What changed in this filing

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Item 1. Financial Statements

2024-04-29 compared with 2024-02-14 · 173 added, 136 removed, 303 unchanged (50% of the section changed)

1 unchanged sentence

5E ADVANCED MATERIALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

21 unchanged sentences

360,000 shares authorized;

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

44,187 shares outstanding March 31, 2024 and June 30, 2023, respectively

Additional paid-in capital

4 unchanged sentences

5E ADVANCED MATERIALS, INC

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(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:

7 unchanged sentences

Interest income

Loss on extinguishment of debt

Derivative gain (loss)

6 unchanged sentences

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

Weighted average common shares outstanding — basic and diluted

Weighted average common shares outstanding —

basic and diluted

Comprehensive income (loss):

3 unchanged sentences

5E ADVANCED MATERIALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six months ended December 31,

Nine months ended March 31,

Cash Flows From Operating Activities:

3 unchanged sentences

Share based compensation

Unrealized (gain) loss on convertible note derivative instrument

Loss on extinguishment of debt

Unrealized (gain) loss on convertible note derivative

Accretion of asset retirement obligations

9 unchanged sentences

Cash Flows From Financing Activities:

Proceeds from issuance of convertible note

Proceeds from issuance of common stock, net of offering costs

Proceeds from issuance of convertible notes

Debt issuance costs

1 unchanged sentence

Proceeds from exercise of stock options

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

5 unchanged sentences

Accounts payable and accrued liabilities change related to construction in progress

Recognition of operating lease liability and right of use asset

Increase in asset retirement costs

Increase in net long-term debt resulting from modification (Note 7)

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.

5E ADVANCED MATERIALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands)

14 unchanged sentences

Balance at December 31, 2022

Shares issued for:

Exercise of stock options

Share based compensation

Net income (loss)

Balance at March 31, 2023

Stockholders’

10 unchanged sentences

Balance at December 31, 2023

Shares issued for:

Cash, net of offering costs

Share based compensation

Net income (loss)

Balance at March 31, 2024

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 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 .

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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as amended, filed with the Securities and Exchange Commission (“SEC”) on August 30, 2023.

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position as of March 31, 2024, results of operations for the three and nine months ended March 31, 2024 and 2023 and cash flows for the nine months ended March 31, 2024 and 2023 have been included.

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

Basis of Consolidation

2 unchanged sentences

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

The Company holds 100 % of the rights through ownership in the 5E Boron Americas (Fort Cady) Complex (the “Project”) located in southern California, through its ownership of 5EBA.

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.

With the U.S.

Environmental Protection Agency (“EPA”) approval still an open item at the time, public markets 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.

2 unchanged sentences

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.

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

On December 1, 2023, the effectiveness of the Standstill Agreement was extended from December 1, 2023 to December 5, 2023 at which point the Company 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).

On January 12, 2024, 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 Note Purchase Agreement.

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”), the Company 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, the Company 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 the Company elects to pay such interest through the delivery of additional Convertible Notes and are convertible into a maximum of 66,261,621 shares of Common Stock at a conversion rate of 650.4065 shares of common stock per $ 1,000 principal amount of Convertible Notes (including accrued interest paid-in-kind through maturity).

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.

Additionally, following certain corporate events that may occur prior to the maturity date, the Company will, in certain circumstances that include a change of control transaction or liquidation of the Company or any failure of its common stock to be listed on Nasdaq or any other eligible exchange, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event.

The Amended and Restated Note Purchase Agreement provides that, until the Company and the purchasers of the Convertible Notes agree to a final formula for such adjustments in accordance with the Amended and Restated Note Purchase Agreement, the maximum adjusted conversion rate following such a corporate event will be 754.4715 shares of Common Stock per $ 1,000 principal amount of Convertible Notes.

The formula ultimately agreed upon by us and the purchasers may result in additional dilution to our stockholders if one of the specified corporate events should occur.

As part of the Amended and Restated Note Purchase Agreement, the minimum cash condition was waived through June 28, 2024, with a reduction in the covenant thereafter from $ 10 million to $ 7.5 million.

However, as further discussed in Note 13, on April 28, 2024, the waiver of the minimum cash condition was further extended through December 31, 2024.

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

2024 Equity Distribution Agreement with Canaccord Genuity LLC and D.A.

Davidson & Co.

On March 28, 2024, the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Canaccord Genuity LLC and D.A.

Davidson & Co.

(each, an “Agent” and together, the “Agents”) providing for the offer and sale of up to $ 15,000,000 of shares of the Company’s Common Stock from time to time by the Company through the Agents, acting as the Company’s sales agents, or directly to one or more of the Agents, acting as principal (the “ATM Offering”).

Sales of shares of the Company’s Common Stock, if any, as contemplated by the Equity Distribution Agreement, made through any Agent acting as sales agent or directly to any Agent acting as principal, will be made by any method permitted by law, including without limitation (i) by means of ordinary brokers’ transactions (whether or not solicited), (ii) to or through a market maker, (iii) directly on or through any national securities exchange or facility thereof, a trading facility of a national securities association, an alternative trading system or any other market venue, (iv) in the over-the-counter market, (v) block transactions, (vi) in privately negotiated transactions or (vii) through a combination of any such methods.

The Company will pay the applicable Agent a commission equal to 3.0 % of the gross sales price of the shares of the Company’s common stock sold through the Agents, as the Company’s sales agents.

The Company also will reimburse the Agents for certain specified expenses in connection with entering into the Equity Distribution Agreement.

None of the Agents are required to sell any specific number or dollar amount of shares of the Company’s Common Stock, but each has agreed, subject to the terms and conditions of the Equity Distribution Agreement, to use its commercially reasonable efforts, consistent with its normal trading and sales practices, to sell the shares of the Company’s Common Stock on the terms agreed upon by such Agent and the Company, provided that the number of common stock sold pursuant to the Equity Distribution Agreement will not (at any time) exceed the Company's available placement capacity under ASX Listing Rule 7.1.

Any common stock to be sold in excess of the Company's available placement capacity under ASX Listing Rule 7.1 will be subject to, and conditional on, shareholder approval.

Under the terms of the Equity Distribution Agreement, the Company may also sell shares of its Common Stock to one or more of the Agents, as principal, at a price agreed upon at the time of sale.

If the Company sells shares of its common stock to one or more of the Agents, as principal, the Company will enter into a separate written agreement with such Agent or Agents, as applicable, setting forth the terms of the transaction.

In any such sale to an Agent or Agents as principal, the Company may agree to pay the applicable Agent or Agents a commission or underwriting discount that may exceed 3.0 % of the gross sales price of the Company’s common stock sold to such Agent or Agents, as principal.

Any shares of the Company’s Common Stock offered and sold in the ATM Offering will be issued pursuant to the Company’s shelf Registration Statement on Form S-3, as amended (No.

333-276162), which was declared effective on February 27, 2024 (the “Registration Statement”), the prospectus supplement relating to the ATM Offering filed with the SEC on March 28, 2024, which forms a part of the Registration Statement, and any applicable additional prospectus supplements related to the ATM Offering that form a part of the Registration Statement.

The Company did not sell any Common Stock nor receive any proceeds under the Equity Distribution Agreement during the three months ended March 31, 2024.

Going Concern

2 unchanged sentences

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.

In performing this analysis, 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 improved the Company’s cash position, and the Company continues to operate under a business plan that includes reductions in certain spending, management 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 December 31, 2024 (as discussed in No te 7 and Note 13).

If the Company is not able to secure additional financing and the Company’s cash balance falls below $ 7.5 million after such date, an event of default under the Amended and Restated Note Purchase Agreement could 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.

The receipt of potential funding 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.

Even if additional 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.

Financial Instruments

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

The Company's financial instruments consist of cash and cash equivalents, the Convertible Notes, vehicle notes, and accounts payable and accrued liabilities.

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.

See Note 7 for fair value information related to the convertible notes.

The fair values of these instruments, due to their short-term nature, with the exception of the Convertible Notes and vehicle notes, approximate their carrying value.

See Note 7 fo r fair value information related to the Convertible Notes.

Concentration of Risk

2 unchanged sentences

Risks and Uncertainties

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 is subject to a number of risks that its management believes are similar to those of other companies of similar size and industry, including but not limited to, the success of its 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.

2 unchanged sentences

Recently Issued and Adopted Accounting Pronouncements

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.

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.

In December 2023, the FASB issued ASU No.

2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 is intended to improve income tax disclosures primarily through enhanced disclosure of income tax rate reconciliation items, and disaggregation of income (loss) from continuing operations, income tax expense (benefit) and income taxes paid, net disclosures by federal, state and foreign jurisdictions, among others.

ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, and early adoption is permitted.

The Company is evaluating the impact that ASC 2023-09 will have on the consolidated financial statements and its plan for adoption, including the adoption date and transition method.

Mineral Rights and Properties, Net

Mineral rights and properties, net consisted of the following.

Mineral rights and properties, net consisted of the following at the end of each period presented.

(in thousands)

2 unchanged sentences

Asset retirement cost, net of accumulated amortization

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

of $ 38 and $ 23 at March 31, 2024 and June 30, 2023, respectively (1)

Mineral rights and properties, net

1 unchanged sentence

Construction in Progress

Construction in progress consisted of the following.

Construction in progress consisted of the following at the end of each period presented.

(in thousands)

4 unchanged sentences

Properties, Plant and Equipment, Net

Properties, plant and equipment, net consisted of the following.

Properties, plant and equipment, net consisted of the following at the end of each period presented.

Estimated useful

8 unchanged sentences

Properties, plant and equipment, net

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.

For the three months ended March 31, 2024 and 2023 , the Company recognized depreciation expense of approximately $ 48 and $ 47 thousand, respectively.

For the nine months ended March 31, 2024 and 2023, the Company recognized depreciation expense of approximately $ 145 and $ 119 thousand, respectively.

Asset Retirement Obligations

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

The change in the Company’s asset retirement obligations during the period presented and the balance of its accrued reclamation liabilities at the end of the period are set forth below.

Nine months ended

March 31, 2024

(in thousands)

17 unchanged sentences

(in thousands)

Convertible note

Convertible notes

Vehicle notes payable

1 unchanged sentence

Long-term debt

Unamortized convertible note discount — embedded conversion feature

Unamortized debt issuance costs - convertible note

Unamortized convertible note discount

Unamortized debt issuance costs — convertible notes

Long-term debt, net

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.

On August 15, 2023 and February 15, 2024, the Company elected to issue additional notes as payment for $ 1.9 million and $ 2.1 million of interest accrued during the period from February 16, 2023 through August 15, 2023, and August 16, 2023 through February 15, 2024, respectively.

Interest expense consisted of the following for each period presented.

Three months ended December 31,

Six months ended December 31,

(in thousands)

Three months ended March 31,

Nine months ended March 31,

(in thousands)

Convertible note interest

Convertible notes interest

Vehicle notes payable interest

Amortization of debt issuance costs and

discount — convertible note

discount — convertible notes

Other interest

2 unchanged sentences

Interest expense, net of amounts capitalized

Effective interest rate — convertible note

Convertible Note

Effective interest rate — convertible notes (1)

(1) The effective interest rate represents a weighted-average interest rate applicable for the respective period.

Interest expense utilized in the calculation is based upon the gross interest expense in the table above, and the principal balance utilized in the calculation is based on the ending net long-term debt applicable to each interest period inclusive of changes in the principal balance resulting from interest paid-in-kind and any adjustments resulting from the Amended and Restated Note Purchase Agreement executed on January 18, 2024.

Convertible 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.

As discussed within Note 1, 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 “Modification Date”), 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 .

1 unchanged sentence

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

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 .

As part of the Amended and Restated Note Purchase Agreement, the minimum cash covenant was waived through June 28, 2024 and was reduced thereafter to $ 7.5 million.

However, as further discussed in Note 13, on April 28, 2024, the waiver of the minimum cash condition was extended further through December 31, 2024.

The purchaser may convert the Convertible Notes into shares of the Company’s 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.

For accounting purposes, the modification of the terms of the Convertible Notes described above was evaluated and determined to be representative of an in-substance extinguishment of the Convertible Notes and establishment of new debt, primarily due to the significance of the changes to the terms of the conversion features.

As a result, the Company wrote-off the remaining principal, accrued interest, unamortized discount and debt issuance costs associated with the prior debt on the Modification Date and recognized the modified debt on the balance sheet at its fair value of $ 65.2 million.

The fair value of the modified debt was determined utilizing a binomial lattice model, and the significant inputs to such model are described in more detail below.

The difference in value between the prior debt and the modified debt resulted in a loss on extinguishment of debt of $ 21.0 million, the components of which are summarized in the table below.

For the three and nine months ended March 31, 2024

(in thousands)

Modified Convertible Notes, at fair value

Accrued interest

Net long-term debt recognized

Convertible Notes on Modification Date

Accrued interest

Unamortized convertible notes discount

Unamortized debt issuance costs

Net long-term debt written-off

Loss on extinguishment of debt

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 Convertible Notes were initially recorded at their 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.

Fair value and carrying value information for the Convertible Notes at each period end follows.

Unamortized Debt

Net Liability

Issuance Costs

(in thousands)

Fair value of convertible note (Level 2)

Total fair value of convertible note

As of March 31, 2024

Convertible Notes due August 15, 2028

As of June 30, 2023

Convertible Notes due August 15, 2027

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, 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.

Additionally, the modification of the conversion features associated with the Amended and Restated Note Purchase Agreement during the quarter ended March 31, 2024 resulted in a significant increase in the fair value of the Convertible Notes.

Changes in the reported fair value of the Convertible Notes between periods 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 changes in volatility, debt rate and stock price having the most significant impact on the related fair values.

(Modification Date)

Risk-free interest rate

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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.

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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

Nine months ended

March 31, 2023

(in thousands)

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Financial Instruments and Fair Value Measurements

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 December 31, 2023 in Note 7.

At March 31, 2024, 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, the Convertible Notes which are classified as Level 2, 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.

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 December 31,

Six Months Ended December 31,

Share based compensation expense is included in general and administrative expense and represents costs associated with restricted share ("RSU"), director restricted share ("DSU") and performance share ("PSU") activity.

Share based compensation expense consisted of the following for the periods presented.

Three months ended March 31,

Nine Months Ended March 31,

(in thousands)

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Stock Options

All options outstanding prior to the three-month period ended September 30, 2022 were granted under the predecessor parent company's employee share option plan.

All stock options outstanding prior to the three-month period ended September 30, 2022 were granted under the predecessor parent company's employee share option plan.

New option grants are made under the 2022 Equity Compensation Plan and vest ratably over the vesting period which is generally three years or less.

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, 2023 and 2022, using a 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, 2024 and 2023, using a 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, 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.

The weighted average remaining life of vested options at March 31, 2024 and 2023 was approximately 0.7 years and 1.7 years, respectively.

As of March 31, 2024 , there was $ 1.3 million of unrecognized compensation cost related to 483 thousand unvested stock options.

This cost is expected to be recognized over a weighted-average remaining period of approximately 1.4 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, 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.

As of March 31, 2024 , 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 March 31, 2024 .

There were no options exercised during the nine months ended March 31, 2024.

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

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

Restricted Share Units, Director Share Units and Performance Share Units

The following table summarizes restricted share ("RSU"), director restricted share ("DSU") and performance share ("PSU") activity under the 2022 Equity Compensation Plan for each of the periods presented.

The following table summarizes RSU, DSU and PSU activity under the 2022 Equity Compensation Plan for each of the periods presented.

Serviced-Based Shares

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Non-vested shares/units

outstanding at December 31, 2023

outstanding at March 31, 2024

Serviced-Based Shares

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Non-vested shares/units

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 %.

outstanding at March 31, 2023

(1) During the nine months ended March 31, 2024 , 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;

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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 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 %.

(2) During the nine months ended March 31, 2023 , 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;

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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,

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

Diluted loss per share equals basic loss per share for the three and nine months ended March 31, 2024 and 2023 as the effect of including dilutive securities in the calculation would be anti-dilutive.

For the three and nine months ended March 31, 2024 and 2023, 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 March 31,

Nine Months Ended March 31,

(in thousands)

Interest expense on convertible note

Additional shares assuming conversion of convertible note

Additional shares assuming conversion of convertible notes

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

Purchase Obligations

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”).

The Company had purchase order commitments of $ 4.7 million for the construction works in progress, equipment, software, drilling and technical reports.

On July 17, 2023, the Company 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.

We plan on filing a response disputing the counterclaims asserted by the contractor and reaffirming the grounds for recovery raised in the Complaint.

The Company plans on filing a response disputing the counterclaims asserted by the contractor and reaffirming the grounds for recovery raised in the Complaint.

Discovery has begun and is ongoing.

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Subsequent Events

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 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 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.

These forward-looking statements speak only as of the date of this report and, except as required by law, the Company undertakes no obligation to correct, update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required under federal securities laws.

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.

Amendment to Amended and Restated Note Purchase Agreement

On April 28, 2024, the Company and the holders of the requisite amount of Convertible Notes entered an amendment to the Amended and Restated Note Purchase Agreement, pursuant to which the parties agreed that the waiver of the agreement’s minimum cash covenant would be extended from June 28, 2024 to December 31, 2024.

From and after December 31, 2024, the Company will be required to maintain a minimum cash balance of at least $ 7.5 million or else an event of default will occur under the Amended and Restated Note Purchase Agreement.

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