Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting the operating results, financial condition, liquidity and capital resources, and cash flows of our Company for the three and nine months ended March 31, 2025 and 2024. This MD&A should be read in conjunction with, and is qualified in its entirety by, the unaudited condensed consolidated financial statements, the accompanying notes thereto and other financial information included in this Quarterly Report on Form 10-Q, and the consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on September 9, 2024 (the “Annual Report”). Except for historical information, this discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions and other important factors, which include, but are not limited to, the risks described elsewhere in this Quarterly Report on Form 10-Q under “Item 1A. Risk Factors” and elsewhere in our Annual Report filed with the SEC, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made. Additionally, you should refer to the “Cautionary Note Regarding Forward-Looking Statements.” References within this MD&A to the “Company,” “we,” “our,” and “us,” refer to 5E Advanced Materials, Inc., and its subsidiaries.
Overview
We are an exploration stage company focused on becoming a vertically integrated global leader and supplier of specialty boron and advanced boron derivative materials whose mission is to enable decarbonization, increase food security, and ensure domestic supply of critical materials through sustainable best practices. Our business strategy and objectives are to develop capabilities ranging from upstream extraction and product sales of boric acid, lithium carbonate and potentially other co-products, to downstream boron advanced material processing and development. We hold 100% of the rights through ownership and lode claims filed with the United States Bureau of Land Management in the 5E Boron Americas (Fort Cady) Complex (the “Project”) located in southern California through our wholly owned subsidiary 5E Boron Americas LLC. Our Project is underpinned by a mineral resource that includes boron and lithium, with the boron being contained in a conventional boron mineral known as colemanite. In 2022, our facility was designated as Critical Infrastructure by the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency. We believe the Project represents one of the most compelling domestic critical material projects in the United States as a strategically located operation that targets stable long-term demand, with a defined pathway to production and a low-cost, high margin and profitable financial profile.
Recent Developments
Highlights for the Three Months Ended March 31, 2025
Operational Highlights
Successful Specialty Glass Trial
During April 2025, samples of boric acid that we supplied to a global specialty glass manufacturer successfully produced glass during qualification trials against other suppliers, with results showing that our boric acid performed as well as or better than the product of other suppliers across a variety of attributes of comparison. The successful trial advances our customer onboarding and qualification process, and we believe demonstrates that our boron production is of the necessary quality to meet the rigorous standards of the specialty glass market. As the next phase of the qualification process, we plan to ship larger quantities of boric acid for production scale evaluation.
Engineering Progress and Capital Assessment
During the first three months of calendar year 2025, we received initial capital estimates from our Engineering Procurement and Construction firm, Fluor Corporation. Updated analysis indicates that the Project is expected to deliver stronger Phase 1 economics than previously forecasted while maintaining additional optionality for advanced materials and bi-product production. The first phase of commercial production now forecasts 77,000 short tons of B2O3, targeted capital expenditure between approximately $390 and $430 million, and targets a project unlevered internal rate of return ranging from 18% to 22%. We believe these updates support our delivery of a pre-feasibility report with a robust final economic analysis in June 2025.
22
Project Timeline and Path to Final Investment Decision (“FID”)
Completion of vendor equipment testing remains the critical step on our path to completing the first phase of commercial engineering. We have made meaningful progress to date and we are now targeting completion of vendor testing during June 2025. Upon completion of the vendor equipment testing and subsequent release of our pre-feasibility report, the Company expects to stage-gate to a streamlined Front End Engineering Design (“FEED”) phase and anticipates a final investment decision (FID) in early calendar year 2026.
Financing Highlights
January 2025 Notes
On January 14, 2025, we entered into a fourth amendment (“Amendment No. 4”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell an aggregate $5 million of new senior secured convertible notes (the “January 2025 Notes”) in substantially the same form and under the same terms as the then existing convertible notes issued in June 2024 (the “June 2024 Notes”) and September 2024 (the “September 2024 Notes”, together with the June 2024 Notes, the “Existing Notes”) and together with the January 2025 Notes, the “Convertible Notes”) to BEP Special Situations IV LLC (“Bluescape”), Meridian Investments Corporation (“Meridian”) and Ascend Global Investment Fund SPC, for and on behalf of Strategic SP (together with Meridian, “Ascend”), and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 4 (as amended, the “Amended and Restated Note Purchase Agreement”). The Amended and Restated Note Purchase Agreement also extended the date to which we were required to comply with the then enforce financial covenant for us to maintain a cash balance of at least $7.5 million from December 31, 2024 to March 31, 2025. Concurrently with the execution of Amendment No. 4, we entered into the Restructuring Support Agreement, and other related agreements, as discussed below.
Debt Exchange and Related Agreements
On January 14, 2025, we entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with Bluescape, and Ascend in connection with certain restructuring and recapitalization transactions with respect to our capital structure (collectively the “Exchange Transaction”), including our Convertible Notes issued pursuant to the Amended and Restated Note Purchase Agreement.
Pursuant to the Restructuring Support Agreement, the parties agreed to implement the Exchange Transaction either as an:
• Out-of-Court Restructuring: Subject to the satisfaction of customary conditions, including approval by our stockholders, a recapitalization through, among other things:
(i) pursuant to an Exchange Agreement dated January 14, 2025 among Ascend, Bluescape and us (the “Exchange Agreement”), the issuance of an aggregate of 13,586,524 shares of our common stock, par value $0.01 per share (“Common Stock”) to Ascend and Bluescape upon exchange of all of the outstanding Convertible Notes (the “Exchange”);
(ii) pursuant to a Securities Subscription Agreement dated January 14, 2025 among Ascend, Bluescape and us (the “January 2025 Subscription Agreement”), the issuance and sale by us of an aggregate of $5.0 million of Common Stock to Ascend and Bluescape at a price per share equal to the lesser of (a) $6.716 per share and (b) the volume weighted average price for the Common Stock on the five consecutive trading days immediately following the date of the Exchange (the “Subscription Price”);
(iii) pursuant to the January 2025 Subscription Agreement, the issuance by us to Ascend and Bluescape of warrants with a one-year term (the “Restructuring Warrants”) to purchase an aggregate number of shares of Common Stock represented by up to $20.0 million divided by the Subscription Price, at a price per share equal to the Subscription Price; and
(iv) pursuant to a Fourth Amended and Restated Investor and Registration Rights Agreement dated January 14, 2025 among Ascend, Bluescape and us (the “IRRA”), the right of each of Ascend and Bluescape to designate two directors to serve on our Board of Directors (“Board”) following the consummation of the Exchange Transaction for so long as such party beneficially owns 25% of our Common Stock and one director to serve on our Board for so long as such party beneficially owns 10% of our Common Stock (clauses (i) through (iv), together, the “Out-of-Court Restructuring”); or
• In-Court Restructuring: To the extent that the terms of or the conditions precedent to the Out-of-Court Restructuring could not be timely satisfied or waived, we would file voluntary pre-packaged cases under chapter 11 of title 11 of the United States Code in a United States Bankruptcy Court (the “Bankruptcy Court”) pursuant to a pre-packaged plan of reorganization (the “Pre-Packaged Chapter 11 Plan”) pursuant to which, among other things, all of our existing equity
23
interests would be extinguished, with Ascend and Bluescape each owning their respective pro rata share of 100% of the new equity interests in the Company upon the effective date of the Pre-Packaged Chapter 11 Plan (the “In-Court Restructuring”). The Restructuring Support Agreement further provided that Ascend and Bluescape would provide a $10.0 million debtor-in-possession financing facility pursuant to a debtor-in-possession credit agreement to be agreed upon by the parties and, as necessary, approved by the Bankruptcy Court.
On March 4, 2025, at a special meeting of stockholders, our stockholders voted in favor of the Out-of-Court Restructuring, and on March 5, 2025 the Exchange was completed and resulted in 13,586,524 shares of the Company’s Common Stock issued to Bluescape and Ascend, the termination of the Amended and Restated Note Purchase Agreement and the extinguishment of all indebtedness owed by the Company under the Amended and Restated Note Purchase Agreement.
On March 13, 2025, pursuant to the January 2025 Subscription Agreement, we issued and sold an aggregate of 1,408,173 shares of Common Stock to Bluescape and Ascend, at a Subscription Price of $3.5507 per share for aggregate gross proceeds of $5.0 million (the “March 2025 Subscription”). Also pursuant to the January 2025 Subscription Agreement, we issued Restructuring Warrants to purchase up to an aggregate of 5,632,692 shares of Common Stock to Bluescape and Ascend. The Restructuring Warrants are immediately exercisable and expire on March 13, 2026, and have an exercise price per share equal to the Subscription Price.
May 2025 Equity Offering
On May 12, 2025 and May 13, 2025, we entered into a subscription agreements to issue and sell an aggregate of 1,984,709 shares of our Common Stock at a price of $3.55 per share (collectively, the “May 2025 Subscription”). In connection with the May 2025 Subscription, we also issued 37,402 shares of our Common Stock as an advisory fee. The May 2025 Subscription closed on May 15, 2025 and resulted in aggregate proceeds to us of approximately $7.0 million before deducting fees and other offering expenses payable by us.
Financing Transactions — Liquidity Considerations and Going Concern
Although the January 2025 Notes, March 2025 Subscription and May 2025 Subscription improved our cash position by providing an aggregate of $17.0 million of proceeds to the Company, prior to recognition of issuance costs and transaction fees, and we continue to operate under a business plan that includes reductions in certain spending, we will need additional financing in order to continue as a going concern for a period of at least one year after the date these financial statements are issued. 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 the unaudited condensed consolidated financial statements. Therefore, there exists substantial doubt regarding our 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 our ability to continue as a going concern. Refer to the “Going Concern” discussion within Note 1– Basis of Financial Statement Presentation of the unaudited condensed consolidated financial statements and “Liquidity and Capital Resources” below for more information.
Reverse Stock Split
On February 14, 2025, following approval by our stockholders at our 2024 annual meeting of our stockholders (the “Annual Meeting”), we effected a 1-for-23 reverse stock split (the "Reverse Stock Split") of our Common Stock.
The Reverse Stock Split did not affect the number of authorized shares of Common Stock or the par value of each share of Common Stock. The number of CHESS Depositary Interests (“CDIs”) in respect of the Company’s shares of Common Stock outstanding immediately prior to the effectiveness of the Reverse Stock Split was proportionately reduced by the final split ratio, subject to rounding. The 1:10 share-to-CDI ratio was not affected by the Reverse Stock Split.
Our Common Stock began trading on a post-split adjusted basis on February 18, 2025. On March 4, 2025, we were notified by the Nasdaq Listing Qualifications staff that the closing bid price of our Common Stock had been at $1.00 per share or greater for 10 consecutive business days, from February 18, 2025 to March 3, 2025, and accordingly, that we had regained compliance with Nasdaq Listing Rule 5450(a)(1) and this matter is now closed. If our Common Stock again closes below the $1.00 per share minimum bid price required by Nasdaq for 30 consecutive business days, we would again receive another notice of non-compliance with Nasdaq's listing standards and face the risk of delisting.
All references to the number of shares and per share amounts of our Common Stock included in this Quarterly Report on Form 10-Q have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented.
Meeting with U.S. Import-Export Bank
In late January 2025, our executive management held meetings with representatives of the Export-Import Bank of the United States (“EXIM”) in Washington, D.C., through which we gained deeper insights into the funding process requirements and expected timetables for EXIM’s loan programs, and provided EXIM with additional education on our Project. As previously disclosed, in September 2024, we received a non-binding letter of intent from EXIM for a loan-backed guarantee on project debt financing of up to
24
$285 million for our proposed commercial scale facility. We now expect to formally apply for the EXIM loan package once the first phase of commercial engineering is complete with diligence on-going during the FEED engineering phase.
Director Changes
Effective December 31, 2024, David J. Salisbury, Chairman and Director, and Keith Jennings, Director, resigned from the Board, and the Board’s size was reduced from six to four. On January 21, 2025, Paul Weibel, our Chief Executive Officer, was elected to the Board at the Annual Meeting, and succeeded Jimmy Lim, who was not re-nominated for election at the Annual Meeting. On March 5, 2025, upon the effectiveness of the Exchange, Mr. Weibel resigned from the Board and was succeeded by Curtis L. Hebert, Jr.
Results of Operations
The following table summarizes our results of operations for the periods presented.
Three Months Ended March 31,
Variance
Nine Months Ended March 31,
Variance
2025
2024
$
%
2025
2024
$
%
(in thousands)
(in thousands)
COSTS AND EXPENSES
Project expenses
$
1,050
$
1,155
$
(105
)
-9
%
$
4,283
$
4,169
$
114
3
%
Small-scale facility operating costs
897
—
897
N/A
3,564
—
3,564
N/A
General and administrative
3,265
2,997
268
9
%
11,342
16,431
(5,089
)
-31
%
Research and development
—
—
—
N/A
—
45
(45
)
-100
%
Depreciation and amortization
expense
4,992
53
4,939
*
14,955
159
14,796
*
Total costs and expenses
10,204
4,205
5,999
143
%
34,144
20,804
13,340
64
%
LOSS FROM OPERATIONS
(10,204
)
(4,205
)
(5,999
)
143
%
(34,144
)
(20,804
)
(13,340
)
64
%
NON-OPERATING INCOME
(EXPENSE)
Interest income
21
73
(52
)
-71
%
68
215
(147
)
-68
%
Other income
—
4
(4
)
-100
%
4
7
(3
)
-43
%
Gain (loss) on extinguishment of debt
17,333
(20,953
)
38,286
-183
%
17,333
(20,953
)
38,286
-183
%
Derivative gain (loss)
—
—
—
N/A
1,357
—
1,357
N/A
Interest expense
(1,869
)
(822
)
(1,047
)
127
%
(6,454
)
(4,348
)
(2,106
)
48
%
Other expense
(1
)
(2
)
1
-50
%
(5
)
(8
)
3
-38
%
Total non-operating income
(expense)
15,484
(21,700
)
37,184
-171
%
12,303
(25,087
)
37,390
-149
%
NET INCOME (LOSS)
$
5,280
$
(25,905
)
$
31,185
-120
%
$
(21,841
)
$
(45,891
)
$
24,050
-52
%
* Represents a percentage change greater than +/- 300%
Comparison of the three and nine months ended March 31, 2025 and 2024
Project expenses
Project expenses include drilling, plug and abandonment, site preparation, engineering (excluding amounts eligible to be capitalized), consumables, testing and sampling, hydrology, permits, surveys, and other expenses associated with further progressing our Project. Prior to April 1, 2024, Project expenses also included non-labor related costs incurred to prepare for the operation of the SSF, as these costs were incurred prior to the SSF being placed into operation. For the three months ended March 31, 2025, project expenses decreased $105 thousand, or 9%, versus the comparable period in the prior year. The decrease was primarily the result of decreases in: (i) testing and analysis costs, primarily for environmental compliance ($0.2 million), (ii) wellfield development costs ($0.2 million), and (iii) Environmental Protection Agency and other environmental compliance costs ($0.1 million). These decreases were offset by increases in: (i) site-related costs ($0.3 million), and (ii) insurance costs ($0.1 million).
For the nine months ended March 31, 2025, project expenses increased $114 thousand, or 3%, versus the comparable period in the prior year. The increase was primarily the result of: (i) increased wellfield development activity primarily related to the installation of additional observation monitoring wells that were required for environmental compliance ($0.8 million), and (ii) an increase in site related costs due to increased activity at the Project ($0.7 million). These increases were offset by decreases in: (i) Environmental Protection Agency and other environmental compliance costs, including permit activity ($0.6 million), (ii) testing and analysis costs, primarily for environmental compliance ($0.5 million), (iii) insurance costs ($0.2 million), and (iv) expenses incurred relating to our plug and abandonment program to prepare the wellfield for injection operations ($0.1 million).
25
Small-scale facility operating costs
Small-scale facility operating costs consists of raw materials, salaries and benefits for employees that are directly responsible for the operation of the SSF, and maintenance and upkeep related to the SSF after April 1, 2024. Prior to April 1, 2024, such costs were reported within either Project expenses or General and administrative expenses as the SSF had not yet been placed into operation. For the three months ended March 31, 2025, Small-scale facility operating costs consisted of: (i) salaries and benefits for our employees directly responsible for operating the SSF ($0.6 million), (ii) raw materials necessary to operate the SSF and produce boric acid ($0.2 million), and (iii) maintenance, upkeep and other costs incurred for the operation of the SSF ($0.1 million). There were no comparable expenses for the same period in the prior year as the SSF had not yet been placed into service and such costs were reported as either Project expenses or General and administrative expenses, as appropriate.
For the nine months ended March 31, 2025, Small-scale facility operating costs consisted of: (i) salaries and benefits for our employees directly responsible for operating the SSF ($2.6 million), (ii) raw materials necessary to operate the SSF and produce boric acid ($0.6 million), (iii) maintenance, upkeep and other costs incurred for the operation of the SSF ($0.3 million), and (iv) other operating costs ($0.1 million). There were no comparable expenses for the same period in the prior year as the SSF had not yet been placed into service and such costs were reported as either Project expenses or General and administrative expenses, as appropriate.
General and administrative expenses
General and administrative expenses include professional fees, costs associated with marketing, on-going SEC and public company costs, public relations, rent, salaries for administrative personnel within the Company, share based compensation and other expenses. Prior to April 1, 2024, all salaries and benefits for the entire organization were reported in general and administrative expenses. After April 1, 2024, the date which we began operation of the SSF, salaries and benefits for employees that are directly responsible for the operation of the SSF are reported in Small-scale facility operating costs. For the three months ended March 31, 2025, general and administrative expenses increased $268 thousand, or 9%, versus the comparable period in the prior fiscal year. The increase was primarily due to increases in professional fees ($2.1 million), primarily due to a $1.8 million reclassification of legal and accounting fees to either debt or equity issuance costs in the prior year which resulted from the successful implementation of the January 2024 restructuring transaction. The increase was offset by decreases in: (i) base compensation and employee benefits, resulting from the combined impact of (a) salaries and benefits for personnel responsible for the operation of the SSF now reported as Small-scale facility operating costs, and (b) a reduction in head count across the organization (for a combined impact of $0.9 million), (ii) incentive compensation related costs, inclusive of share based compensation expense ($0.5 million), (iii) miscellaneous, travel and marketing costs as a result of cost cutting measures across the organization ($0.3 million), and (iv) insurance costs ($0.1 million).
For the nine months ended March 31, 2025, general and administrative expenses decreased $5.1 million, or 31%, versus the comparable period in the prior fiscal year. The decrease was primarily due to decreases in: (i) base compensation and employee benefits, resulting from the combined impact of (a) salaries and benefits for personnel responsible for the operation of the SSF now reported as Small-scale facility operating costs, and (b) a reduction in head count across the organization (for a combined impact of $2.7 million), (ii) incentive compensation related costs, inclusive of share based compensation expense ($0.9 million), (iii) professional fees, primarily as a result of incurring incremental legal fees in the prior year leading up to the January 2024 restructuring transaction ($0.6 million), (iv) miscellaneous and travel costs resulting from cost cutting measures across the organization ($0.5 million), and (v) marketing related costs ($0.4 million).
Research and development
Research and development expense includes costs incurred under research agreements with Georgetown University and Boston College that aim to enhance the performance of permanent magnets through increased use of boron. Both engagements were completed during the second fiscal quarter of 2024. Therefore, we incurred no research and development costs in the three months ended March 31, 2024 or the three and nine months ended March 31, 2025, compared to $45 thousand in research and development costs incurred in the nine months ended March 31, 2024.
Depreciation and amortization expense
Depreciation and amortization relates to use of our SSF, injection and recovery wells, owned or leased vehicles, buildings and equipment and the accretion of our asset retirement obligations. For the three months ended March 31, 2025, depreciation and amortization expense increased $4.9 million versus the comparable period in the prior year. For the nine months ended March 31, 2025, depreciation and amortization expense increased $14.8 million versus the comparable period in the prior year. These increases were primarily due to placing the SSF and its related injection and recovery wells, facilities, and equipment into service as of April 1, 2024, corresponding with the commencement of operations.
Interest income
Interest income is derived from the investment of our excess cash and cash equivalents in short-term (original maturities of three months or less) investments of highly liquid treasury bills and certificates of deposit. For the three months ended March 31, 2025,
26
interest income decreased $52 thousand, or 71%, versus the comparable period in the prior fiscal year. For the nine months ended March 31, 2025, interest income decreased $147 thousand, or 68%, versus the comparable period in the prior fiscal year. Such decreases correspond to decreases in our average cash and cash equivalent balances between the periods.
Other income
Other income is derived from the third-party use of our hydrology wells, the sale of scrap and other materials, and other non-operating income. For the three months ended March 31, 2025, other income decreased $4 thousand, or 100%, versus the comparable period in the prior fiscal year. For the nine months ended March 31, 2025, other income decreased $3 thousand, or 43%, versus the comparable period in the prior fiscal year. The decreases primarily relate to other non-operating income compared to the same periods in the prior year.
Gain (Loss) on extinguishment of debt
The gain on extinguishment of debt incurred for the three and nine months ended March 31, 2025 resulted from the Exchange Transaction and the related extinguishment of all indebtedness owed by the Company under the Amended and Restated Note Purchase Agreement. As discussed within Note 7- Debt to the unaudited condensed consolidated financial statements, the Exchange Transaction was accounted for as a troubled debt restructuring. As a result, we derecognized the remaining principal, accrued interest and unamortized discount and debt issuance costs associated with the Convertible Notes of $82.4 million, and recognized the fair value of various equity interests issued to the former noteholders, less $5.0 million of proceeds received, at their fair value of $65.1 million. The difference in value between the Convertible Notes and the net fair value of equity interests issued resulted in a gain on extinguishment of debt of $17.3 million.
The loss on extinguishment of debt incurred for the three and nine months ended March 31, 2024 resulted from the modification of the terms of our Convertible Notes contained in the Amended and Restated Note Purchase Agreement executed January 18, 2024. The modified terms of the Convertible Notes were evaluated and determined to be representative of an in-substance extinguishment of the Convertible Notes and establishment of new debt, for accounting purposes, primarily due to the significance of the changes to the terms of the conversion features. As a result, we derecognized the remaining principal, accrued interest and unamortized discount and debt issuance costs associated with the prior debt with an aggregate value of $44.2 million, and recognized the modified debt at its fair value of $65.2 million upon execution of the Amended and Restated Note Purchase Agreement. The difference in value between the prior debt and the modified debt resulted in a loss on extinguishment of debt of $21.0 million.
Derivative gain
Derivative gain (loss) results from changes in the fair value of the embedded conversion features relating to degressive issuance provisions originally contained in the May 2024 Amended and Restated Note Purchase Agreement, and subsequently incorporated into and continued under the September 2024 Amended and Restated Note Purchase Agreement. As a result, these conversion features were deemed to be embedded derivatives requiring bifurcation and separate accounting as stand-alone derivative instruments (the “June 2024 Convertible Note Derivative” and “September 2024 Convertible Note Derivative”). On December 31, 2024, upon the expiration of the degressive issuance conversion feature associated with the June 2024 Notes and September 2024 Notes, the June 2024 Convertible Note Derivative and September 2024 Convertible Note Derivative expired and the remaining aggregate fair value of such derivatives of $3.6 million was transferred to additional paid-in capital. Refer to Note 7 -Debt and Note 8- Convertible Note Derivatives to the unaudited condensed consolidated financial statements for additional details.
There was no unrealized derivative gain (loss) during the three months ended March 31, 2025, as the June 2024 Convertible Note Derivative and September 2024 Convertible Note Derivative expired prior to the beginning of such period. There was no unrealized derivative gain (loss) during the three months ended March 31, 2024, as this period occurred before the existence of the June 2024 Convertible Note Derivative and September 2024 Convertible Note Derivative.
The unrealized derivative gain of $1.4 million during the nine months ended March 31, 2025, was primarily due to a decrease in our stock price during the period, which resulted in a gain on the June 2024 Convertible Note Derivative. Our stock price on June 28, 2024 (the last trading day prior to the end of our prior fiscal year) and December 31, 2024 (the date the June 2024 Convertible Note Derivative expired) was $27.83 and $14.72, respectively. The observed decline in our stock price resulted in a decline in the value of the embedded conversion feature liability and a resulting derivative gain of $2.2 million. This derivative gain was offset, by a loss with respect to the September 2024 Convertible Note Derivative during the same period, which was primarily due to an increase in our stock price from $11.50 on September 16, 2024 (the issuance date of the September 2024 Notes) to $14.72 on December 31, 2024 (the date the September 2024 Convertible Note Derivative expired), resulting in an increase in the value of the embedded conversion feature liability during such period and a resulting derivative loss of $0.8 million. There were no comparable embedded conversion
27
features requiring bifurcation and separate accounting in the comparative period in the prior fiscal year and therefore there was no related Derivative gain (loss).
Interest expense
Interest expense primarily relates to interest expense incurred on the Convertible Notes and is net of amounts capitalized to construction-in-progress. Prior to the January 2024 Amended and Restated Note Purchase Agreement, the August 2022 Notes accrued interest at a rate of 6% when interest was paid-in-kind through the issuance of additional notes. Subsequent to the January 2024 Amended and Restated Note Purchase Agreement, the August 2022 Notes accrue interest at a rate of 10% when interest is paid-in-kind through the issuance of additional notes, with such rate also applying to the June 2024 Notes, September 2024 Notes and January 2025 Notes. We also recognize interest expense for the amortization of debt issuance costs and the amortization of debt discounts on the Convertible Notes. As part of the modification of the terms of our debt associated with the January 2024 Amended and Restated Note Purchase Agreement, the modified debt was recognized at fair value on our balance sheet which eliminated the prior debt discount and prior debt issuance costs that were amortized to interest expense. In connection with the Exchange Transaction on March 5, 2025, all indebtedness owed by the Company under the Amended and Restated Note Purchase Agreement was extinguished and the recognition of interest expense ceased.
For the three months ended March 31, 2025, interest expense increased $1.0 million, or 127%, versus the comparable period in the prior fiscal year. This increase was primarily a result of capitalizing less interest expense to construction-in-progress between periods (which results in an increase in the amount of interest expense recognized) as a result of the SSF being placed into service on April 1, 2024 and therefore no longer eligible for interest capitalization (an impact of $1.1 million increase in interest expense). Although interest expense accrued more rapidly during the current period due to the combined effect of interest accruing (i) at 10% under the terms of our January 2024 Amended and Restated Note Purchase Agreement compared to 6% under our prior agreement in the prior period, (ii) on a $17.0 million aggregate increase in the principal balance of Convertible Notes resulting from the issuance of the June 2024 Notes, September 2024 Notes, and January 2025 Notes and (iii) on $3.4 million and $4.0 million of interest that was paid-in-kind during August of 2024 and February 2025, respectively, this impact was not material due to the shorter period over which the Convertible Notes were outstanding in the current year, as a result of the Exchange Transaction.
For the nine months ended March 31, 2025, interest expense increased $2.1 million, or 48%, versus the comparable period in the prior fiscal year. This increase was primarily the result of (i) capitalizing less interest expense to construction-in-progress between periods (which results in an increase in the amount of interest expense recognized) as a result of the SSF being placed into service on April 1, 2024 and therefore no longer eligible for interest capitalization (an impact of $2.3 million increase in interest expense), and (ii) the combined effect of interest accruing (a) at 10% under the terms of our January 2024 Amended and Restated Note Purchase Agreement compared to 6% under our prior agreement in the prior period, (b) on a $17.0 million aggregate increase in the principal balance of Convertible Notes resulting from the issuance of the June 2024 Notes, September 2024 Notes, and January 2025 Notes, and (c) on $3.4 million and $4.0 million of interest that was paid-in-kind during August of 2024 and February 2025, respectively (for a combined impact of $2.0 million increase in interest expense). These increases were partially offset by the effects of a reduction in the amount of debt discount amortization primarily resulting from the write-off of the remaining unamortized debt discount (established August 26, 2022) and corresponding elimination of the amortization of such amount in connection with the accounting for the January 2024 Amended and Restated Note Purchase Agreement ($2.2 million reduction in interest expense).
Other expense
Other expense relates to losses on foreign currency transactions and certain non-income related taxes and penalties. For the three months ended March 31, 2025, other expense decreased $1 thousand, or 50%, versus the comparable period in the prior fiscal year. The decrease primarily relates to reduced foreign currency transaction losses compared to the prior year.
For the nine months ended March 31, 2025, other expense decreased $3 thousand, or 38%, versus the comparable period in the prior fiscal year. The decrease primarily relates to reduced foreign currency transaction losses compared to the prior year.
Income tax expense
We did not have any income tax expense or benefit for the three and nine months ended March 31, 2025 and 2024, as we have recorded a full valuation allowance against our net deferred tax asset.
28
Liquidity and Capital Resources
Overview
As of March 31, 2025, we had cash and cash equivalents of $4.0 million and a working capital deficit of $1.6 million compared to $4.9 million of cash and cash equivalents and a working capital deficit of $2.9 million as of June 30, 2024. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions may exceed insured limits. Market conditions can impact the viability of these institutions.
Our predominant source of cash has been generated through equity financing from issuances of our common stock and equity-linked securities, including our Convertible Notes. Since inception, we have not generated revenues, and as such, have relied on equity financing and equity-linked instruments to fund our operating and investing activities. As a result of the Exchange Transaction in March of 2025, all outstanding indebtedness pursuant to the Convertible Notes was extinguished in exchange for equity interest in the Company, and the financial covenant requiring us to maintain a minimum cash balance was eliminated. Refer to the discussion above under the caption Recent Developments – Debt Exchange and Related Agreements for a description of the Exchange Transaction.
A summary of our cash flows for the nine months ended March 31, 2025 and 2024 follows.
For the nine months ended March 31,
Variance
2025
2024
$
%
($ in thousands)
Net cash used in operating activities
$
(17,407
)
$
(19,637
)
$
2,230
-11
%
Net cash used in investing activities
(1,395
)
(5,878
)
4,483
-76
%
Net cash provided by financing activities
17,938
13,178
4,760
36
%
Net increase (decrease) in cash and cash equivalents
$
(864
)
$
(12,337
)
$
11,473
-93
%
* Represents a percentage change greater than +/- 300%
Cash Flows Used For Operating Activities
Net cash used in operating activities for each of the above periods was primarily the result of general and administrative costs (exclusive of share based compensation), costs incurred in furthering the Project, operating costs of the SSF, and transaction costs incurred related to the Exchange Transaction that were not directly related to the issuance of the related equity interests issued to our former noteholders. During the nine months ended March 31, 2025, we used $17.4 million of cash for operating activities, a decrease of approximately $2.2 million or 11% compared to the comparable period in the prior fiscal year. The decrease in cash used in operations during the current period primarily results from the decrease in General and administrative expenses, net of non-cash share based compensation expense, offset by the incurrence of Small-scale facility operating costs (refer to the discussion of year-over-year changes in General and administrative expenses and Small-scale facility operating costs above for additional details).
Cash Flows Used For Investing Activities
Our cash flows used for investing activities primarily relate to equipment purchases, engineering, the construction and commissioning of our SSF, FEL-2 engineering and related vendor testing related to our commercial-scale facility. During the nine months ended March 31, 2025, we used $1.4 million of cash for investing activities, a decrease of approximately $4.5 million, or 76%, compared to the comparable period in the prior fiscal year. Net cash used in investing activities during the nine months ended March 31, 2025 related to engineering services for FEL-2 engineering and related vendor testing for our commercial-scale facility. Net cash used in investing activities during the nine months ended March 31, 2024 primarily related to final construction and commissioning of our SSF.
Cash Flows From Financing Activities
Our cash flows from financing activities primarily relate to equity and equity-linked financing transactions to fund our business and operations. Cash flows provided by financing activities for the nine months ended March 31, 2025 were the result of (i) approximately $3.0 million of net proceeds received from the August 2024 Equity Offering, (ii) approximately $5.5 million of net proceeds received from the issuance of September 2024 Notes, (iii) approximately $4.7 million of net proceeds received from the issuance of January 2025 Notes, (iv) approximately net $4.9 million of proceeds received from the March 2025 Subscription, after recognition of the related costs and fees related directly to the issuance of the related equity instruments, and (v) approximately $0.2 million of taxes withheld and paid upon the vesting and release of shares for equity awards.
Cash flows provided by financing activities for the nine months ended March 31, 2024 were the result of $15.8 million of proceeds received from two closings of a private placement of our Common Stock in January of 2024, after recognition of the related costs and fees. The net proceeds from our private placement were offset, to a lesser extent, by $2.6 million of cash used to pay legal and accounting fees associated with the January 2024 Amended and Restated Note Purchase Agreement.
29
Summary of Financing Transactions for the nine months ended March 31, 2025
March 2025 Debt Exchange
Refer to the discussion above under the caption Recent Developments – Debt Exchange and Related Agreements for a description of the Exchange Transaction during March 2025.
January 2025 Notes Offering
Refer to the discussion above under the caption Recent Developments – January 2025 Notes for a description of the notes offering completed during January 2025.
September 2024 Notes Offering
On September 16, 2024, pursuant to an amended and restated note purchase agreement (the “September 2024 Amended and Restated Note Purchase Agreement”), we issued and sold the September 2024 Notes in an aggregate principal amount of $6.0 million, to Bluescape and Ascend. The net proceeds to us for the September 2024 Notes offering were approximately $5.5 million after deducting issuance costs and fees payable by us.
August 2024 Equity Offering
On August 27, 2024, we completed the August 2024 Equity Offering of (i) 231,884 Shares of Common Stock, (ii) Series A Warrants to purchase up to an aggregate of up to 231,885 shares of Common Stock, and (iii) Series B Warrants to purchase an aggregate of 231,885 shares of Common Stock. The Common Stock, Series A Warrants and Series B Warrants were offered and sold on a combined basis for consideration equating to $17.25 for one share of Common Stock, one Series A Warrant and one Series B Warrant.
The Series A Warrants and the Series B Warrants became exercisable on February 27, 2025. The Series A Warrants will expire on February 27, 2030 and the Series B Warrants will expire on February 27, 2027. The exercise price for each of the Series A Warrants and Series B Warrants is $18.3563 per share. Refer to Note 10 -Equity to the unaudited condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q for a complete description of the warrants.
Material Cash Requirements
Our material short-term cash requirements include general and administrative expenses including recurring payroll and benefit obligations for our employees, costs necessary to further the engineering of our proposed commercial-scale complex, professional fees, operating costs for the SSF, Project related costs, payments under certain lease agreements and working capital needs. Our long-term material cash requirements from currently known obligations include future obligations to reclaim, remediate, or otherwise restore properties to a condition that existed prior to our operations. Refer to the “Construction in Progress,” “Asset Retirement Obligations,” “Accounts Payable and Accrued Liabilities,” and “Commitments and Contingencies” footnotes in the unaudited condensed consolidated financial statements for more information on certain of these expenditures and obligations.
Contractual Commitments and Contingencies
Purchase Obligations
As of March 31, 2025, we had purchase order commitments of approximately $2.7 million primarily for raw materials for the operation of the SSF, engineering services and vendor testing for the Company’s proposed commercial-scale facility, and drilling services related to wellfield development.
Future Capital Requirements and Going Concern
Over the next 12 months we have the following plans that will require additional capital:
• Operate the SSF to provide the necessary data for our commercial-scale facility and progress our customer qualification program;
• Progress FEL-2, FEL-3, and the related detailed engineering and vendor testing;
• Optimize well-field design in an effort to reduce future mining capital and operational expenditure through various drilling techniques such as directional, horizontal, and radial drilling;
• Pursue and optimize infrastructure capital expenditures for our larger-scale facility which could include expansion of non-potable water resources, upgrading shore power, connection to a natural gas network, and constructing new access roads into and out of the location for our larger-scale facility; and
30
• Further define our advanced materials strategy with consideration to engineering and repurposing our SSF once sufficient data has been obtained for flow sheet optimization and the production of product for customer qualification.
Although the August 2024 Equity Offering, issuance of the September 2024 Notes, issuance of the January 2025 Notes, proceeds received in the March 2025 Subscription and May 2025 Subscription improved our cash position, and we continue to operate under a business plan that includes reductions in certain spending, we will need additional financing within the next twelve months. Absent additional financing, we may no longer be able to meet our ongoing obligations, continue operations or achieve the milestones outlined above.
We intend to explore different potential financing strategies to help support the growth of our business and execution of our business plan, including equity or debt financing, government funding or grants, private capital, royalty agreements or customer prepayments, the exercise of a significant portion of the warrants outstanding to acquire our Common Stock, or other strategic alliances with third parties. However, there is no assurance that we will be able to secure additional financing on adequate terms, in a timely manner, or at all.
The receipt of any potential funding cannot be considered probable at this time because these plans are not entirely within our control as of the date of the unaudited condensed consolidated financial statements. Therefore, there exists substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. Even if additional financing is successfully consummated, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding our ability to continue as a going concern. If the Company is unable to raise additional capital or generate cash flows necessary to fund our operations, we will need to curtail planned activities, discontinue certain operations, or sell certain assets, which could materially and adversely affect our business, financial condition, results of operations, and prospects. Refer to the “Going Concern” discussion within Note 1- Basis of Financial Statement Presentation of the unaudited condensed consolidated financial statements for more information.
Critical Accounting Policies
A complete discussion of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. There have been no significant changes in our critical accounting policies during the nine months ended March 31, 2025. Unless otherwise discussed, we believe that the impact of recently issued standards did not or will not have a material impact on our consolidated financial statements upon adoption.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”). ASU 2023-07 is intended to enhance reportable segment disclosure requirements, including significant segment expenses and interim disclosures. The guidance allows for disclosure of multiple measures of a segment’s profit or loss, and it requires that public entities with a single reportable segment provide all disclosures required by ASU 2023-07 and all existing disclosures required by the existing segment disclosure guidance. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments are to be applied retrospectively, and early adoption is permitted. We are evaluating the impact that ASU 2023-07 will have on our consolidated financial statements.
In December 2023, the FASB issued ASU 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. We are evaluating the impact that ASU 2023-09 will have on our consolidated financial statements and our plan for adoption, including the adoption date and transition method.
In November 2024, the FASB issued ASU 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation of certain expenses in the notes of the financials, to provide enhanced transparency into the expense captions presented on the face of the income statement. In January 2025, the FASB issued Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”), which clarified the effective dates of ASU 2024-03. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027 and may be applied either prospectively or retrospectively. We are evaluating the impact that ASU 2024-03 will have on our related disclosures, including the adoption date and transition method.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 3.
31