What changed in this filing

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Item 1. Financial Statements

2024-02-14 compared with 2023-11-09 · 170 added, 350 removed, 269 unchanged (66% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

September 30,

Current assets:

7 unchanged sentences

Right of use asset

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

7 unchanged sentences

Commitments and contingencies (Note 12)

Stockholders’

Stockholders’ equity:

Common stock, $ 0.01 par value;

180,000 shares authorized;

44,187 shares outstanding September 30, 2023 and June 30, 2023, respectively

44,187 shares outstanding December 31, 2023 and June 30, 2023, respectively

Additional paid-in capital

Retained earnings (accumulated deficit)

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

2 unchanged sentences

(In thousands, except per share amounts)

For the three months ended September 30,

Three months ended December 31,

Six months ended December 31,

Operating expenses:

14 unchanged sentences

Net income (loss)

Net income (loss) per common share:

Weighted average common shares outstanding —

Net income (loss) per common share — basic and diluted

Weighted average common shares outstanding — basic and diluted

Comprehensive income (loss):

5 unchanged sentences

(In thousands)

For the three months ended September 30,

Six months ended December 31,

Cash Flows From Operating Activities:

5 unchanged sentences

Accretion of asset retirement obligations

Amortization of debt issuance costs and discount —

convertible note

Amortization of debt issuance costs and discount — convertible note

Amortization of right of use asset

11 unchanged sentences

Proceeds from exercise of stock options

Net cash provided by (used for) financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

6 unchanged sentences

Interest paid through issuance of additional convertible notes

Increase (decrease) in asset retirement costs

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

2 unchanged sentences

(In thousands)

Stockholders’

Balance at June 30, 2022

4 unchanged sentences

Balance at September 30, 2022

Shares issued for:

Exercise of stock options

Vesting of restricted share units

Share based compensation

Convertible note derivative

liability reclassification

Net income (loss)

Balance at December 31, 2022

Stockholders’

Balance at June 30, 2023

4 unchanged sentences

Balance at September 30, 2023

Shares issued for:

Vesting of restricted share units

Share based compensation

Net income (loss)

Balance at December 31, 2023

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

2 unchanged sentences

Basis of Financial Statement Presentation

These unaudited condensed consolidated financial statements (herein after referred to as “financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and should be read in the context of the consolidated financial statements and footnotes thereto for the year ended June 30, 2023 included in the Company's 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 September 30, 2023, results of operations for the three months ended September 30, 2023 and 2022 and cash flows for the three months ended September 30, 2023 and 2022 have been included.

Operating results for the three months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2024 .

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, 2023, results of operations for the three and six months ended December 31, 2023 and 2022 and cash flows for the six months ended December 31, 2023 and 2022 have been included.

Operating results for the three and six months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2024 .

Basis of Consolidation

1 unchanged sentence

and its wholly owned subsidiaries, American Pacific Borates Pty Ltd.

and 5E Boron Americas, LLC (formerly Fort Cady (California) Corporation, "5EBA"), (collectively, “5E,”

“we,”

“our,”

“us”

or the “Company”).

and 5E Boron Americas, LLC (formerly Fort Cady (California) Corporation, (“5EBA”), (collectively, “we,” “our,” or the “Company”).

Out-of-Court Restructuring

In fiscal year 2023, the Company increased efforts to identify appropriate funding solutions to address the Company’s liquidity profile.

With the EPA approval still an open item at the time, capital providers were reluctant to invest.

As time progressed, even with cost saving measures implemented, the Company approached the $ 10 million liquidity covenant (as discussed within Note 7) and therefore began discussions with its lender.

The combination of the EPA status, and the approaching liquidity floor required a commercial resolution.

On November 9, 2023, the Company entered into a standstill agreement (the "Standstill Agreement") with Bluescape Special Situations IV ( “Bluescape”), Alter Domus (US) LLC (the “Collateral Agent”), Ascend Global Investment Fund SPC for and on behalf of Strategic SP (“Ascend”), and Mayfair Ventures Pte Ltd in connection with the Company’s senior secured convertible notes (the “Convertible Notes”).

Pursuant to the Standstill Agreement, Bluescape and the Collateral Agent agreed to not exercise their respective rights, remedies, powers, privileges, and defenses under the Note Purchase Agreement, dated August 11, 2022 (the “Note Purchase Agreement”) with respect to the occurrence of any default or event of default, and all parties to the Standstill Agreement agreed to forbear from instituting or pursuing legal action with respect to the Convertible Notes.

The Standstill Agreement also temporarily allowed the Company to go below its current cash covenant of $ 10 million (as discussed in Note 7).

On December 1, 2023, we extended the effectiveness of the Standstill Agreement from December 1, 2023 to December 5, 2023 and then on December 5, 2023 entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with Bluescape, the Collateral Agent, and Ascend in connection with certain restructuring transactions with respect to the Company’s capital structure, including the Company’s Convertible Notes.

Pursuant to the Restructuring Support Agreement, the parties agreed to implement the restructuring transactions either as an out-of-court restructuring (the “Out-of-Court Restructuring”) or an in-court restructuring under voluntary pre-packaged cases under chapter 11 of title 11 of the United States Code in a U.S.

Bankruptcy Court.

On January 12, 2024 (as discussed in Note 13), the Company held a special meeting of stockholders (the “Special Meeting”) where the Company’s stockholders approved the Out-of-Court Restructuring, including (i) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of the Company’s common stock, par value $ 0.01 (the “Common Stock”) from 180,000,000 to 360,000,000 , (ii) the issuance of up to $ 35 million of Common Stock at a price of $ 1.025 per share (the “Securities Offering”) to Ascend and Bluescape, if Bluescape decided to exercise its option to participate in the Securities Offering, and (iii) the issuance of additional shares of the Company’s Common Stock upon conversion of the Convertible Notes in connection with an amendment to the Convertible Notes (the “Convertible Notes Amendment”).

On January 18, 2024, pursuant to a subscription agreement with Ascend, dated December 5, 2023 and an amended and restated subscription agreement with 5ECAP LLC (“5ECAP”), dated January 18, 2024 (the “5ECAP Subscription Agreement”), we issued (i) 5,365,854 shares of Common Stock to Ascend at a price of $ 1.025 per share, which shares included the placement fee to Ascend in shares of Common Stock and (ii) 5,365,854 shares of Common Stock to 5ECAP at a price of $ 1.025 per share, which shares included the placement fee to 5ECAP in shares of Common Stock (the “First Closing”).

On January 18, 2024, in connection with the Out-of-Court Restructuring, we entered into an amended and restated note purchase agreement (the “Amended and Restated Note Purchase Agreement”) with Bluescape, Ascend, and Meridian Investments Corporation “Meridian”) related to the Convertible Notes.

Pursuant to the Amended and Restated Note Purchase Agreement, the Convertible Notes

bear interest at a rate of 4.50 % per annum, payable semi-annually , or 10.00 % per annum if we elect to pay such interest through the delivery of additional Convertible Notes and are convertible into 66,261,621 shares of Common Stock at a conversion price of $ 1.5375 per share of Common Stock (including accrued interest paid-in-kind).

The Convertible Notes mature on August 15, 2028 .

Following certain corporate events that may occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate of a holder who elects to convert its Convertible Notes in connection with a corporate event.

In addition, the minimum cash condition has been waived through June 28, 2024, with a reduction in such covenant thereafter from $ 10 million to $ 7.5 million.

On January 29, 2024, pursuant to the 5ECAP Subscription Agreement, the Company issued 8,317,074 shares of Common Stock to 5ECAP at a price of $ 1.025 per share (the “Second Closing”).

The completion of the Out-of-Court Restructuring marks a crucial step to strengthen the Company’s balance sheet, funds the next phase of its development, and supports the commencement of mining operations for boric acid and lithium.

Going Concern

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

Management evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date that these condensed consolidated financial statements are issued.

When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company's ability to continue as a going concern.

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

In performing this analysis, management excluded certain elements of its 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 management's control as of the date of these condensed consolidated financial statements.

During the quarter ended September 30, 2023, Bluescape Special Situations IV (the "Lender"), the holder of the Company's senior secured convertible note (the "Convertible Note"), communicated an immaterial alleged breach of the Convertible Note agreement regarding a nonfinancial covenant.

However, the Lender elected not to pursue any remedies related thereto.

The Company disagreed with the Lender's contention.

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

On November 9, 2023, the Company entered into a standstill agreement (the "Agreement") with the Lender.

The Agreement enables the Company, the Lender and other strategic investors to advance discussions towards a resolution for a recapitalization plan for the Company.

Under the Agreement, the parties have agreed to a period of standstill, which pauses rights, remedies, powers, privileges and defenses, temporarily allowing the Company to go below its current cash covenant of $ 10 million until December 1, 2023.

If the Company is not able to obtain additional financing and agree to a successful recapitalization plan, its cash balance is expected to fall below $10 million during the fourth calendar quarter of 2023, and an event of default under the Convertible Note agreement would occur.

However, it is expected that any recapitalization plan will waive any defaults under the Convertible Note agreement.

Management's plans include reduced spending and a pursuit of additional capital through a recapitalization plan.

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

If the anticipated recapitalization plan is successfully consummated in the fourth quarter 2023, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding the Company's ability to continue as a going concern.

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

In performing this analysis, and considering the impacts of the Out-of-Court Restructuring described above, management concluded there continues to exist substantial doubt regarding the Company’s ability to continue as a going concern.

Although the Out-of-Court Restructuring significantly improved the Company’s cash position, and the Company continues to operate under a business plan that includes reductions in certain spending, management expects the Company to incur significant operating and development costs for the foreseeable future, and anticipates the need for additional financing within the next twelve months to maintain a cash balance in excess of the $ 7.5 million minimum cash covenant which goes into effect June 28, 2024 (as discussed in Note 7).

If the Company is not able to secure additional financing and the Company’s cash balance falls below $ 7.5 million after June 28, 2024, an event of default under the Amended and Restated Convertible Note Agreement would occur.

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

The receipt of potential funding from equity or debt issuances, beyond those that are part of the Out-of-Court Restructuring, cannot be considered probable at this time because these plans are not entirely within management's control as of the date of these condensed consolidated financial statements.

Therefore, there exists substantial doubt regarding the Company's ability to continue as a going concern for a period of one year after the date that these financial statements are issued.

Even if additional debt or equity financing is successfully consummated, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding the Company's ability to continue as a going concern.

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.

1 unchanged sentence

The Company's financial instruments consist of cash and cash equivalents, a convertible note, vehicle notes, and accounts payable and accrued liabilities.

It is management’s opinion that we are not exposed to significant interest, currency or credit risks arising from these financial instruments.

Management believes the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

The fair values of these instruments, with the exception of the convertible note and vehicle notes, approximate their carrying value.

1 unchanged sentence

Concentration of Risk

The Company maintains cash deposits at several major banks, which at times may exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”).

The Company maintains cash deposits at several major banks, which at times may exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation.

Management monitors the financial health of the banks and believes the Company is not exposed to any significant credit risk, and the Company has not experienced any such losses.

Risks and Uncertainties

The Company is subject to a number of risks that management believes 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.

The Company is subject to a number of risks that our management believes 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.

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

There can be no assurance that management will be successful in its efforts to raise additional capital on terms favorable to the Company, or at all, or in management's ability to adequately reduce expenses, if necessary, to maintain sufficient liquidity or capital resources.

Management expects the Company's 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 the Convertible Note indenture would occur.

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

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.

Refer to the Going Concern discussion above for additional details.

Recently Issued and Adopted Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date.

Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that are adopted by the Company as of the specified effective date.

Mineral Rights and Properties, Net

Mineral rights and properties, net consisted of the following.

September 30,

(in thousands)

2 unchanged sentences

Asset retirement cost, net of accumulated amortization

of $ 28 and $ 23 at September 30, 2023 and June 30, 2023, respectively (1)

of $ 33 and $ 23 at December 31, 2023 and June 30, 2023, respectively (1)

Mineral rights and properties, net

2 unchanged sentences

Construction in progress consisted of the following.

September 30,

(in thousands)

6 unchanged sentences

Estimated useful

September 30,

Asset category

7 unchanged sentences

Properties, plant and equipment, net

For the three months ended September 30, 2023 and 2022, we recognized depreciation expense of approximately $ 47 thousand and $ 35 thousand, respectively.

For the three months ended December 31, 2023 and 2022 , we recognized depreciation expense of approximately $ 48 and $ 39 thousand, respectively.

For the six months ended December 31, 2023 and 2022, we recognized depreciation expense of approximately $ 96 and $ 73 , respectively.

Asset Retirement Obligations

The change in our ARO during the periods presented and the balance of our accrued reclamation liabilities at the end of each period are set forth below.

September 30,

The change in our ARO during the period presented and the balance of our accrued reclamation liabilities at the end of the period is set forth below.

Six months ended

December 31, 2023

(in thousands)

Asset retirement obligation —

beginning of period

Asset retirement obligation — beginning of period

Obligation incurred during the period

Revisions to previous estimates

Asset retirement obligation —

end of period

(1) The revision for the prior period is attributable to revised cost estimates provided by a third-party engineering firm and was reflected as an increase to mineral rights and properties (see Note 2) .

Asset retirement obligation — end of period

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following at the end of each period presented.

September 30,

(in thousands)

9 unchanged sentences

Long-term debt consisted of the following at the end of each period presented.

September 30,

(in thousands)

3 unchanged sentences

Long-term debt

Unamortized convertible note discount —

embedded conversion feature

Unamortized convertible note discount — embedded conversion feature

Unamortized debt issuance costs - convertible note

1 unchanged sentence

On August 15, 2023, the Company elected to issue additional notes as payment for $ 1.85 million of interest accrued during the period from February 16, 2023 through August 15, 2023.

Interest expense consisted of the following.

Three months ended September 30,

Interest expense consisted of the following for each period presented.

Three months ended December 31,

Six months ended December 31,

(in thousands)

Convertible note interest

Vehicle notes payable interest

Amortization of debt issuance costs and discount —

convertible note

Amortization of debt issuance costs and

discount — convertible note

Other interest

2 unchanged sentences

Interest expense, net of amounts capitalized

Effective interest rate —

convertible note

Effective interest rate — convertible note

Convertible Note

On August 11, 2022, the Company executed a $ 60 million private placement of Senior Secured Convertible Note (the "Note”

or "Convertible Note"), with Bluescape Energy Partners.

The Note, which is convertible into the Company's common stock and matures in August 2027 , closed on August 26, 2022.

At the Company's election, the Note bears interest at an annual rate of 4.50 % if paid in cash, or at an annual rate of 6.00 % if paid through the issuance of additional notes.

On August 11, 2022, the Compa ny executed a $ 60 million private placement of Convertible Notes with Bluescape, which is secured by a security interest in substantially all of the Company’s assets, which closed on August 26, 2022 (the “Original Closing Date”).

The Convertible Notes are convertible into shares of the Company’s Common Stock.

As discussed within Note 1 and Note 13, on January 12, 2024, at the Special Meeting, the Company’s shareholders approved certain proposals that allowed for an Out-of-Court Restructuring, and on January 18, 2024, the Amended and Restated Note Purchase Agreement was executed in accordance with the Out-of-Court Restructuring which modified certain terms of the Convertible Notes.

In connection with the execution of the Amended and Restated Note Purchase Agreement, the maturity date of the Convertible Notes was extended one year to August 15, 2028 .

Additionally, at the Company’s election, the Convertible Notes bear interest at an annual rate of 4.50 % if paid in cash, and 10.00 % if paid through the issuance of additional notes.

Interest is paid semi-annually on February 15 and August 15 of each year.

The Note contains a financial covenant requiring us to maintain a cash balance of at least $10 million and is secured by a security interest in substantially all of our assets.

The purchaser may convert the Note at any time before August 2027 at a conversion price of $ 17.60 (“Conversion Price”).

The Company has the right, at any time on or before the twenty-four (24) month anniversary of the closing date of the Note (“Closing Date”), to convert the Note into the Company's common stock in whole or in part if the closing price of the Company's common stock is at least 200 % of the Conversion Price of the Note (“Threshold Price”) for each of the twenty ( 20 ) consecutive trading days prior to the time we deliver a conversion notice.

The Threshold Price for the Company's 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.

Due to a provision in the Convertible Note agreement that allowed for a change in the conversion price upon a digressive issuance by the Company 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 (the "Convertible Note Derivative").

The Note was recorded at its face amount of $ 60 million less debt issuance costs of $ 4.2 million and the fair value of the Convertible Note Derivative of $ 24.9 million.

The provision resulting in the separate accounting for the conversion feature of the Convertible Note Derivative 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).

Fair value information for the Convertible Note and Convertible Note Derivative follows.

September 30,

The Convertible Notes contain a financial covenant requiring the Company to maintain a cash balance of at least $ 10 million which was waived during the effective periods of both the Standstill Agreement and Restructuring Support Agreement, which has been further waived through June 28, 2024 and reduced thereafter to $ 7.5 million in connection with the Amended and Restated Note Purchase Agreement.

The purchaser may convert the Convertible Notes into shares of our Common Stock at any time before the Convertible Notes mature based upon a conversion price of $ 1.5375 .

Prior to entering into the Amended and Restated Note Purchase Agreement, the Company had the right to convert the Convertible Notes into shares of the Company’s Common Stock based upon the Company’s Common Stock trading above certain threshold prices at certain dates.

However, in connection with the Amended and Restated Note Purchase Agreement, the Company’s ability to convert the Convertible Notes and force conversion into Common Stock was eliminated.

Furthermore, in connection with entry into the Amended and Restated Note Purchase Agreement and Out-of-Court Restructuring, fifty percent ( 50 %) of the outstanding Convertible Notes were acquired by Ascend and 5ECAP from Bluescape .

The Company is currently in the process of evaluating if the Amended and Restated Note Purchase Agreement represents either a modification of the Convertible Note, or the in-substance extinguishment of the Convertible Note and establishment of a new debt, and expects such evaluation to be complete within the third fiscal quarter of 2024.

Prior to entering into the Amended and Restated Note Purchase Agreement, the terms of the Convertible Notes permitted a change in the applicable conversion price upon a digressive issuance by the Company within three months of the Original Closing Date.

As a result, t he conversion feature of the Convertible Notes was deemed to have an embedded derivative requiring separate accounting as a stand-alone derivative instrument (the "Convertible Note Derivative").

The Convertible Notes were initially recorded at its face amount of $ 60 million less debt issuance costs of $ 4.2 million and the fair value of the Convertible Note Derivative, which was determined to be $ 24.9 million.

The provision that resulted in separate accounting for the conversion feature of the Convertible Note Derivative 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 (refer to Note 8).

Fair value information for the Convertible Notes follows.

(in thousands)

Fair value of convertible note (Level 2)

Total fair value of convertible note instrument

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

Total fair value of convertible note

The valuation model for the Convertible Notes and related Convertible Note Derivative requires the input of subjective assumptions including expected share price volatility, risk-free interest rate and debt rate.

Changes in the input assumptions as well as the Company's underlying share price can materially affect the fair value estimates.

Prior to the expiration of the provision that required separate accounting for the Convertible Note Derivative, the changes in fair value of the Convertible Note Derivative materially affected reported net income (loss) but had no related impact on our cash position or cash flows.

Changes in the reported fair value of the Convertible Note are not recognized in net income and therefore have no effect on reported net income (loss).

The significant assumptions used in the fair value model for the Convertible Note and related Convertible Note Derivative include the following, with a change in volatility and debt rate having the most significant impact on the related fair values.

September 30,

Prior to the expiration of the provision that required separate accounting for the Convertible Note Derivative, changes in the fair value of the Convertible Note Derivative materially affected reported net income (loss) but had no related impact on our cash position or cash flows.

Changes in the reported fair value of the Convertible Notes are not recognized in net income and therefore have no effect on reported net income (loss).

The significant assumptions used in the fair value model for the Convertible Notes and related Convertible Note Derivative include the following, with a change in volatility and debt rate having the most significant impact on the related fair values.

Risk-free interest rate

Stock price per share

On November 6, 2026, the Company entered into a standstill agreement with its Lender and holder of the Convertible Note.

Refer to Notes 1 and 13 for additional information.

Convertible Note Derivative

The Convertible Note Derivative, which related to the Convertible Note described above in Note 7, was valued upon initial recognition and at each reporting period at fair value using a with-and-without methodology utilizing a binomial lattice model (Level 3).

The Convertible Note Derivative, which related to the Convertible Notes described above in Note 7, was valued upon initial recognition and at each reporting period at fair value using a with-and-without methodology utilizing a binomial lattice model (a model which utilizes Level 3 fair value inputs).

Changes in the fair value were recognized in Derivative gain (loss) 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.

Refer to Note 7 for additional information about the fair value assumptions utilized on the valuation of the Convertible Note Derivative.

The components of changes to the fair value of the Convertible Note Derivative are summarized below.

Three months ended September 30, 2022

Refer to Note 7 for additional information about the fair value assumptions utilized for the valuation of the Convertible Note Derivative.

The components of changes to the fair value of the Convertible Note Derivative for the period presented are summarized below.

Six months ended

December 31, 2022

(in thousands)

Convertible note derivative (asset) liability —

beginning of period

Convertible note derivative (asset) liability — beginning of period

Additions, at fair value, August 26, 2022

Fair value adjustment (gain) loss

Convertible note derivative (asset) liability —

end of period

Reclassified to additional paid-in capital, at fair value, November 26, 2022

Convertible note derivative (asset) liability — end of period

Financial Instruments and Fair Value Measurements

At September 30, 2023 , cash equivalents as well as trade and other payables approximate their fair value due to their short-term nature.

At December 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 quarter ended December 31, 2022.

The reconciliation of changes in the fair value of the Convertible Note Derivative can be found in Note 8 and fair value as of September 30, 2023 in Note 7.

The reconciliation of changes in the fair value of the Convertible Note Derivative can be found in Note 8 and fair value as of December 31, 2023 in Note 7.

Share Based Compensation

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

Three months ended September 30,

Three months ended December 31,

Six Months Ended December 31,

(in thousands)

Share based compensation expense —

service based

Share based compensation expense — service based

Employee share option plan

2022 Equity Compensation Plan —

RSU and DSU's

2022 Equity Compensation Plan — Options

2022 Equity Compensation Plan — PSUs

2022 Equity Compensation Plan — RSU and DSUs

Total share based compensation expense

3 unchanged sentences

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 three months ended September 30, 2023 and 2022, using the Black-Scholes option valuation model are as follows.

Three months ended September 30,

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

Six months ended December 31,

Exercise price

3 unchanged sentences

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

Three months ended September 30,

Six months ended December 31,

Number of Options

8 unchanged sentences

Unvested at the end of the period

The weighted average remaining life of vested options at September 30, 2023 and 2022 was 1.2 years and 1.4 years, respectively.

As of September 30, 2023 , there was $ 2.4 million of unrecognized compensation cost related to 853 thousand unvested stock options.

The weighted average remaining life of vested options at December 31, 2023 and 2022 was approximately 1.0 years and 1.7 years, respectively.

As of December 31, 2023 , there was $ 2.1 million of unrecognized compensation cost related to 787 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.

Three months ended September 30,

Six months ended December 31,

Number of Options

6 unchanged sentences

Unvested at end of the period

As of September 30, 2023 , all outstanding stock options and vested stock options had no intrinsic value as the exercise prices of the respective options exceeded the Company's stock price on September 30, 2023 .

The intrinsic value of stock options exercised during the three months ended September 30, 2022 was $ 0.8 million.

There were no options exercised during the three months ended September 30, 2023.

As of December 31, 2023 , all outstanding stock options and vested stock options had no intrinsic value as the exercise prices of the respective options exceeded the Company's stock price on December 31, 2023 .

There were no options exercised during the six months ended December 31, 2023 .

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

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

Restricted Share Units, Director Share Units and Performance Share Units

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Non-vested shares/units

outstanding at September 30, 2023

outstanding at December 31, 2023

Serviced-Based Shares

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Non-vested shares/units

outstanding at September 30, 2022

(1) During the quarter ended September 30, 2023, approximately 121.6 thousand performance share units were granted, which based on the achievement of certain financial and operational targets, could vest within a range of 0 % to 100 %.

outstanding at December 31, 2022

(1) During the six months ended December 31, 2023 , approximately 121.6 thousand performance share units were granted, which based on the achievement of certain financial and operational targets, could vest within a range of 0 % to 100 %.

The targets are 1) construction of the large-scale commercial facility commencing prior to September 1, 2026;

2 unchanged sentences

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.

(2) During the quarter ended September 30, 2022, approximately 63.5 thousand performance share units were granted, which based on the achievement of certain operational targets, could vest within a range of 0 % to 100 %.

(2) During the six months ended December 31, 2022 , approximately 63.5 thousand performance share units were granted, which based on the achievement of certain operational targets, could vest within a range of 0 % to 100 %.

The targets are 1) commissioning and operation of the small-scale facility;

3 unchanged sentences

Earnings (Loss) Per Common Share

The following is the calculation of basic and diluted weighted-average shares outstanding and earnings (loss) per share for the indicated period.

Three months ended September 30,

(in thousands, except per share data)

Basic earnings (loss) per share:

Net income (loss) - numerator

Weighted-average shares —

Basic earnings (loss) per share

Diluted earnings (loss) per share:

Net income (loss)

Basic loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted loss per share reflects the potential dilution that could occur if stock options, warrants, and convertible securities were exercised or converted into common stock.

Diluted loss per share equals basic loss per share for the three and six months ended December 31, 2023 and 2022 as the effect of including dilutive securities in the calculation would be antidilutive.

For the three and six months ended December 31, 2023 and 2022, the following effects are excluded from the computation of dilutive loss per share as such effects would have an anti-dilutive effect.

Three months ended December 31,

Six Months Ended December 31,

(in thousands)

Interest expense on convertible note

Net income (loss) - numerator

Weighted-average shares (denominator):

Dilution effect of stock options and unvested restricted stock units

and performance share units outstanding at end of period

Additional shares assuming conversion of convertible note

Weighted-average shares —

Diluted earnings (loss) per share

Stock options and unvested restricted stock units and performance

share units excluded due to anti-dilutive effect

(1) Interest expense of $ 2.4 million related to the Convertible Notes for the quarter ended September 30, 2023, and the issuance of 3.6 million additional shares assuming the conversion of the Convertible Note on September 30, 2023 were excluded from the calculation of diluted earnings per share as such effects would be anti-dilutive.

Stock options and unvested restricted stock

units and performance share units

As discussed in Note 13, subsequent to December 31, 2023 the Company completed the Out-of-Court Restructuring.

This restructuring resulted in the issuance of approximately 19.0 million shares of our common stock.

Additionally, as part of the Out-of-Court Restructuring, and as discussed in Note 7, the conversion price related to our Convertible Notes was reduced to $ 1.5375 .

Convertible Notes were converted into our common stock as of December 31, 2023 at the reduced conversion price, it would have resulted in the issuance of approximately 41.3 million shares.

The impacts of the Out-of-Court Restructuring are not reflected in the computation of earnings per share for the three and six months ended December 31, 2023 and 2022, as it would have served to reduce the net loss per share .

Commitments and Contingencies

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We had purchase order commitments of $ 5.1 million for the construction works in progress, equipment, software, drilling and technical reports.

On July 17, 2023, we filed a complaint (the “Complaint”) against a previous construction contractor in the United States District Court for the Central District of California, Eastern Division, alleging, among other things, numerous breaches by the contractor of its contractual obligations to 5EBA under the Procurement and Construction Contract, effective April 26, 2022, by and between 5EBA and the contractor, relating to the construction of the Small-Scale Facility in California (the “Contract”).

On August 10, 2023, the contractor filed an answer to the Complaint as well as a counterclaim for, among other things, alleged breaches by 5EBA of its contractual obligations to the contractor under the Contract and has requested relief in the approximate amount of $ 5.5 million.

3 unchanged sentences

Subsequent Events

On November 9, 2023, the Company entered into an Agreement with its Lender.

The Agreement enables the Company, the Lender and other strategic investors to advance discussions towards a resolution for a recapitalization plan for the Company.

Under the Agreement, the parties have agreed to a period of standstill, temporarily allowing the Company to go below its current cash covenant of $ 10 million until December 1, 2023.

References herein to the “Company,”

“we,”

“our,”

“us,”

and "5E" refer to 5E Advanced Materials, Inc.

As discussed in Note 1 and Note 7, on January 12, 2024, the Company held a Special Meeting where the Company’s stockholders approved the Out-of-Court Restructuring, including (i) an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of the Company’s Common Stock from 180,000,000 to 360,000,000 , (ii) the issuance of up to $ 35 million of Common Stock at a price of $ 1.025 per share to Ascend and Bluescape, if Bluescape decided to exercise its option to participate in the Securities Offering, and (iii) the issuance of additional shares of the Company’s Common Stock upon conversion of the Convertible Notes in connection with an amendment to the Convertible Notes Amendment.

On January 18, 2024, pursuant to a subscription agreement with Ascend, dated December 5, 2023 (the “Ascend Subscription Agreement”) and an amended and restated subscription agreement with 5ECAP, dated January 18, 2024, we issued (i) 5,365,854 shares of Common Stock to Ascend at a price of $ 1.025 per share, which shares included the placement fee to Ascend in shares of Common Stock and (ii) 5,365,854 shares of Common Stock to 5ECAP at a price of $ 1.025 per share, which shares included the placement fee to 5ECAP in shares of Common Stock.

On January 18, 2024, in connection with the Out-of-Court Restructuring, we entered into the Amended and Restated Note Purchase Agreement with Bluescape, Ascend, and Meridian related to the Convertible Notes.

Pursuant to the Amended and Restated Note Purchase Agreement, the Convertible Notes bear interest at a rate of 4.50 % per annum, payable semi-annually, or 10.00 % per annum if we elect to pay such interest through the delivery of additional Convertible Notes and are convertible into 66,261,621 shares of Common Stock at a conversion price of $ 1.5375 per share of Common Stock (including accrued interest paid-in-kind).

The Convertible Notes mature on August 15, 2028 .

In addition, the minimum cash condition has been waived through June 28, 2024, with a reduction in such covenant thereafter from $ 10 million to $ 7.5 million.

On January 29, 2024, pursuant to the 5ECAP Subscription Agreement, the Company issued 8,317,074 shares of Common Stock to 5ECAP at a price of $ 1.025 per share.

A portion of the January 18, 2024 offering was the result of the Ascend Subscription Agreement dated December 5, 2023, but was contingent upon shareholder approval for the Out-of-Court Restructuring.

Since the probability of shareholders approving the Out-of-Court Restructuring could not be ascertained as of December 31, 2023, the stock subscription from Ascend was not reflected as a receivable within the Company’s equity balance as of December 31, 2023.

References herein to the “Company,” “we,” “our,” “us,” and "5E" refer to 5E Advanced Materials, Inc.

and its subsidiaries.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included in this Quarterly Report on Form 10-Q for the three months ended September 30, 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.

Private Securities Litigation Reform Act of 1995.

These forward-looking statements generally are identified by the words “believe,”

“project,”

“expect,”

“anticipate,”

“estimate,”

“intend,”

“budget,”

“target,”

“aim,”

“strategy,”

“estimate,”

“plan,”

“guidance,”

“outlook,”

“intend,”

“may,”

“should,”

“could,”

“will,”

“would,”

“will be,”

“will continue,”

“will likely result”

and similar expressions, although not all forward-looking statements contain these identifying words.

Forward-looking statements reflect the Company’s beliefs and expectations based on current estimates and projections.

Certain statements included in this Quarterly Report on Form 10-Q for the six months ended December 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 Private Securities Litigation Reform Act of 1995, as amended.

These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “intend,” “budget,” “target,” “aim,” “strategy,” “estimate,” “plan,” “guidance,” “outlook,” “intend,” “may,” “should,” “could,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions, although not all forward-looking statements contain these identifying words.

Forward-looking statements reflect the Company and management’s beliefs and expectations based on current estimates and projections.

While the Company believes these expectations, and the estimates and projections on which they are based, are reasonable and were made in good faith, these statements are subject to numerous risks and uncertainties.

Forward-looking statements involve known and unknown risks, uncertainties and other important factors, which include, but are not limited to, the risks described under the heading “Item 1A.

Risk Factors”

in our annual report on Form 10-K, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other important factors, which include, but are not limited to, the risks described under the heading “Item 1A.

– Risk Factors” in our annual report on Form 10-K and our quarterly report on Form 10-Q for the period ended September 30, 2023, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

Therefore, you should not rely on any of these forward-looking statements.

1 unchanged sentence

You are advised, however, to consult any additional disclosures we make in our reports to the U.S.

Securities and Exchange Commission (the “SEC”).

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in our latest annual report on Form 10-K and this Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K filed on August 30, 2023.

This discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions and other important factors, which include, but are not limited to, the risks described in our annual report on Form 10-K filed with the SEC, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth elsewhere in this Form 10-Q and under “Item 1A.

Risk Factors”

and elsewhere in our Form 10-K.

In addition, see “Cautionary Note Regarding Forward-Looking Statements.”

References to the “Company,”

“we,”

“our,”

and “us,”

refer to 5E Advanced Materials, Inc.

and its subsidiaries.

5E Advanced Materials, Inc.

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 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.

In 2022, our facility was designated as Critical Infrastructure by the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency.

Our vision is to safely process boric acid and lithium carbonate through sustainable best practices to enable decarbonization, food security and domestic supply surety.

2024 Outlook and Goals

Step-Rate Testing

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, including step-rate testing which establishes the porosity of the ore body and forms a base-line parameter.

During the quarter, the EPA approved step-rate testing, and we believe that this approval to commence testing under the terms of the Company's existing permit marks a meaningful step closer towards conducting boric acid and lithium carbonate extraction operations.

Small-Scale Facility

During the quarter ended September 30, 2023, we have substantially completed construction of our Small-Scale Facility.

Currently, the only open item to complete is the final electrical work for the back-end of the facility where boric acid, gypsum, and lithium carbonate production will occur.

In October 2023, Step-Rate Testing was completed, results were submitted to the EPA, and the well-field was reassembled post-Step-Rate Testing.

Upon final clearance from the EPA, the Small-Scale Facility will be ready to commence production and historical data suggests the well-field will take less than a month to condition before producing boric acid, gypsum, and lithium carbonate.

During well-field conditioning, we expect to focus on completing final electrical work and commissioning.

Standstill Agreement with Senior Secured Lender

During the quarter ended September 30, 2023, Bluescape Special Situations IV (the "Lender"), the holder of our senior secured convertible note (the "Convertible Note"), communicated an alleged breach of the Convertible Note agreement regarding a nonfinancial covenant.

However, the Lender elected not to pursue any remedies related thereto.

We disagreed with the Lender's contention.

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

On November 9, 2023, we entered into a Standstill Agreement (the "Agreement") with the Lender.

The Agreement enables 5E, the Lender, and other strategic investors to advance discussions towards a resolution for a recapitalization plan for the Company.

Under the Agreement, the parties have agreed to a period of standstill, temporarily allowing the Company to go below its current cash covenant of $10 million until December 1, 2023.

We are committed to protecting the interests of our stakeholders and are working diligently to enhance our financial health.

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

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

On November 9, 2023, we entered into an Agreement with our Lender and other strategic investors.

The Agreement enables 5E, the Lender and other strategic investors to advance discussions towards a recapitalization plan for the Company.

Under the Agreement, the parties have agreed to a period of standstill, temporarily allowing the Company to go below its current cash covenant of $10 million until December 1, 2023.

If we are not able to obtain additional financing and agree to a successful recapitalization plan by December 1, 2023, our cash balance is expected to fall below $10 million, and an event of default would occur.

However, it is expected that any recapitalization plan will waive any default under the Convertible Note agreement.

While we believe that the standstill period will result in a successful recapitalization, 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.

Further, even if the anticipated recapitalization plan is successfully consummated in the fourth quarter 2023, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding the Company's ability to continue as a going concern.

Refer to the "Going Concern" discussion within Note 1 of the unaudited condensed consolidated financial statements and “Liquidity and Capital Resources”

below for more information.

inflation rate rose steadily beginning in 2021 and continued a steep climb into 2022.

Although the inflation rate has somewhat moderated in 2023 it continues to be higher than historic averages.

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

Sustained levels of high inflation have caused the U.S.

Federal Reserve and other central banks to increase interest rates, which could have the effects of raising the cost of capital and depressing economic growth, either of which or the combination thereof, could adversely affect our business.

COVID-19 Response

We have implemented policies at our offices in Hesperia, CA and Houston, TX and at 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 possible, adhere to good hygiene practices, and engage in social distancing.

Continuation of COVID-19 or other widespread outbreak of contagious disease in 2024 and beyond could impact employee health, workforce productivity, insurance premiums, ability to travel, the availability of industry experts, personnel and equipment, restrictions or delays to field work, construction, procurement, studies, lab results, and other factors that will depend on future developments that may be beyond our control.

At the onset of the COVID-19 pandemic and through 2022, we experienced, at times, significant shipping delays due to congestion and slowdowns at U.S.

and international ports caused by shortages in vessels, containers, and truckers, also disrupting the global supply chain.

This contributed to certain cost and schedule pressures related to the construction of the Small-Scale Facility.

We continue to monitor the global situation, including the impacts of new and potential future variants of COVID-19, or other factors that may affect international shipping, logistics, and supply chain, or involve responses to government actions such as strikes or other disruptions.

The forward-looking information contained in this section is subject to the risk factors and assumptions contained in the “Cautionary Note Regarding Forward-Looking Statements”

and “Risk Factor”

Results of Operations

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

Three Months Ended September 30,

(in thousands)

COSTS AND EXPENSES

Project expenses

General and administrative

Research and development

Depreciation and amortization expense

Total costs and expenses

LOSS FROM OPERATIONS

NON-OPERATING INCOME (EXPENSE)

Interest income

Derivative gain (loss)

Interest expense

Other expense

Total non-operating income (expense)

NET INCOME (LOSS)

Comparison of the three months ended September 30, 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 three months ended September 30, 2023, project expenses decreased $2.0 million or 56% versus the comparable period in 2022 as there was decreased activity related to the Project.

Specifically, the decrease was primarily due to a reduction in expenses incurred relating to our plug and abandonment program ($2.5 million), reduced expenses incurred for engineering and technical reports that were not eligible for capitalization as construction in progress ($0.2 million), and a reduction in general site-related operating costs ($0.2 million).

These decreases were partially offset by increased Environmental Protection Agency compliance costs ($0.6 million), testing and analysis ($0.2 million) and construction related insurance costs ($0.1 million).

General and administrative expenses

General and administrative expenses include professional fees, costs associated with marketing, on-going SEC and public company costs, public relations, rent, salaries, sponsorships, share based compensation and other expenses.

For the three months ended September 30, 2023 general and administrative expenses increased $1.2 million or 24% versus the comparable period in 2022.

The increase was primarily due to an increase in professional fees ($1.0 million), an increase in non-incentive employee compensation and benefits ($0.6 million) and an increase in compliance and filing fees ($0.2 million).

The increase in professional fees was primarily due to an increase in legal fees, and the increase in salaries and benefits resulted from the hiring of additional personnel for the construction and operation of the Small-Scale Facility.

Currently, all salaries and benefits are reported in general and administrative expenses.

These increases were partially offset by a decrease in share based compensation costs ($0.7 million), and specifically a reduction in option awards.

Depreciation and amortization expense

Depreciation and amortization expense increased $16 thousand or 43% versus the comparable period in 2022.

The increase was primarily due to additional assets placed in service during the second and third fiscal quarters of 2023.

Interest income

The increase in interest income during the three months ended September 30, 2023 versus the comparable period in 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 5.3% and 2.8 % for the three months ended September 30, 2023 and 2022, respectively.

Derivative gain

The derivative gain (loss) during the three months ended September 30, 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 gain during the three months ended September 30, 2022, was primarily due to the decrease in our stock price to $10.16 as of September 30, 2022 from $15.83 on August 26, 2022 (inception date).

Interest expense

The increase in interest expense of $1.0 million, or 118%, during the three months ended September 30, 2023 versus the comparable period in 2022 was primarily due to the issuance of the convertible note on August 26, 2022.

We recognized $2.4 million of interest on the principal balance, debt issuance cost and discount amortization during the three months ended September 30, 2023 compared to $0.8 million for the comparable period in 2022.

Additionally, during the three months ended September 30, 2023 we capitalized $0.6 million of interest to construction in progress compared to none in the comparable period of 2022.

We did not have any income tax expense or benefit for the three months ended September 30, 2023 and 2022, as we have recorded a full valuation allowance against our net deferred tax asset.

For the three months ended September 30,

($ in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

During the three months ended September 30, 2023, we used $6.9 million of cash for operating activities, a decrease of $0.9 million or 12% compared to the comparable period in 2022.

Cash used by operating activities decreased between periods primarily due to a decrease in project related expenses that was offset by a lesser extent to an increase in general and administrative expenses net of non-cash share based compensation expense.

Refer to the preceding discussion for more information on increases and decreases in certain expenses between periods.

During the three months ended September 30, 2023, we used $1.6 million of cash for investing activities, a decrease of $3.5 million or 68% compared to the comparable period in 2022.

The reduction in investing cash flows was due to reduced spending on construction in progress related to the Small-Scale Facility between periods.

Cash flows provided by financing activities during the three months ended September 30, 2022 were the result of the issuance of the Convertible Notes net of debt issuance costs with no comparable activity during the same period in 2023.

Liquidity and Capital Resources

As of September 30, 2023, we had cash and cash equivalents of $11.8 million and working capital of $3.8 million compared to $20.3 million and $13.3 million as of June 30, 2023, respectively.

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

Since inception, we have not generated revenues, and as such, have relied on equity financing and hybrid equity and debt instruments to fund our operating and investing activities.

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, and general corporate purposes.

With our current capital resources and constructing nearly complete, 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 achieve the following milestones that will require additional capital:

Operate the Small-Scale Facility;

Progress FEL2, FEL3, and 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 expenditures through various drilling techniques such as directional, horizontal and radial drilling;

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;

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.

We are currently operating under a modified business plan until we secure additional financing.

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

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.

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

On November 9, 2023, we entered into an Agreement with our Lender and other strategic investors.

The Agreement enables 5E, the Lender, and other strategic investors to advance discussions towards a recapitalization plan for the Company.

Under the Agreement, the parties have agreed to a period of standstill, temporarily allowing the Company to go below its current cash covenant of $10 million until December 1, 2023.

Given that raising additional capital and a successful recapitalization are not entirely within our control combined with our expectation of incurring significant operating and development costs for 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.

Further, if the anticipated recapitalization plan is successfully consummated in the fourth quarter 2023, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding the Company's ability to continue as a going concern.

Refer to the “Going Concern”

discussion within Note 1 of the unaudited condensed consolidated financial statements for more information.

Material Cash Requirements

Our material short-term cash requirements include general and administrative expenses including recurring payroll and benefit obligations for our employees, construction related costs necessary to complete the Small-Scale Facility, project related costs, payments under certain lease agreements and working capital needs.

Our long-term material cash requirements from currently known obligations include repayment of outstanding borrowings and interest payment obligations under our Convertible Notes (which may be avoided to the extent the notes are converted to shares of our common stock and/or interest is paid-in-kind) and future obligations to reclaim, remediate, or otherwise restore properties to a condition that existed prior to our operations.

Refer to the “Construction in Progress,”

“Asset Retirement Obligations,”

“Accounts Payable and Accrued Liabilities,”

“Long-term Debt”

and “Commitments and Contingencies”

footnotes in the unaudited condensed consolidated financial statements for more information on certain of these expenditures and obligations.

Critical Accounting Policies

A complete discussion of our critical accounting policies is included in our Form 10-K for the year ended June 30, 2023.

There have been no significant changes in our critical accounting policies during the three months ended September 30, 2023.

Contractual Commitments and Contingencies

Purchase Obligations

We had purchase order commitments of $6.8 million for the construction works in progress, equipment, software, drilling and technical reports.

Quantitative and Qualitative Disclosures About Market Risk.

Not required.

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