolidated financial statements which discusses new accounting pronouncements.