What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2023-02-09 · 154 added, 143 removed, 491 unchanged (38% of the section changed)

25 unchanged sentences

180,000 shares authorized;

43,305 shares outstanding December 31 and June 30, respectively

43,305 shares outstanding March 31 and June 30, respectively

Additional paid-in capital

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(In thousands, except per share amounts)

Three months ended December 31,

Six Months Ended December 31,

Three months ended March 31,

Nine Months Ended March 31,

Operating expenses:

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(In thousands)

For the six months ended December 31,

For the nine months ended March 31,

Cash Flows From Operating Activities:

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Accounts payable and accrued liabilities change related to construction in progress

Construction in progress transferred to properties, plant and equipment

Interest paid through issuance of additional convertible notes

Equipment acquired with notes payable

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Balance at December 31, 2022

Shares issued for:

Exercise of stock options

Vesting of restricted share units

Share based compensation

Net income (loss)

Balance at March 31, 2023

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5E ADVANCED MATERIALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands)

Comprehensive

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Balance at December 31, 2021

Shares issued for:

Exercise of stock options

Consulting fees

Share based compensation

Net income (loss)

Other comprehensive income (loss),

Balance at March 31, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Basis of Financial Statement Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and should be read in the context of the consolidated financial statements and footnotes thereto for the year ended June 30, 2022 included in our annual report filed with the Securities and Exchange Commission on Form 10-K, as amended.

These unaudited condensed consolidated financial statements (herein after referred to as “financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and should be read in the context of the consolidated financial statements and footnotes thereto for the year ended June 30, 2022 included in our annual report filed with the Securities and Exchange Commission on Form 10-K, as amended.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of our financial position as of December 31, 2022, results of operations for the three and six months ended December 31, 2022 and 2021 and cash flows for the six months ended December 31, 2022 and 2021 have been included.

Operating results for the three and six months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2023 .

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of our financial position as of March 31, 2023, results of operations for the three and nine months ended March 31, 2023 and 2022 and cash flows for the nine months ended March 31, 2023 and 2022 have been included.

Operating results for the three and nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2023 .

Basis of Consolidation

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or the “Company”).

Going Concern

We evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these consolidated financial statements are issued.

This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.

When substantial doubt exists under this methodology, we evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern.

The mitigating effect of our plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued.

In performing our analysis, we excluded certain elements of our operating plan that cannot be considered probable.

The future receipt of potential funding from equity or debt issuances cannot be considered probable at this time because these plans are not entirely within our control as of the date of these consolidated financial statements.

As discussed in Note 7, the Convertible Note contains a financial covenant requiring us to maintain a cash balance of at least $10 million.

Our available liquidity is expected to fall below $10 million in the latter part of calendar year 2023 based on our most recently updated modified business plan, which includes an increase in Small-Scale Facility costs due to increases in third-party construction cost estimates.

If we are not able to obtain additional financing and our cash balance falls below $10 million, an event of default under the Convertible Note agreement would occur if not cured within 30 days.

Our plans include reduced spending and the pursuit of additional capital.

Given that raising additional capital is not entirely within our control combined with our expectation of incurring significant operating and development costs in the foreseeable future, there exists substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these financial statements are issued.

These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

Risk and Uncertainties

We are subject to a number of risks similar to those of other companies of similar size in our industry, including but not limited to, the success of our exploration activities, need for significant additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and dependence on key individuals.

We are subject to a number of risks that we believe are similar to those of other companies of similar size in our industry, including but not limited to, the success of our exploration activities, need for significant additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and dependence on key individuals.

We currently generate no revenues from operations and will need to rely on raising additional capital or financing to sustain operations in the long-term.

It is our opinion, based on our current capital resources, that with a modified business plan, we will have sufficient assets to discharge our liabilities as they become due, construct and operate our small scale facility ( the "Small-Scale Facility"), and to meet our administrative and overhead requirements for at least the next 12 months from the date these interim financial statements are issued.

Future financings to fund additional engineering and capital expenditures to scale our business are anticipated through efforts to raise additional equity, issue new corporate debt or project specific debt, pursuit of government funding opportunities and incentives, and/or other means.

Our continued operations beyond 12 months are dependent on our ability to obtain additional financing prior to the second half of calendar year 2023 or alter the timing of controllable expenditures by May 2023 to the extent needed to maintain adequate liquidity and preserve ongoing environmental obligations.

However, there can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us, or at all, or our ability to adequately reduce expenses, if necessary, to maintain sufficient liquidity or capital resources.

As of today, we are currently operating under our normal business plan which indicates that available cash resources are expected to be exhausted in the fourth quarter of calendar year 2023.

Absent additional financing as outlined above, we would no longer be able to meet our ongoing obligations or progress operations under that plan.

We have prepared and approved a modified business plan that, if necessary and initiated beginning in May 2023, would alter the timing of controllable expenditures and would preserve available liquidity into the first quarter of calendar year 2024.

This modified business plan alleviates substantial doubt about our ability to continue as a going concern.

As discussed in Note 7, our Convertible Note contains a financial covenant requiring us to maintain a cash balance of at least $10 million.

Our available liquidity will fall below $10 million by the end of February 2024 based on our modified business plan.

If we are not able to procure other financing cash flows and our cash balance falls below $10 million, an event of default under the Convertible Note indenture would occur if not cured within 30 days.

There can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us, or at all, or our ability to adequately reduce expenses, if necessary, to maintain sufficient liquidity or capital resources.

We expect our available liquidity will fall below $10 million within the next 12 months.

If we are not able to secure additional financing and our cash balance falls below $10 million, an event of default under a Convertible Note indenture would occur if not cured within 30 days.

An event of default would cause our Convertible Note balance outstanding to become immediately due and payable, of which we would not have the resources to repay without additional financing.

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We periodically review our inputs to ensure the fair value level classification is appropriate.

When transfers between levels occur, it is our policy to assume that the transfer occurred at the date of the event or change in circumstances that caused the transfer.

When transfers between levels occur, it is our policy to assume that the transfer occurred at the end of the period in which the change in circumstances that caused the transfer occurred.

Reclassifications

Certain reclassifications have been made to prior years’

reported amounts in order to conform to the current year presentation.

These reclassifications did not impact our previously reported net income (loss), stockholders’

equity or cash flows.

Recently Issued and Adopted Accounting Pronouncements

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We adopted this standard during the quarter ended September 30, 2022 .

The adoption of this standard did not have an effect on our previously reported consolidated financial statements as we had no transactions that were the subject of the pronouncement.

The adoption of this standard did not have an effect on our previously reported consolidated financial statements

as we had no transactions that were the subject of the pronouncement.

During the quarter ended September 30, 2022, we issued convertible debt and accounted for it in accordance with the updates provided for by ASU No.

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Asset retirement cost, net of accumulated amortization

of $ 12 and $ 6 at December 31 and June 30, 2022, respectively (1)

of $ 17 and $ 6 at March 31, 2023 and June 30, 2022, respectively (2)

Mineral rights and properties, net

(1) During the quarter ended March 31, 2023, we elected not to renew our mineral lease with Elementis Specialties, Inc.

and the mineral lease expired on March 31, 2023 resulting in the recognition of approximately $ 908 thousand of related impairment expense during the current quarter.

(2) Asset retirement costs represent the carrying value of capitalized costs associated with asset retirement obligations discussed in Note 5.

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Engineering services

Construction services

Injection and recovery wells

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Properties, plant and equipment, net

For the three and six months ended December 31, 2022 and 2021 , we recognized depreciation expense of approximately $ 38.5 and $ 73.4 thousand, and $ 17.9 and $ 38.2 thousand, respectively.

For the three and nine months ended March 31, 2023 and 2022 , we recognized depreciation expense of approximately $ 46.7 and $ 119 thousand, and $ 34.1 and $ 72.4 thousand, respectively.

Reclamation Liabilities

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Total accrued reclamation liabilities

(1) attibutable to revised cost estimates provided by a third-party engineering firm and is reflected as an increase to mineral rights and properties (see Note 2).

Accrued reclamation costs of $ 298 thousand relate to surface reclamation obligations at Fort Cady.

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Long-term debt, net

At December 31, 2022 the fair value of the convertible note was $ 43.1 million.

At March 31, 2023 the fair value of the convertible note was $ 39.7 million.

Interest expense consisted of the following.

Six months ended December 31,

Nine months ended March 31,

(in thousands)

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The Threshold Price for our right to convert the Note decreases to 150 % after the twenty-four (24) month anniversary of the Closing Date and on or before the thirty-six (36) month anniversary of the Closing, and to 130 % at any time after the thirty-six (36) month anniversary of the Closing Date.

On February 15, 2023 we elected to issue additional notes as payment for $1.7 million of interest accrued during the period August 26, 2022 through February 15, 2023.

Due to a provision in the Convertible Note agreement that allowed for a change in the conversion price upon a digressive issuance by us within three months of the closing date, t he conversion feature of the Note was deemed an embedded derivative requiring separate accounting as a stand-alone derivative instrument (convertible note derivative).

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The provision resulting in the separate derivative accounting for the conversion feature expired November 26, 2022, and accordingly, the fair value of the convertible note derivative at expiration of the provision was transferred to additional paid-in capital (see Note 8).

(Termination)

(in thousands)

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Convertible Note Derivative

Our convertible note derivative relates to the Convertible Note described above and was valued upon initial recognition at fair value using a with-and-without methodology utilizing a binomial lattice model (Level 3).

The convertible note derivative is re-measured at fair value at each period end using a Black-Scholes option valuation model with the resulting gain or loss recognized in the statement of operations.

The convertible note derivative, which related to the Convertible Note described above, was valued upon initial recognition at fair value using a with-and-without methodology utilizing a binomial lattice model (Level 3).

Changes in fair value were recognized in the statement of operations prior to the derecognition of the convertible note derivative during the quarter ended December 31, 2022.

As described above in Note 7, the fair value of the convertible note derivative was transferred to additional paid-in capital during the three months ended December 31, 2022.

The components of changes to the fair value of the convertible note derivative are summarized below.

September 30,

(in thousands)

Convertible note derivative —

beginning of period

Fair value adjustment (gain) loss

June 30, 2022

Fair value adjustment (gain)

Reclassified to additional paid-in capital

Convertible note derivative —

end of period

March 31, 2023

The valuation model requires the input of subjective assumptions including expected share price volatility, risk-free interest rate and debt rate.

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Financial Instruments and Fair Value Measurements

At December 31, 2022 , cash equivalents as well as trade and other payables approximate their fair value due to their short-term nature.

At March 31, 2023 , cash equivalents as well as trade and other payables approximate their fair value due to their short-term nature.

Our financial instruments also consist of environmental reclamation bonds which are invested in certificates of deposit and money market funds which are classified as Level 1, and the convertible note derivative which was classified as Level 3 before its derecognition and transfer to additional paid-in capital during the current period.

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Share based compensation expense is included in general and administrative expense and consisted of the following for the periods presented.

Three months ended December 31,

Six months ended December 31,

Three months ended March 31,

Nine months ended March 31,

(in thousands)

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Consulting stock awards

Total share based compensation

Total share based compensation expense

Stock Options

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The tables below reflect all options granted under both plans.

The significant assumptions used to estimate the fair value of stock option awards granted under the plans during the six months ended December 31, 2022 and 2021, using the Black-Scholes option valuation model are as follows.

Six months ended December 31,

The significant assumptions used to estimate the fair value of stock option awards granted under the plans during the nine months ended March 31, 2023 and 2022, using the Black-Scholes option valuation model are as follows.

Nine months ended March 31,

Exercise price

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The following table summarizes stock option activity for each of the periods presented.

Six months ended December 31,

Nine months ended March 31,

Number of Options

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Unvested at the end of the period

The weighted average remaining life of vested options at December 31, 2022 and 2021 was 1.7 years and 2.24 years, respectively.

As of December 31, 2022 , there was $ 5.6 million of unrecognized compensation cost related to 927 thousand unvested stock options.

The weighted average remaining life of vested options at March 31, 2023 and 2022 was 1.65 years and 2.03 years, respectively.

As of March 31, 2023 , there was $ 4.6 million of unrecognized compensation cost related to 793 thousand unvested stock options.

This cost is expected to be recognized over a weighted-average remaining period of approximately 1.6 years.

The following table summarizes the activity for unvested options for each of the periods presented.

Six months ended December 31,

Nine months ended March 31,

Number of Options

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Unvested at end of the period

As of December 31, 2022 , the intrinsic value of both the outstanding stock options and vested options was $ 5.1 million.

The intrinsic value of stock options exercised during the six months ended December 31, 2022 and 2021 was $ 4.6 million and $ 14.2 million, respectively.

As of March 31, 2023 , the intrinsic value of both the outstanding stock options and vested options was $ 1.3 million.

The intrinsic value of stock options exercised during the nine months ended March 31, 2023 and 2022 was $ 6.2 million and $ 14.4 million, respectively.

Restricted Share Units, Director Share Units and Performance Share Units

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Non-vested shares/units outstanding

at December 31, 2022

at March 31, 2023

(1) Includes approximately 32 thousand director share units

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2) obtaining formation flow, head grade and impurity profile data from the small-scale facility;

and 3) generate product data to ensure process design for detailed engineering.

and 3) generating product data to ensure process design for detailed engineering.

The determination of the percentage of shares that ultimately vest will be made at the three-year anniversary of the grant date based upon achievement of the performance targets over the period.

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Diluted earnings (loss) per share equals basic loss per share as the inclusion of normally dilutive options and restricted stock units would be antidilutive due to reported net losses for those periods.

For the six months ended December 31, 2022 and 2021 respectively, stock options and unvested restricted stock units of 5,052 and 4,810 were excluded from the computation of diluted earnings (loss) per share.

For the nine months ended March 31, 2023 and 2022 respectively, stock options and unvested restricted stock units of 4,769 and 5,040 were excluded from the computation of diluted earnings (loss) per share.

Commitments and Contingencies

We had purchase order commitments of $ 20 million for the construction works in progress, equipment, software, drilling, and technical reports of which $ 6.2 million is reflected in accounts payable and accrued liabilities on our balance sheet at December 31, 2022.

We had purchase order commitments of $ 16.2 million for the construction works in progress, equipment, software, drilling, and technical reports of which approximately $ 8.7 million is reflected in accounts payable and accrued liabilities on our balance sheet at March 31, 2023.

References herein to the “Company,”

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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included in this Quarterly Report on Form 10-Q for the three months ended December 31, 2022 (this “Form 10-Q”) contain various forward-looking statements relating to the Company’s future financial performance and results, financial condition, business strategy, plans, goals and objectives, including certain projections, business trends and other statements that are not historical facts.

Certain statements included in this Quarterly Report on Form 10-Q for the three months ended March 31, 2023 (this “Form 10-Q”) contain various forward-looking statements relating to the Company’s future financial performance and results, financial condition, business strategy, plans, goals and objectives, including certain projections, business trends and other statements that are not historical facts.

These statements constitute forward-looking statements within the meaning of the Safe Harbor provisions of the U.S.

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is focused on becoming a vertically integrated global leader and supplier of boron specialty and advanced materials whose mission is to enable decarbonization, increase food security, and ensure domestic supply of critical materials.

We hold 100% of the rights –

either through ownership or leasehold interest –

in the 5E Boron Americas (Fort Cady) Complex (the “Project”) located in southern California, through our wholly owned subsidiary 5E Boron Americas, LLC.

We hold 100% of the rights through ownership in the 5E Boron Americas (Fort Cady) Complex (the “Project”) located in southern California, through our wholly owned subsidiary 5E Boron Americas, LLC.

Our Project is underpinned by a mineral resource that includes boron and lithium, with the boron being contained in a conventional boron mineral known as colemanite.

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Small-Scale Facility

During the quarter ended December 31, 2022, we substantially advanced construction of our Small-Scale Facility and commenced pre-commissioning activities prior to quarter end.

We continue to focus on and target commencing operations for initial production of boric acid in late first quarter or early second quarter of calendar year 2023.

The timing of initial production of boric acid is contingent upon the successful completion of commissioning activities and the final clearance to commence mining from the Environmental

Protection Agency under our Underground Injection Control permit, which are expected to be issued in the ordinary course of business.

In January 2023, the United States Geological Survey issued a new report and there were only two companies that produced borates in calendar year 2022, and our production of boric acid would make us the third producer of boron in the United States.

We continue to target initial production of lithium carbonate in the second calendar quarter of 2023.

Larger Scale Facility

As announced on December 20, 2022, we are considering opportunities to accelerate the timeline for initial commercial production based on the learnings from our Small-Scale Facility.

The opportunities to accelerate the timeline for initial commercial production are underpinned on the belief that the sooner we can enter commercial production, the sooner we can achieve positive earnings and cash flow.

There have been significant increases in prices for boron and lithium over recent quarters, largely driven by supply constraints which appear unlikely to dissipate in the near term.

Our independent market research indicates medium-to-long term strength in boric acid demand and pricing, which further reinforces the need to explore all of our options to accelerate initial commercial production.

The initial focus to accelerate includes developing model estimates for capital cost, operating expenses and revenue based on modular design options.

We anticipate using the data and flow sheet optimization derived from the initial production from our Small-Scale Facility to optimize our larger scale production strategy.

We aim to quickly transition into engineering and long lead time item acquisitions required to support our plans to achieve commercial production as soon as possible.

Revenue Opportunities from Small-Scale Facility

We are assessing partner-led initiatives to produce downstream derivatives (including, but not limited to, boron specialties and advanced materials) from our Small-Scale Facility.

While this is a secondary focus for us, we have made progress with respect to certain initiatives with the opportunity to deliver revenue prior to our planned larger scale facility becoming operational.

Funding and Financial Markets

Commercial Initiatives

During the quarter, we entered into a non-binding letter-of-intent with Estes Energetics, a current supplier to the U.S.

Department of Defense, to collaborate on producing boron advanced materials for solid rocket motors to support U.S.

space and military industries.

The letter-of-intent aligns with on-going U.S.

government initiatives and programs to on-shore production of critical materials.

We continue to have discussions with prospective and already engaged customers with respect to broader collaboration on boric acid and lithium carbonate sales including customer funded development options.

Government Initiatives

We continue to pursue various government funding opportunities and incentives.

We are targeting funding opportunities in areas of interest for the U.S.

government, including defense, clean energy, agriculture, and food security.

Our focus to date has been the Department of Defense, via the Defense Production Act Title III and the Defense Logistics Agency, as well as the Department of Energy through, the Office of Fossil Energy and Carbon Management and Loans Program Office.

While discussions are ongoing with multiple governmental entities, we expect to be able to have more meaningful discussions with the Loans Program Office upon completing an updated technical report.

In October 2022, we received a partial exemption for use tax within the State of California for plant and equipment procured to process boric acid and lithium carbonate.

The partial exemption is being retroactively applied to our Small-Scale Facility and we expect to apply the exemption to our larger facility.

Capital Market’s Activities

During the quarter, our activities were primarily focused on the United States but included a two-week Australia non-deal roadshow where senior management presented extensively in four Australian states and territories.

We have multiple non-deal roadshows scheduled for the upcoming quarter and continue to work with investment banks to increase awareness of the Company to investors in the United States.

Given the nature of the project and its location, we have commenced a process to consider non-dilutive debt financing options for our larger scale facility.

Highlights for the Three Months Ended December 31, 2022

Pre-commissioning activities commenced prior to quarter-end with plan to commence operations in late Q1 or early Q2 of calendar year 2023;

Continued track record of zero lost time incidents with over 83,000 man hours recorded in the quarter;

Commenced workstream exploring options to accelerate the large-scale boron and lithium complex;

Signed letter of intent with Estes Energetics to collaborate in producing boron-based materials for solid rocket motors;

Recruitment efforts for CEO well underway.

Our latest liquidity forecast indicates that available cash resources are expected to be exhausted by fourth quarter calendar year 2023.

We are actively exploring various financing options, including government funding opportunities.

However, if additional financing is not secured prior to the second half of calendar year 2023, we would need to implement a modified business plan.

We have prepared and approved an alternative liquidity forecast that, if necessary and initiated beginning in May 2023, would alter the timing of controllable expenditures and would preserve available liquidity into the first quarter of calendar year 2024.

See “Liquidity and Capital Resources”

During the quarter ended March 31, 2023, we have substantially completed construction of our Small-Scale Facility and progressed commissioning activities.

Initial production of boric acid can commence upon final clearance from the U.S.

Environmental Protection Agency (EPA) under our Underground Injection Control Permit as well as successful completion of commissioning activities.

Key required reports and documentation were submitted to the EPA for their approval in 2022 and we believe we are in full compliance with the terms of the permit.

Upon final review of required documentation by the EPA, we expect to receive authorization to commence mining operations.

Data gathered from the construction and future operation of the Small-Scale Facility will be used to optimize and improve accuracy of our capital and operating estimates for our larger-scale operations, provide customer samples for qualification and future off-take agreements, and offset future operating expenses.

Technical Report Update and Larger Scale Facility Target

During the quarter, our team spent significant time completing an update to our initial assessment Technical Report Summary, which has been filed with the Securities and Exchange Commission.

A dedicated internal and external team pooled their professional and technical expertise to publish a report that we believe demonstrates a world-class resource, management's firm understanding and direction for the business, and a phased approach to scale production, which can position the company to achieve profitability, generate cash flow, and reduce risk.

The updated initial assessment includes a a revised mineral resource estimate for boric acid and lithium carbonate, estimates for capital costs and operating expenses, and a bottoms-up economic analysis based on a phased approach to scaling production.

The financial model for the economic analysis includes preliminary market studies and independent pricing forecasts for boric acid and lithium carbonate.

As part of our updated technical report, we engaged two external EPC firms to assist management with our capital cost estimate, which we expect to use as the basis to stage a formal process to request proposals for detail design of the large-scale facility.

The updated Technical Report Summary outlines three phases for the larger-scale facility:

Phase 1 targets production of 90,000 short tons of boric acid and 1,100 short tons of lithium carbonate with a targeted go-live date of the second calendar quarter of 2026.

Phase 2 and Phase 3 targets incremental production increases of 180,000 short tons of boric acid and 2,200 short tons of lithium carbonate in each phase with a targeted go live date in the fourth calendar quarter of 2028 (Phase 2) and second calendar quarter of 2031 (Phase 3).

Full operation includes targeting 450,000 short tons of boric acid and 5,500 short tons of lithium carbonate per annum.

CEO Appointment

During the quarter, we announced the appointment of Ms.

Susan Seilheimer Brennan as our new Chief Executive Officer.

Brennan started on April 24, 2023 and has an extensive global leadership background, particularly in the battery technology and electric vehicle industries.

Brennan's first two weeks, she has implemented general, administrative and fixed cost cutting measures and will relocate the Company's headquarters to California in an effort to focus on production of boric acid and lithium carbonate.

Highlights for the Three Months Ended March 31, 2023

Construction of the Small-Scale Facility substantially completed and operation pending authorization from EPA;

Continued track record of zero lost time incidents with over 175,000 man hours recorded;

Completion of update to initial assessment technical report with estimates for capital costs and operating expenses;

Appointment of new CEO, Ms.

Susan Seilheimer Brennan.

Our latest liquidity forecast indicates that available cash resources are expected to be exhausted in the next 12 months.

We are actively exploring various financing options.

However, if additional financing is not secured and our cash balance falls below $10 million, an event of default under the Convertible Note indenture would occur if not cured within 30 days.

An event of default would cause our Convertible Note balance outstanding to become immediately due and payable, of which we would not have the resources to repay without additional financing.

While we believe the that our plan to obtain sufficient funding will be successful, it is not entirely within our control and accordingly there is substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these unaudited condensed consolidated financial statements are issued.

See Note 1 - "Going Concern" in the notes to the unaudited condensed consolidated financial statements and “Liquidity and Capital Resources”

below for more information.

inflation rate has been steadily increasing since 2021 and throughout 2022.

inflation rate has been steadily increasing since 2021 and into 2023.

These inflationary pressures have resulted in and may result in additional increases to the cost of our goods, services, and personnel, which in turn cause our capital expenditures and labor costs to rise, including the estimated costs for our reclamation activities.

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COVID-19 Response

We have implemented policies at our offices in Houston, TX, Hesperia, CA, and Newberry Springs, CA designed to ensure the safety and well-being of all employees and the people associated with them.

We have implemented policies at our offices in Houston, TX and Hesperia, CA as well as our project site in Newberry Springs, CA designed to ensure the safety and well-being of all employees and the people associated with them.

In that regard, to reduce risk, our employees have been encouraged to get fully vaccinated against COVID-19, have been asked to work remotely at times, avoid non-essential business travel when applicable, adhere to good hygiene practices, and engage in social distancing.

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The following table summarizes our results of operations for the periods presented:

Three Months Ended December 31, 2022

Six Months Ended December 31, 2022

Three Months Ended March 31, 2023

Nine Months Ended March 31, 2023

($ in thousands)

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than +/- 300%

Comparison of the three and six months ended December 31, 2022 and 2021

Comparison of the three and nine months ended March 31, 2023 and 2022

Project expenses

Project expenses include drilling, plug and abandonment, site-preparation, engineering, consumables, testing and sampling, hydrology, permits, surveys, and other expenses associated with further progressing our project.

For the six months ended December 31 2022, project expenses decreased 10% versus the comparable period in 2021.

The decrease was primarily due to a reduction in drilling activity specific to water monitoring wells ($6.3 million) incurred in the comparable 2021 period partially offset by costs related to our plug and abandonment program ($5 million), increases in construction related insurance ($0.4 million) and other site related costs ($0.2 million) incurred during the current period.

For the quarter ended December 31, 2022, project expenses increased 14% as plugging and abandonment costs during the current quarter exceeded the reduction in costs related to the prior year’s quarter water monitoring well activity (approximately $272 thousand) combined with construction related insurance costs of approximately $194 thousand that were incurred in the current year quarter.

For the nine months ended March 31 2023, project expenses decreased 16% versus the comparable period in 2022.

The decrease was primarily due to a reduction in drilling activity specific to water monitoring wells ($6.4 million) and costs related to technical reports ($1.6 million) incurred in the comparable 2022 period.

These decreases were partially offset by costs related to our plug and abandonment program ($5.1 million), increases in construction related insurance ($0.5 million) and other site related costs ($0.8 million) incurred during the current period.

For the quarter ended March 31, 2023, project expenses decreased 38% primarily due to costs related to technical reports incurred during the quarter ended March 31, 2022, partially offset by increases in construction related insurance ($0.2 million) and site related costs ($0.7 million) incurred during the current quarter.

General and administrative expenses

The decrease in general and administrative expenses during the three and six months ended December 31, 2022 was primarily driven by one-time costs incurred during the prior three and six months periods related to the preparation of our Form-10, our reorganization, and consulting fees paid to Blue Horizon Advisors LLC for services provided.

The absence of these costs during the current three and six month periods were partially offset by an increase in salaries and benefits, stock based compensation, and travel costs resulting from an increase in headcount from 11 at June 30, 2021 to 30 at December 31, 2022.

The decrease in general and administrative expenses during the three and nine months ended March 31, 2023 was primarily driven by one-time costs incurred during the prior three and nine months periods related to the preparation of our Form-10, our reorganization, and consulting fees paid to Blue Horizon Advisors LLC for services provided ($25.6 million and $30.9 million, respectively).

The absence of these costs during the current three and nine month periods were partially offset by an increase in salaries and benefits, and other employee related costs ($1.3 million and $4.1 million, respectively) resulting from an increase in headcount from 11 at June 30, 2021 to 48 at March 31, 2023.

All employee costs across our business are currently accounted for within general and administrative expenses.

Insurance costs increased during the three and six months ended December 31, 2022 as a result of our monthly amortization of insurance premiums for our public company Director and Officer insurance.

Insurance costs increased $0.2 million and $0.9 million during the three and nine months ended March 31, 2023, respectively, as a result of our public company Director and Officer insurance which began in March 2022.

Non-operating (income) expense

The derivative gain (loss) during the three and six months ended December 31, 2022 related to changes in fair value of the embedded conversion feature of our convertible notes that was required to be bifurcated and accounted for separately as a stand-alone derivative instrument during the quarter ended September 30, 2022.

The unrealized loss during the three months ended December 31, 2022 was primarily due to our stock price increasing from $10.16 at September 30, 2022 to $11.63 at November 26, 2022 (termination).

The unrealized gain during the six months ended December 31, 2022, was primarily due to the decrease in our stock price to $11.63 at the termination date from $15.83 on August 26, 2022 (inception date).

The derivative gain (loss) during the three and nine months ended March 31, 2023 related to changes in fair value of the embedded conversion feature of our convertible notes that was required to be bifurcated and accounted for separately as a stand-alone derivative instrument during the quarter ended September 30, 2022.

The unrealized gain during the nine months ended March 31, 2023, was primarily due to the decrease in our stock price to $11.63 at the termination date from $15.83 on August 26, 2022 (inception date).

The provision resulting in the separate derivative accounting for the conversion feature expired on November 26, 2022.

The expiration resulted in the transfer of the fair value of the convertible note derivative at expiration to additional paid-in capital and no future related gains or losses are expected.

The increase in interest income during the three and six months ended December 31, 2022 was attributable to short-term investments (original maturities of three months or less) in highly liquid treasury bills and a certificate of deposit starting at the end of the quarter ending September 30, 2022.

The weighted average interest rate earned on these investments was approximately 3.42% for the three and six months ended December 31, 2022.

Interest expense increased primarily due to the issuance of the convertible note on August 26, 2022 and includes $1.5 million and $2 million of debt issuance cost amortization during the three and six months ended December 31, 2022, respectively.

During the six month period ended December 31, 2022, we capitalized approximately $144 thousand to construction in progress.

Interest expense for the six months ended December 31, 2021 related to a note that was paid off during the year ended June 30, 2022.

The increase in interest income during the three and nine months ended March 31, 2023 was attributable to short-term investments (original maturities of three months or less) in highly liquid treasury bills and a certificate of deposit starting at the end of the quarter ending September 30, 2022.

The weighted average interest rate earned on these investments was approximately 4.06% and 3.66 % for the three and nine months ended March 31, 2023, respectively.

Interest expense increased primarily due to the issuance of the convertible note on August 26, 2022 and includes $1.5 million and $3.5 million of debt issuance cost amortization during the three and nine months ended March 31, 2023, respectively.

During the three and nine months ended March 31, 2023, we capitalized interest to construction in progress of approximately $392 thousand and $589 thousand, respectively.

Interest expense for the three and nine months ended March 31, 2022 related to a note that was paid off during the year ended June 30, 2022.

Other expense consists primarily of foreign exchange gains and losses.

The decrease during the three and six months ended December 31, 2022 compared to the comparative period was due to the transfer and conversion to U.S.

The decrease during the three and nine months ended March 31, 2023 compared to the comparative period was due to the transfer and conversion to U.S.

dollars of all foreign denominated cash balances during the quarter ended June 30, 2022 to our bank account in the U.S.

We did not have any income tax expense or benefit for the three and six months ended December 31, 2022 and 2021, as we have recorded a full valuation allowance against our net deferred tax asset.

We did not have any income tax expense or benefit for the three and nine months ended March 31, 2023 and 2022, as we have recorded a full valuation allowance against our net deferred tax asset.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents of $56.8 million and working capital of $45.3 million compared to $31.1 million and $25.2 million as of June 30, 2022, respectively.

As of March 31, 2023, we had cash and cash equivalents of $36.2 million and working capital of $26.6 million compared to $31.1 million and $25.2 million as of June 30, 2022, respectively.

Our predominant source of cash has been generated through equity financing from issuances of our common stock and hybrid equity and debt securities.

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In August 2022, we executed a $60 million private placement of senior secured convertible notes to complete construction and commissioning of our Small-Scale Facility, fund operation of our Small-Scale Facility, commence detail engineering and procure long lead items for our large-scale complex and general corporate purposes.

With our current capital resources, we believe that we have sufficient funds to construct and commission our Small-Scale Facility and operate the facility to complete flow sheet optimization activities and produce product for customer qualification.

Over the next 12 months we also have plans to do the following below that will require additional capital:

Pursue and optimize infrastructure capital expenditures for our larger-scale facility which could include expansion of non-potable water resources, upgrading shore power, connection to a natural gas network, and constructing new access roads into and out of the location for our larger-scale facility;

With our current capital resources, we believe that we have sufficient funds to construct and commission our Small-Scale Facility;

however, delay of final authorization to commence mining could push out operation of the facility until we raise additional capital.

Over the next 12 months we have plans to do the following below that will require additional capital:

Operate the Small-Scale Facility;

Progress detailed engineering and procure long lead item equipment, specifically our crystallization units;

Optimize well-field design in an effort to reduce future mining capital and operational expenditure through various drilling techniques such as directional, horizontal and radial drilling;

Further define our advanced materials strategy with consideration to engineering and repurposing our Small-Scale Facility to produce boron advanced materials once sufficient data has been obtained for flow sheet optimization and the production of product for customer qualification;

Continue hiring team members necessary to support our operation efforts of becoming a global producer of boric acid, lithium carbonate and gypsum.

It is our opinion, based on our current capital resources, that with a modified business plan, we will have sufficient assets to discharge our liabilities as they become due, construct and operate our Small-Scale Facility, and to meet our administrative and overhead requirements for at least the next 12 months from the date these quarterly financial statements are issued.

As of today, we are currently operating under our normal business plan which indicates that available cash resources are expected to be exhausted in the fourth quarter of calendar year 2023.

Absent additional financing as outlined above, we would no longer be able to meet our ongoing obligations or progress operations under that plan.

This modified business plan alleviates substantial doubt about our ability to continue as a going concern.

Our Convertible Note contains a financial covenant requiring us to maintain a cash balance of at least $10 million (see note 7 to our unaudited condensed consolidated financial statements in item 1 of this report for additional information).

Our available liquidity will fall below $10 million by the end of February 2024 based on our modified business plan.

As of today, we are currently operating under our most recently updated modified business plan until we secure additional financing.

Absent additional financing as outlined above, we would no longer be able to meet our ongoing obligations or progress operations.

If we are not able to procure other financing cash flows and our cash balance falls below $10 million, an event of default under the Convertible Note agreement would occur if not cured within 30 days.

Our available liquidity is expected to fall below $10 million in the latter part of calendar year 2023 based on our most recently updated modified business plan.

An event of default would cause our Convertible Note balance outstanding to become immediately due and payable, of which we would not have the resources to repay without additional financing.

See Note 1 - Going Concern in the notes to the unaudited condensed consolidated financial statements.

Critical Accounting Policies

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Our derivative instruments are accounted for on a mark-to-market basis.

During the current quarter, our only derivative instrument, the convertible note derivative, was derecognized through a transfer to additional paid in capital.

During the quarter ended December 31, 2022, our only derivative instrument, the convertible note derivative, was derecognized through a transfer to additional paid in capital.

The derivative fair value was determined using a with-and-without methodology utilizing a binomial lattice model.

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Purchase Obligations

The Company had purchase order commitments $20 million for the construction works in progress, equipment, software and technical reports, of which $6.2 million is reflected in accounts payable and accrued liabilities on our unaudited condensed consolidated balance sheet at December 31, 2022.

The majority of the commitments will be settled by June 30, 2023.

The Company had purchase order commitments $16.2 million for the construction works in progress, equipment, software and technical reports, of which $8.7 million is reflected in accounts payable and accrued liabilities on our unaudited condensed consolidated balance sheet at March 31, 2023.

The majority of the commitments are expected to be settled by June 30, 2023.

Mineral Lease Payments

We have a mineral lease agreement with Elementis for the purposes of obtaining exploration and mining privilege.

The mineral lease agreement requires us to make an annual minimum royalty payment of $75 thousand, escalated annually based on inflation, until the expiration date of the lease (March 31, 2023).

Payments made during the six months ended December 31, 2022 and 2021, were $0 and $86 thousand, respectively.

During the quarter ended March 31, 2023, we elected not to renew our mineral lease with Elementis Specialties, Inc.

and the mineral lease expired on March 31, 2023 resulting in the recognition of approximately $908 thousand of related impairment expense during the current quarter.

We determined that with increasing boric acid and lithium carbonate prices, sufficient mineral resource established on fee lands already owned by us, and the opportunity to further expand the mineral resource with additional exploration work at a later date, that there is sufficient mineral resource to fully execute on our long-term business plan of producing boric acid and lithium carbonate.

The Company will be updating its Initial Assessment Report accordingly.

Salt Wells Earn-in Agreement

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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-Q

Item 1. Financial Statements