5E Advanced Materials, Inc. 10-Q

Item 1. Financial Statements. 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share data) March 31, June 30, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 7,986 $ 20,323 Prepaid expenses and other current assets 2,012 1,808 Total current assets 9,998 22,131 Mineral rights and properties, net 7,622 7,637 Construction in progress 75,708 67,553 Properties, plant and equipment, net 3,000 3,056 Reclamation bond deposit 308 309 Right of use asset 321 207 Other assets 6 6 Total assets $ 96,963 $ 100,899 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 7,123 $ 8,728 Lease liabilities, current 146 136 Total current liabilities 7,269 8,864 Long-term debt, net 63,273 37,671 Lease liabilities 180 74 Asset retirement obligations 777 724 Total liabilities 71,499 47,333 Commitments and contingencies (Note 12) Stockholders’ equity: Common stock, $ 0.01 par value; 360,000 shares authorized; 63,286 and 44,187 shares outstanding March 31, 2024 and June 30, 2023, respectively 633 441 Additional paid-in capital 208,710 191,113 Retained earnings (accumulated deficit) ( 183,879 ) ( 137,988 ) Total stockholders’ equity 25,464 53,566 Total liabilities and stockholders’ equity $ 96,963 $ 100,899 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 5E ADVANCED MATERIALS, INC CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands, except per share amounts) Three months ended March 31, Nine months ended March 31, 2024 2023 2024 2023 Operating expenses: Project expenses $ 1,155 $ 1,268 $ 4,169 $ 8,267 General and administrative 2,997 6,004 16,431 18,591 Research and development — 45 45 123 Impairment — 908 — 908 Depreciation and amortization expense 53 53 159 132 Total operating expenses 4,205 8,278 20,804 28,021 Income (loss) from operations ( 4,205 ) ( 8,278 ) ( 20,804 ) ( 28,021 ) Non-operating income (expense): Interest income 73 388 215 914 Other income 4 13 7 49 Loss on extinguishment of debt ( 20,953 ) — ( 20,953 ) — Derivative gain (loss) — — — 11,743 Interest expense ( 822 ) ( 2,237 ) ( 4,348 ) ( 5,043 ) Other expense ( 2 ) ( 1 ) ( 8 ) ( 14 ) Total non-operating income (expense) ( 21,700 ) ( 1,837 ) ( 25,087 ) 7,649 Income (loss) before income taxes ( 25,905 ) ( 10,115 ) ( 45,891 ) ( 20,372 ) Income tax provision (benefit) — — — — Net income (loss) $ ( 25,905 ) $ ( 10,115 ) $ ( 45,891 ) $ ( 20,372 ) Net income (loss) per common share — basic and diluted $ ( 0.44 ) $ ( 0.23 ) $ ( 0.94 ) $ ( 0.47 ) Weighted average common shares outstanding — basic and diluted 58,513 44,104 48,956 43,737 Comprehensive income (loss): Net income (loss) $ ( 25,905 ) $ ( 10,115 ) $ ( 45,891 ) $ ( 20,372 ) Comprehensive income (loss) $ ( 25,905 ) $ ( 10,115 ) $ ( 45,891 ) $ ( 20,372 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine months ended March 31, 2024 2023 Cash Flows From Operating Activities: Net income (loss) $ ( 45,891 ) $ ( 20,372 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 159 132 Share based compensation 2,088 4,251 Loss on extinguishment of debt 20,953 — Unrealized (gain) loss on convertible note derivative — ( 11,743 ) Impairment — 908 Accretion of asset retirement obligations 53 20 Amortization of debt issuance costs and discount — convertible note 3,306 3,454 Amortization of right of use asset 120 124 Change in: Prepaid expenses and other current assets ( 204 ) ( 386 ) Accounts payable and accrued liabilities ( 221 ) ( 514 ) Net cash used in operating activities ( 19,637 ) ( 24,126 ) Cash Flows From Investing Activities: Construction in progress ( 5,790 ) ( 29,705 ) Properties, plant and equipment additions ( 88 ) ( 333 ) Net cash used in investing activities ( 5,878 ) ( 30,038 ) Cash Flows From Financing Activities: Proceeds from issuance of common stock, net of offering costs 15,794 — Proceeds from issuance of convertible notes — 60,000 Debt issuance costs ( 2,586 ) ( 4,160 ) Payments on note payable ( 30 ) ( 29 ) Proceeds from exercise of stock options — 3,466 Net cash provided by financing activities 13,178 59,277 Net increase (decrease) in cash and cash equivalents ( 12,337 ) 5,113 Cash and cash equivalents at beginning of period 20,323 31,057 Cash and cash equivalents at end of period $ 7,986 $ 36,170 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 22 $ 5 Noncash Investing and Financing Activities: Accounts payable and accrued liabilities change related to construction in progress $ 2,365 $ 6,203 Recognition of operating lease liability and right of use asset 234 — Increase in asset retirement costs — 167 Increase in net long-term debt resulting from modification (Note 7) 20,954 — Interest paid through issuance of additional convertible notes 3,961 1,710 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (In thousands) Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance at June 30, 2022 43,305 $ 433 $ 169,593 $ ( 107,364 ) $ 62,662 Shares issued for: Exercise of stock options 50 1 255 — 256 Share based compensation — — 1,300 — 1,300 Net income (loss) — — — 4,606 4,606 Balance at September 30, 2022 43,355 $ 434 $ 171,148 $ ( 102,758 ) $ 68,824 Shares issued for: Exercise of stock options 525 5 1,911 — 1,916 Vesting of restricted share units 9 — — — — Share based compensation — — 2,233 — 2,233 Convertible note derivative liability reclassification — — 13,153 — 13,153 Net income (loss) — — — ( 14,863 ) ( 14,863 ) Balance at December 31, 2022 43,889 $ 439 $ 188,445 $ ( 117,621 ) $ 71,263 Shares issued for: Exercise of stock options 260 2 1,292 — 1,294 Share based compensation — — 718 — 718 Net income (loss) — — — ( 10,115 ) ( 10,115 ) Balance at March 31, 2023 44,149 $ 441 $ 190,455 $ ( 127,736 ) $ 63,160 Additional Total Common Stock Paid-in Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance at June 30, 2023 44,187 $ 441 $ 191,113 $ ( 137,988 ) $ 53,566 Shares issued for: Vesting of restricted share units 50 1 ( 32 ) — ( 31 ) Share based compensation — — 599 — 599 Net income (loss) — — — ( 9,370 ) ( 9,370 ) Balance at September 30, 2023 $ 44,237 $ 442 $ 191,680 $ ( 147,358 ) $ 44,764 Shares issued for: Vesting of restricted share units — — ( 62 ) — ( 62 ) Share based compensation — — 906 — 906 Net income (loss) — — — ( 10,616 ) ( 10,616 ) Balance at December 31, 2023 $ 44,237 $ 442 $ 192,524 $ ( 157,974 ) $ 34,992 Shares issued for: Cash, net of offering costs 19,049 191 15,603 — 15,794 Share based compensation — — 583 — 583 Net income (loss) — — — ( 25,905 ) ( 25,905 ) Balance at March 31, 2024 $ 63,286 $ 633 $ 208,710 $ ( 183,879 ) $ 25,464 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 5E ADVANCED MATERIALS, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. 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 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 The unaudited condensed consolidated financial statements comprise the financial statements of 5E Advanced Materials, Inc. and its wholly owned subsidiaries, American Pacific Borates Pty Ltd. 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 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. 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 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, 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. 8 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 . 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. 9 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 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 for one year after the date that the condensed consolidated financial statements are issued. 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 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 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, 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, 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 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 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. 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. 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. 10 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. 2. Mineral Rights and Properties, Net Mineral rights and properties, net consisted of the following at the end of each period presented. March 31, June 30, 2024 2023 (in thousands) Mineral properties $ 6,733 $ 6,733 Hydrology wells 547 547 Asset retirement cost, net of accumulated amortization of $ 38 and $ 23 at March 31, 2024 and June 30, 2023, respectively (1) 342 357 Mineral rights and properties, net $ 7,622 $ 7,637 (1) Asset retirement costs represent the carrying value of capitalized costs associated with asset retirement obligations discussed in Note 5. 3. Construction in Progress Construction in progress consisted of the following at the end of each period presented. March 31, June 30, 2024 2023 (in thousands) Engineering services $ 9,576 $ 9,122 Equipment 33,292 31,692 Construction 25,211 21,579 Injection and recovery wells 4,097 4,002 Capitalized interest 3,532 1,158 Total construction in progress $ 75,708 $ 67,553 4. Properties, Plant and Equipment, Net Properties, plant and equipment, net consisted of the following at the end of each period presented. Depreciation Estimated useful March 31, June 30, Asset category method life (in years) 2024 2023 (in thousands) Land N/A — $ 1,533 $ 1,533 Buildings Straight-line 7 - 15 873 873 Vehicles Straight-line 3 - 5 345 345 Plant and equipment Straight-line 5 - 10 711 623 3,462 3,374 Less accumulated depreciation ( 462 ) ( 318 ) Properties, plant and equipment, net $ 3,000 $ 3,056 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. 11 5. Asset Retirement Obligations 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) Asset retirement obligation — beginning of period $ 724 Obligation incurred during the period — Revisions to previous estimates — Accretion 53 Asset retirement obligation — end of period $ 777 6. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consisted of the following at the end of each period presented. March 31, June 30, 2024 2023 (in thousands) Accounts payable - trade (1) $ 1,973 $ 1,492 Accrued expenses 288 1,350 Accrued capital expenditures 3,091 3,386 Accrued payroll 909 1,072 Accrued interest 821 1,388 Current portion of debt 41 40 Accounts payable and accrued liabilities $ 7,123 $ 8,728 (1) Includes $ 985 thousand and $ 699 thousand related to capital expenditures, respectively. 7. Long-term Debt Long-term debt consisted of the following at the end of each period presented. March 31, June 30, 2024 2023 (in thousands) Convertible notes $ 65,671 $ 61,710 Vehicle notes payable 118 148 Total debt 65,789 61,858 Current portion of debt 41 40 Long-term debt 65,748 61,818 Unamortized convertible note discount — ( 20,691 ) Unamortized debt issuance costs — convertible notes ( 2,475 ) ( 3,456 ) Long-term debt, net $ 63,273 $ 37,671 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. 12 Interest expense consisted of the following for each period presented. Three months ended March 31, Nine months ended March 31, 2024 2023 2024 2023 (in thousands) Convertible notes interest $ 1,500 $ 1,228 $ 3,393 $ 2,173 Vehicle notes payable interest 1 1 4 5 Amortization of debt issuance costs and discount — convertible notes 402 1,453 3,306 3,454 Other interest — — 19 — Gross interest expense 1,903 2,682 6,722 5,632 Less: amount capitalized to construction in progress 1,081 445 2,374 589 Interest expense, net of amounts capitalized $ 822 $ 2,237 $ 4,348 $ 5,043 Effective interest rate — convertible notes (1) 13.7 % 27.1 % 19.9 % 26.2 % (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, 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 . 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 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. 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 Meridian from Bluescape . 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. 13 For the three and nine months ended March 31, 2024 (in thousands) Modified Convertible Notes, at fair value Principal $ 63,561 Accrued interest 1,621 Net long-term debt recognized $ 65,182 Convertible Notes on Modification Date Principal $ 63,561 Accrued interest 1,621 Unamortized convertible notes discount ( 17,953 ) Unamortized debt issuance costs ( 3,000 ) Net long-term debt written-off $ 44,229 Loss on extinguishment of debt $ 20,953 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 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 and carrying value information for the Convertible Notes at each period end follows. Unamortized Debt Net Liability Principal Discount and Carrying Fair Value Amount Issuance Costs Amount Amount Leveling (in thousands) As of March 31, 2024 Convertible Notes due August 15, 2028 $ 65,671 $ ( 2,475 ) $ 63,196 $ 72,439 Level 2 As of June 30, 2023 Convertible Notes due August 15, 2027 $ 61,710 $ ( 24,147 ) $ 37,563 $ 40,316 Level 2 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. 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. January 18, March 31, 2024 June 30, 2024 (Modification Date) 2023 Risk-free interest rate 4.4 % 4.1 % 4.4 % Volatility 55.0 % 55.0 % 50.0 % Debt rate 27.4 % 25.3 % 17.5 % Stock price per share $ 1.34 $ 1.21 $ 3.28 14 8. Convertible Note Derivative 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, but had no related impact on the Company’s cash position or cash flows. 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 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. Nine months ended March 31, 2023 (in thousands) Convertible note derivative (asset) liability — beginning of period $ — Additions, at fair value, August 26, 2022 24,896 Fair value adjustment (gain) loss ( 11,743 ) Reclassified to additional paid-in capital, at fair value, November 26, 2022 ( 13,153 ) Convertible note derivative (asset) liability — end of period $ — 9. Financial Instruments and Fair Value Measurements 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. 10. Share Based Compensation 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, 2024 2023 2024 2023 (in thousands) Share based compensation expense — service based Employee share option plan $ 88 $ 617 $ 293 $ 2,839 2022 Equity Compensation Plan — Options 64 350 $ 372 877 2022 Equity Compensation Plan — PSUs 23 29 $ 147 88 2022 Equity Compensation Plan — RSU and DSUs 408 ( 278 ) $ 1,276 447 Total share based compensation expense $ 583 $ 718 $ 2,088 $ 4,251 Stock Options 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 nine months ended March 31, 2024 and 2023, using a Black-Scholes option valuation model are as follows. Nine months ended March 31, 2024 2023 Exercise price $ 7.73 $ 25.62 Share price $ 2.46 $ 18.03 Volatility 99 % 79 % Expected term in years 9.6 5.0 Risk-free interest rate 4.3 % 2.9 % Dividend rate Nil Nil 15 The following table summarizes stock option activity for each of the periods presented. Nine months ended March 31, 2024 2023 Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price (In thousands, except per share data) Outstanding at beginning of the period 4,187 $ 10.91 4,874 $ 9.67 Granted 300 7.73 400 25.62 Exercised — — ( 835 ) 4.15 Expired/forfeited ( 702 ) 14.86 ( 460 ) 15.33 Outstanding at end of the period 3,785 9.92 3,979 11.78 Vested at the end of the period 3,302 10.03 3,186 9.58 Unvested at the end of the period 483 $ 9.17 793 $ 20.63 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. Nine months ended March 31, 2024 2023 Number of Options Weighted Average Grant Date Fair Value per share Number of Options Weighted Average Grant Date Fair Value per share (In thousands, except per share data) Unvested at beginning of the period 838 $ 6.42 1,507 $ 6.05 Granted 300 2.08 400 10.52 Vested ( 73 ) 16.28 ( 1,014 ) 5.86 Expired/forfeited ( 582 ) 6.12 ( 100 ) 6.85 Unvested at end of the period 483 $ 4.11 793 $ 8.32 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. 16 Restricted Share Units, Director Share Units and Performance Share Units The following table summarizes RSU, DSU and PSU activity under the 2022 Equity Compensation Plan for each of the periods presented. Serviced-Based Shares Weighted Average Grant Date Fair Value per Share Performance- Based Shares Weighted Average Grant Date Fair Value per Unit Total Shares (In thousands, except per share data) Non-vested shares/units outstanding at June 30, 2023 209.8 $ 6.78 139.1 $ 7.20 348.9 Granted 370.3 2.11 121.6 (1) 2.46 491.9 Vested ( 77.1 ) 6.31 — — ( 77.1 ) Forfeited ( 58.4 ) 4.88 ( 48.4 ) 5.38 ( 106.8 ) Non-vested shares/units outstanding at March 31, 2024 444.6 $ 3.22 212.3 $ 4.90 656.9 Serviced-Based Shares Weighted Average Grant Date Fair Value per Share Performance- Based Shares Weighted Average Grant Date Fair Value per Unit Total Shares (In thousands, except per share data) Non-vested shares/units outstanding at June 30, 2022 48.8 $ 18.03 19.2 $ 12.19 68.0 Granted 106.5 14.47 63.5 (2) 14.79 170.0 Vested ( 8.9 ) 12.27 — — ( 8.9 ) Forfeited ( 47.9 ) 14.27 ( 42.5 ) 14.10 ( 90.4 ) Non-vested shares/units outstanding at March 31, 2023 98.5 $ 16.53 40.2 $ 14.28 138.7 (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; 2) the budget for the large-scale commercial facility remaining within a range of $ 342 - 418 million; and 3) an approved final investment decision in the large-scale commercial facility at a modeled internal rate of return of 20 %. 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 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; 2) obtaining formation flow, head grade and impurity profile data from the Small-Scale Facility; and 3) generating product data to ensure process design for detailed engineering. The determination of the percentage of shares that ultimately vest will be made at the three-year anniversary of the grant date based upon achievement of the performance targets over the period. 11. Earnings (Loss) Per Common Share 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 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, 2024 2023 2024 2023 (in thousands) Interest expense on convertible note $ 1,903 $ 2,682 $ 6,722 $ 5,632 Additional shares assuming conversion of convertible notes 42,713 3,409 42,713 3,409 Stock options and unvested restricted stock units and performance share units 4,443 3,593 4,443 4,769 17 12. Commitments and Contingencies Purchase Obligations The Company had purchase order commitments of $ 4.7 million for the construction works in progress, equipment, software, drilling and technical reports. Litigation 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. 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. An estimate of reasonably possible losses, if any, cannot be made at this time. 13. Subsequent Events 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. 18