5E Advanced Materials, Inc. 10-Q

Item 1. Financial Statements. 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) MARCH 31 JUNE 30, 2022 2021 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 41,140,290 $ 40,811,269 Prepaid expenses and other current assets 3,208,198 158,620 Total current assets 44,348,488 40,969,889 MINERAL RIGHTS AND PROPERTIES, Net 8,247,788 8,080,709 CONSTRUCTION IN PROGRESS 18,033,848 12,765,285 PROPERTIES, PLANT AND EQUIPMENT, Net 2,926,305 1,495,436 RECLAMATION BOND DEPOSIT 1,085,624 1,084,408 RIGHT OF USE ASSETS 261,183 213,109 TOTAL ASSETS $ 74,903,236 $ 64,608,836 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 6,082,044 $ 1,594,909 Lease liabilities, current 116,957 90,815 Total current liabilities 6,199,001 1,685,724 LONG-TERM DEBT 169,928 92,532 LEASE LIABILITIES 148,010 124,699 ACCRUED RECLAMATION LIABILITIES 467,762 377,292 Total liabilities 6,984,701 2,280,247 COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS’ EQUITY Preferred stock, $ 0.01 par value; 20,000,000 shares authorized; no shares outstandin g $ — $ — Common stock, $ 0.01 par value; 180,000,000 shares authorized; 42,519,315 and 38,391,412 shares outstanding, respectively 425,193 383,914 Additional paid-in capital 161,373,871 101,179,498 Accumulated other comprehensive income (loss): Reporting currency translation 248,184 1,416,664 Accumulated deficit ( 94,128,713 ) ( 40,651,487 ) Total stockholders’ equity 67,918,535 62,328,589 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 74,903,236 $ 64,608,836 The accompanying notes are an integral part of these unaudited financial statements. 5 Table of Contents 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) FOR THE THREE MONTHS ENDED MARCH 31 FOR THE NINE MONTHS ENDED MARCH 31 2022 2021 2022 2021 COST AND EXPENSES Project expenses $ 1,972,536 $ 2,045,719 $ 9,782,791 $ 3,424,419 General and administrative 30,983,504 1,828,279 44,616,803 8,121,310 Depreciation and amortization expense 36,063 6,081 76,249 15,344 Total cost and expenses 32,992,103 3,880,079 54,475,843 11,561,073 LOSS FROM OPERATIONS ( 32,992,103 ) ( 3,880,079 ) ( 54,475,843 ) ( 11,561,073 ) NON-OPERATING INCOME (EXPENSE) Other income 27,477 1,459 37,843 3,530 Interest income 1,748 333 3,552 1,447 Interest expense ( 3,275 ) ( 468 ) ( 7,958 ) ( 2,117 ) Net foreign exchange gain (loss) ( 3,469 ) ( 47,245 ) 965,180 ( 2,060,234 ) Total non-operating income (expense) 22,481 ( 45,921 ) 998,617 ( 2,057,374 ) NET LOSS ( 32,969,622 ) ( 3,926,000 ) ( 53,477,226 ) ( 13,618,447 ) OTHER COMPREHENSIVE LOSS (INCOME) Reporting currency translation 338,592 ( 84,626 ) 1,168,480 ( 2,466,052 ) NET LOSS AND OTHER COMPREHENSIVE LOSS $ ( 33,308,214 ) $ ( 3,841,374 ) $ ( 54,645,706 ) $ ( 11,152,395 ) Net loss per common share – basic and diluted $ ( 0.79 ) $ ( 0.11 ) $ ( 1.33 ) $ ( 0.41 ) Weighted average common shares outstanding — basic and diluted 41,895,426 35,600,161 40,148,179 32,964,416 The accompanying notes are an integral part of these unaudited financial statements. 6 Table of Contents 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE NINE MONTHS ENDED MARCH 31 2022 2021 Cash Flows From Operating Activities: Net loss $ ( 53,477,226 ) $ ( 13,618,447 ) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 76,249 15,344 Interest earned on reclamation bond ( 1,216 ) ( 758 ) Share based compensation 4,428,071 5,318,298 Common stock issued for consulting fees 27,171,876 32,076 Accretion of reclamation liability 6,112 — Net foreign exchange (gain) loss ( 965,180 ) 2,060,234 Change in: Prepaid expenses and other current assets ( 3,049,578 ) 225 Accounts payable and accrued liabilities 2,420,906 85,791 Net cash used by operating activities ( 23,389,986 ) ( 6,107,237 ) Cash Flows From Investing Activities: Construction in progress ( 3,301,407 ) ( 8,742,366 ) Mineral rights and properties ( 86,608 ) ( 112,914 ) Properties, plant and equipment ( 1,221,523 ) ( 354,025 ) Reclamation bonds — ( 776,650 ) Net cash used by investing activities ( 4,609,538 ) ( 9,985,955 ) Cash Flows From Financing Activities: Payments on note payable ( 103,860 ) ( 1,527 ) Proceeds from issuance of common stock 26,309,067 30,109,764 Proceeds from exercise of stock options 3,124,112 5,663,177 Share offering costs ( 797,474 ) ( 1,573,496 ) Net cash provided by financing activities 28,531,845 34,197,918 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 532,321 18,104,726 EFFECT OF EXCHANGE RATE FLUCTUATION ON CASH ( 203,300 ) 405,818 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 40,811,269 26,639,953 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,140,290 $ 45,150,497 NONCASH INVESTING AND FINANCING ACTIVITIES Accounts payable change related to construction in progress additions $ 2,022,294 $ 560,420 Recognition of operating lease liabilities and right of use assets 137,307 237,353 Construction in progress transferred to properties, plant and equipment 55,138 — Equipment acquired with notes payable 226,570 — The accompanying notes are an integral part of these unaudited financial statements. 7 Table of Contents 5E ADVANCED MATERIALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) Three and Nine Months Ended March 31, 2022 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance at July 1, 2021 38,391,412 $ 383,914 $ 101,179,498 $ 1,416,664 $ ( 40,651,487 ) $ 62,328,589 Shares issued for: Exercise of stock options 302,667 3,027 1,082,568 — — 1,085,595 Consulting fees 150,000 1,500 1,537,847 — — 1,539,347 Share based compensation — — 1,777,055 — — 1,777,055 Net loss — — — — ( 9,469,055 ) ( 9,469,055 ) Other comprehensive (loss) — — — ( 1,605,989 ) — ( 1,605,989 ) Balance at September 30, 2021 38,844,079 388,441 105,576,968 ( 189,325 ) ( 50,120,542 ) 55,655,542 Shares issued for: Cash 1,760,236 17,602 26,291,465 — — 26,309,067 Exercise of stock options 865,000 8,650 1,813,380 — — 1,822,030 Consulting fees 150,000 1,500 1,867,183 — — 1,868,683 Shares issuance costs — — ( 797,474 ) — — ( 797,474 ) Share based compensation — — 1,310,409 — — 1,310,409 Net loss — — — — ( 11,038,549 ) ( 11,038,549 ) Other comprehensive income — — — 776,101 — 776,101 Balance at December 31, 2021 41,619,315 416,193 136,061,931 586,776 ( 61,159,091 ) 75,905,809 Shares issued for: Exercise of stock options 100,000 1,000 215,487 — — 216,487 Consulting fees 800,000 8,000 23,755,846 — — 23,763,846 Share based compensation — — 1,340,607 — — 1,340,607 Net loss — — — — ( 32,969,622 ) ( 32,969,622 ) Other comprehensive income — — — ( 338,592 ) — ( 338,592 ) Balance at March 31, 202 2 42,519,315 $ 425,193 $ 161,373,871 $ 248,184 $ ( 94,128,713 ) $ 67,918,535 8 Table of Contents Three and Nine Months Ended March 31, 2021 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balance at July 1, 2020 30,456,855 $ 304,569 $ 57,078,757 $ ( 499,456 ) $ ( 21,398,319 ) $ 35,485,551 Shares issued for: Exercise of stock options 1,477,685 14,777 2,782,009 — — 2,796,786 Consulting fees 8,000 80 31,996 — — 32,076 Shares issuance costs — — ( 40,769 ) — — ( 40,769 ) Share based compensation — — 3,784,076 — — 3,784,076 Net loss — — — — ( 5,862,764 ) ( 5,862,764 ) Other comprehensive income — — — 1,013,002 — 1,013,002 Balance at September 30, 2020 31,942,540 319,426 $ 63,636,069 513,546 ( 27,261,083 ) 37,207,958 Shares issued for: Exercise of stock options 25,000 250 55,627 — — 55,877 Share based compensation — — 600,513 — — 600,513 Net loss — — — — ( 3,829,683 ) ( 3,829,683 ) Other comprehensive income — — — 1,368,424 — 1,368,424 Balance at December 31, 2020 31,967,540 319,676 $ 64,292,209 1,881,970 ( 31,090,766 ) 35,403,089 Shares issued for: Cash 5,128,205 51,282 30,058,482 — — 30,109,764 Exercise of stock options 595,000 5,950 2,804,564 — — 2,810,514 Shares issuance costs — — ( 1,532,727 ) — — ( 1,532,727 ) Share based compensation — — 933,709 — — 933,709 Net loss — — — — ( 3,926,000 ) ( 3,926,000 ) Other comprehensive income — — — 84,626 — 84,626 Balance at March 31, 2021 37,690,745 $ 376,908 $ 96,556,237 $ 1,966,596 $ ( 35,016,766 ) $ 63,882,975 The accompanying notes are an integral part of these unaudited financial statements. 9 Table of Contents 5E ADVANCED MATERIALS, INC. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Company and Summary of Significant Accounting Policies Nature of Business 5E Advanced Materials, Inc. (“5E,” “we,” “our,” “us,” or the “Company”) is an exploration stage company focused on becoming a vertically integrated global leader in boron specialty advanced materials and lithium with a focus on enabling decarbonization. Redomiciliation 5E Advanced Materials, Inc. (the “Company”) acquired all of the issued and outstanding shares of American Pacific Borates Limited (“ABR”), our Australian predecessor and wholly owned subsidiary, pursuant to a Scheme of Arrangement (“Scheme”) under Australian law, which was approved by ABR’s shareholders on December 2, 2021, and the Supreme Court of Western Australia on February 24, 2022. As part of the Scheme, the Company changed its place of domicile from Australia to the S tate of Delaware in the United States, effective on March 8, 2022. In accordance with the Scheme, all ordinary shares of ABR have been transferred to the Company and pursuant to the Scheme, the Company issued to the shareholders of ABR, either one share of the Company’s common stock for every ten ordinary shares of ABR or one CHESS Depository Interest (“CDIs”) over the Company’s common stock for every one ordinary share of ABR, in each case, as held on the Scheme record date. The Company maintains an Australian Stock Exchange (“ASX”) listing for its CDIs, with each CDI representing 1/10th of a share of common stock. Holders of CDIs are able to trade their CDIs on the ASX under the symbol “5EA” and holders of shares of the Company’s common stock are able to trade their shares on Nasdaq under the symbol “FEAM.” All share and per share data presented in the Company’s condensed consolidated financial statements have been retroactively adjusted to reflect a one for ten (1:10) exchange ratio of all of its issued and outstanding common stock. As a result of the reorganization, the Company became the parent company of ABR, and for financial reporting purposes the historical financial statements of ABR have become the historical financial statements of the Company as a continuation of the predecessor. Basis of Presentation The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of its financial position as of March 31, 2022 and its results of operations and cash flows for the three months and nine months ended March 31, 2022 and 2021 have been included. Operating results for the nine-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending June 30, 2022. For further information, refer to the financial statements and footnotes thereto for the year ended June 30, 2021 included in our amended Form 10. Basis of Consolidation The consolidated financial statements comprise the financial statements of 5E and its wholly owned subsidiaries, American Pacific Borates Limited and Fort Cady (California) Corporation. Subsidiaries are those entities over which the Company has the power to govern the financial and operating policies so as to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a Company controls another entity. 10 Table of Contents In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-company transactions have been eliminated in full. Our fiscal year ends on June 30 of each calendar year. Our reporting currency is in United States dollars (“USD”), and unless otherwise indicated, all references to “$” are to USD. Risk and Uncertainties We are subject to a number of risks similar to those of other companies of similar size in our industry, including but not limited to, the success of our exploration activities, need for significant additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, and dependence on key individuals. We have accumulated deficits of $ 94.1 million and $ 40.7 million, as of March 31, 2022 and June 30, 2021, respectively. We have incurred net losses and utilized cash in operations since inception, and expect to incur significant additional losses in the future. We have cash available on hand and believe that this cash will be sufficient to fund operations and meet our obligations as they come due within one year from the date these consolidated financial statements are issued. In the event our cash requirements change during the next twelve months, management believes it has the ability and commitment to reduce operating expenses, as necessary. Until commercial production is achieved from our planned operations, we will continue to incur operating and investing net cash outflows associated with, among other things, maintaining properties, construction and operation of our Small-Scale Boron Facility (“SSBF”) and undertaking ongoing exploration activities and project expenses. Our long-term success is dependent upon our ability to successfully raise additional capital or financing or enter into strategic partnership opportunities. Our long-term success is also dependent upon our ability to operate the SSBF, develop our planned injection and recovery wells and processing facility, develop and commercialize the full-scale Fort Cady Borate Project, earn revenues, and achieve profitability. Our consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions, and allocations that affect amounts reported in the consolidated financial statements and related notes. Significant items that are subject to such estimates and assumptions include, but are not limited to, estimated useful lives and valuation of properties, plant and equipment, mineral rights and properties, deferred tax assets, reclamation liabilities, and fair value of stock-based compensation. Actual results could differ due to the uncertainty inherent in the nature of these estimates. Significant Accounting Policies There have been no material changes in the significant accounting policies followed by us during the nine months ended March 31, 2022 from those disclosed in the financial statements included in our amended Form 10. Recently Issued and Adopted Accounting Pronouncements In December 2019, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the FASB’s overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. The updated guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU on July 1, 2021, and ASU 2019-12 does not have a material effect on the Company’s consolidated financial statements other than modification of income tax disclosure. In August 2020, FASB issued ASU No. 2020-06–Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including condensed periods within those fiscal years and with early adoption permitted. The Company does not expect ASU 2020-06 to have a material effect on the Company’s consolidated financial statements. 11 Table of Contents In May 2021, FASB issued ASU No. 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The update is to clarify and reduce diversity in accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The update is effective for fiscal years beginning after December 15, 2021, including condensed periods within those fiscal years and with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements. 2. Mineral Rights and Properties, Net The Company owns surface properties and the associated mineral rights for the Fort Cady Borate Project. The Company has capitalized the cost of drilling hydrology wells, which provide water for the P roject. For the nine-month period ended March 31, 2022 and 2021, the Company recognized hydrology income of $ 36,020 and zero , respectively. The hydrology income is recognized in the Consolidated Statements of Loss and Comprehensive Loss in Other income. On October 1, 2011, Fort Cady (California) Corporation executed a 10-year net royalty lease agreement with Elementis Specialties, Inc. (“Elementis”) to explore, develop and mine boron and lithium on claims held by Elementis. On September 16, 2021, the Company extended its mineral lease agreement with Elementis until July 1, 2022 . Amounts paid prior to production are considered advanced royalty payments and capitalized. For the nine-month period ended March 31, 2022 and 2021, the Company paid Elementis advanced royalty payments of $ 86,608 and $ 107,502 , respectively. Asset retirement costs represent the carrying value of capitalized costs associated with asset retirement obligations discussed in Note 5. Mineral Interests and Properties as of March 31, 2022 and June 30, 2021 consisted of the following: March 31, June 30, 2022 2021 Mineral properties – Fort Cady Borate Project $ 6,732,562 $ 6,732,562 Hydrology wells 547,258 547,258 Mineral interest – Elementis lease 808,202 721,594 Asset retirement cost, net of accumulated amortization of $ 3,887 and zero at March 31, 2022 and June 30, 2021, respectively 159,766 79,295 $ 8,247,788 $ 8,080,709 12 Table of Contents 3. Construction in Progress Construction work in progress represents the equipment which has been acquired and is not in use and prepayments for design, engineering, and construction services in relation to the development of the Fort Cady Borate Project. As of March 31, 2022 and June 30, 2021, Construction in Progress consisted of the following: March 31, June 30, 2022 2021 Crystallizer $ 6,825,453 $ 5,544,359 Engineering services 5,064,014 3,182,279 Injection and recovery wells 1,304,043 — Electric infrastructure 1,182,663 643,445 Filter system 634,986 634,986 Centrifuge system 382,683 382,683 Air compression 348,410 344,054 Boiler 287,613 287,613 Conveyor system 284,535 — Scrubbers 265,605 235,063 Water treatment 232,108 232,108 Pumps 121,795 67,273 Other 1,099,940 1,211,422 Total Construction in Progress $ 18,033,848 $ 12,765,285 4. Properties, Plant and Equipment, Net Properties, plant, and equipment, net as of March 31, 2022 and June 30, 2021 consisted of the following: March 31, June 30, 2022 2021 Land $ 1,533,312 $ 658,245 Buildings 873,410 717,253 Vehicles 297,127 73,202 Plant and equipment 339,979 91,897 3,043,828 1,540,597 Less accumulated depreciation ( 117,523 ) ( 45,161 ) Properties, plant and equipment, net $ 2,926,305 $ 1,495,436 For the nine-month periods ended March 31, 2022 and 2021, the Company recognized depreciation expense of $ 72,362 and $ 15,344 , respectively. 13 Table of Contents 5. Reclamation Liabilities The liabilities accrued for reclamation and closure costs as of March 31, 2022 and June 30, 2021 were as follows: March 31, June 30, 2022 2021 Accrued reclamation costs $ 297,997 $ 297,997 Asset retirement obligation 169,765 79,295 $ 467,762 $ 377,292 Accrued reclamation costs of $ 297,997 relate to land disturbance for the Fort Cady Borate Project. On June 30, 2021, the Company established an asset retirement obligation (“ARO”) relating to water monitoring wells and injection recovery wells as required by the Company’s Underground Injection Permit. Total estimated reclamation and closure costs for wells completed was $ 597,420 as of March 31, 2022 and $ 298,710 as of June 30, 2021. These estimated costs were discounted using credit adjusted, risk-free interest rates of 6.6 – 6.9 % from the time the Company incurred the obligation to the time the Company expects to pay the retirement obligation. During the nine-month period ended March 31, 2022, the Company incurred additional obligations relating to water monitoring and injection recovery wells with the total estimated costs of $ 298,710 . These estimated costs increased the balance of the asset retirement obligation by $ 84,358 . The following is a reconciliation of the aggregate retirement obligation asset associated with our reclamation plan for the Company’s mining projects for the nine months ended March 31, 2022. There was no comparable activity for the nine months ended March 31, 2021: 2022 Retirement obligation asset — beginning of period $ 79,295 Obligation incurred during the period 84,358 Accretion 6,112 Retirement obligation asset — end of period $ 169,765 Exploration and evaluation activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally have become more restrictive. The Company believes that its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. The ultimate amount of reclamation and other future site-restoration costs to be incurred for existing mining interests is uncertain. 6. Leases The Company leases offices in Hesperia, CA and Houston, TX under operating lease agreements, which expire in February 2024 and December 2024 , respectively. Starting February 2021 and January 2022, right o f use (“ROU”) assets were recognized with corresponding lease liabilities on the effective date of the lease. To calculate right of use assets and lease liabilities, the Company utilized incremental borrowing rates ranging fro m 0.04 % to 1.04 % to discount the future rent payments. The remaining lease term for our office in Hesperia, CA is 1.90 years and 2.75 years for our office in Houston, TX. During the nine-month period ended March 31, 2022, operating cash flows included cash payments o f $ 88,285 related to lease liabilities. 14 Table of Contents Future minimum annual lease payments under these existing lease agreements are as follows as of March 31, 2022: For the year ending June 30, 2022 (April 1 – June 30) $ 35,883 2023 117,690 2024 92,051 2025 21,257 Total 266,881 Less imputed interest ( 1,914 ) Net lease liability 264,967 Current portion 116,957 Long-term portion $ 148,010 Expense under operating leases, including short-term leases, for the nine-month periods ended March 31, 2022 and 2021 were $ 134,699 and $ 36,112 , respectively. This expense is included in General and Administrative expense on the Consolidated Statement of Operations and Comprehensive Loss (Income). 7. Equity In accordance with the Scheme, all ordinary shares of ABR have been transferred to the Company and pursuant to the Scheme, the Company issued to the shareholders of ABR, either one share of the Company’s common stock for every ten ordinary shares of ABR or one CHESS Depository Interest (“CDIs”) over the Company’s c ommon s tock for every one ordinary share of ABR, in each case, as held on the Scheme record date. On the effective date of the Scheme, the number of ordinary outstanding shares was reduced from 418,693,150 to 41,869,315 shares of common stock. All share and per share amounts in these condensed consolidated financial statements and related notes for the periods prior the Scheme have been retroactively adjusted to reflect the effect of the exchange ratio. We are authorized to issue up to 180,000,000 shares of common stock, par value $ 0.01 per share, and 20,000,000 shares of preferred stock, par value, $ 0.01 per share. We have no outstanding shares of preferred stock. During the nine-month periods ended March 31, 2022 and 2021, the Company issued the following shares of common stock: • Issued 1,760,236 and 5,128,205 shares of its common stock for cash proceeds of $ 26,309,067 and $ 30,109,764 during the nine months ended March 31, 2022 and 2021, respectively. Share issue costs of $ 797,474 and $ 1,573,496 were incurred. • Issued 1,267,667 and 2,097,685 shares of its common stock upon exercise of stock options for $ 3,124,112 and $ 5,663,177 during the nine months ended March 31, 2022 and 2021, respectively. • Issued 1,100,000 and 8,000 shares of its common stock with a fair value of $ 27,171,876 and $ 32,076 for consulting fees during the nine months ended March 31, 2022 and 2021, respectively. 8. Net Loss Per Common Share Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if stock options, warrants, and convertible securities were exercised or converted into common stock. Diluted loss per share equals basic loss per share as the effect of including dilutive securities in the calculation would be antidilutive. For the nine-month periods ended March 31, 2022 and 2021, respectively, stock options of 5,510,000 and 5,925,000 were excluded from the computation of diluted loss per share as our reported net losses for those periods would cause their exercise to have no effect on the calculation of loss per share. 15 Table of Contents 9. Share Based Compensation Stock Incentive Plans In March 2022, our Board of Directors adopted the 5E Advanced Materials, Inc. 2022 Equity Compensation Plan (the “Incentive Plan”). A total of 2,500,000 shares of common stock are reserved for issuance under the Incentive Plan. The Incentive Plan authorized the grant of stock options, restricted share units, performance share units, director share units, performance cash units and other equity-based awards. Our Compensation Committee determines the exercise price for stock options and other equity-based awards, which may not be less than the fair market value of our common stock on the date of grant. As of March 31, 2022, 2,500,000 shares of common stock were available for issuance under the Incentive Plan. The Company established an employee share option plan (“ESOP”) under its predecessor parent company ABR. The objective of the ESOP was to assist in the recruitment, reward, retention and motivation of employees and contractors. Individual may receive the options or nominate a relative or associate to receive the options. The plan was open to executive officers, employees, and eligible contractors of the Company. Additionally, the board authorized the awards of options outside of the plan to suppliers and vendors. Vesting periods of options granted varied as determined by the ABR board of directors. Total number of shares authorized for award of share options under the ESOP was limited to 5 % of common stock over a 3 -year period. The Company canceled each of the outstanding options to acquire ordinary shares of ABR and issued replacement options representing the right to acquire shares of the Company’s common stock on the basis of the exchange ratio of one replacement option for every ten ABR options held. It is the Company’s policy to issue new shares of common stock to satisfy stock options. The fair value of stock option awards granted to directors, officers, employees and/or consultants of the Company are estimated on the grant date using the Black-Scholes option valuation model and the closing price of our common shares on the grant date. The significant assumptions used to estimate the fair value of 1,700,000 and 1,350,000 stock option awards granted during the nine-month periods ended March 31, 2022 and 2021, respectively, using the Black-Scholes option valuation model are as follows: Average for nine-month periods ended March 31, 2022 2021 Exercise price $ 14.62 –$ 18.27 $ 6.58 - $ 11.69 Share price $ 12.43 $ 8.49 Volatility 85 % 85 – 110 % Expected term in years 0.9 to 3.9 1.9 to 4.0 Risk free interest rate 0.01 – 0.1 % 0.75 % Dividend rate Nil Nil The share-based compensation cost recognized in the Consolidated Statements of Loss and Comprehensive Loss in General and administrative expense was $ 4,428,071 and 5,318,298 for the nine-month periods ended March 31, 2022 and 2021, respectively. The following table summarizes stock option activity for each of the periods ended March 31, 2022 and 2021. The number of options have been adjusted for the exchange ratio and exercise prices reflect the AUD prices in USD based on the exchange rate that existed on the date prior to implementation of the Scheme: 16 Table of Contents 2022 2021 Number of Options Weighted Averaged Exercise Price Number of Options Weighted Averaged Exercise Price Outstanding at beginning of the period 5,554,333 $ 5.19 6,742,379 $ 3.36 Granted 1,700,000 $ 15.39 1,350,000 $ 7.02 Exercised ( 1,267,667 ) $ 2.48 ( 2,097,685 ) $ 2.67 Expired/forfeited ( 476,667 ) $ 5.48 ( 69,694 ) $ 6.29 Outstanding at end of period 5,510,000 $ 8.94 5,925,000 $ 4.55 Vested at the end of the period 3,870,000 $ 6.39 5,905,000 $ 4.53 Options outstanding and vested as of March 31, 2022, have a weighted average remaining life of 2.03 years and 1.52 years, respectively. As of March 31, 2022, there was $ 6.1 million of unrecognized compensation cost related to 1,640,000 unvested stock options. This cost is expected to be recognized over a weighted-average remaining period of approximately 2.41 years. As of March 31, 2022, the intrinsic value of both the outstanding stock options and vested options was $ 54.3 million and $ 48.0 million, respectively. The intrinsic value of stock options exercised during the nine-month periods ended March 31, 2022 and 2021 was $ 14.4 million and $ 9.9 million, respectively. Consulting Stock Awards Pursuant to an agreement ABR had in place with its U.S.-based advisory board Blue Horizon Advisors LLC (“BHA”), the Company issue d 400,000 shares of common stock upon the listing of the Company’s shares on Nasdaq during the three-month period ended March 31, 2022. The fair value of these shares of $ 13.2 million was recognized as stock based compensation and included in general and administrative expenses in the consolidated statements of operations for the three and nine month period ended March 31, 2022. The agreement also includes a provision enabling BHA to potentially earn an additional 250,000 shares of common stock upon meeting four different market-based milestones (total of 1,000,000 shares). The market-based milestones include the Company’s common stock achieving a ten -day volume weighted average price of $ 21.94 , $ 29.25 , $ 36.57 , and $ 43.88 before December 31, 2022. All services required for the awards have been fulfilled as of March 31, 2022, and due to the market-based milestones of the awards, the fair value of these awards is determined using the Monte Carlo Simulation valuation model. Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of awards, a risk-free interest rate and dividend yield. The assumptions used to estimate the fair value of the market-based stock grants under the Monte Carlo Simulation model for the period ended March 31, 2022 are as follows: Hurdle stock price $ 21.94 $ 29.25 $ 36.57 $ 43.88 Volatility 76.82 % 76.82 % 76.82 % 76.82 % Expected term in years 1.12 1.12 1.12 1.12 Risk-free interest rate 0.22 % 0.22 % 0.22 % 0.22 % Expected dividend yield 0 % 0 % 0 % 0 % Estimated fair value per share $ 10.68 $ 9.01 $ 6.63 $ 4.88 The Company recorded stock based compensation of $ 7.8 million in general and administrative expense in the consolidated statements of operations for three and nine month periods ended March 31, 2022. 17 Table of Contents 10. Commitments and Contingencies Purchase Obligations As of March 31, 2022, the Company has purchase order commitments of $ 18,888,000 in respect of construction works in progress, drilling, and technical reports. Mineral Lease Payments The Company has a mineral lease agreement for the purposes of obtaining exclusive rights to exploration at the Fort Cady Project. The mineral lease agreement requires the Company to make an annual minimum royalty payment of $ 75,000 , escalated annually based on inflation, until the expiration date of the lease, October 1, 2021 . On September 16, 2021, the Company extended its mineral lease agreement with Elementis until July 1, 2022. Payments made during the nine-month period ended March 31, 2022 and 2021 were $ 86,608 and $ 107,502 , respectively. Salt Wells Earn-in Agreement The Company has funding commitments under its Earn-in Agreement of $ 300,000 in fiscal year 2022, $ 600,000 in fiscal year 2023, $ 800,000 in fiscal year 2024, and $ 1,200,000 in fiscal year 2025. 11. Income Taxes The Company did no t record a U.S. federal or state income tax benefit for losses incurred during the three and nine months ended March 31, 2022 and 2021. The Company concluded that it is more likely than not that its deferred tax assets will not be realized which resulted in recording a full valuation allowance during those periods. 12. Subsequent Events On April 12, 2022, the Company issued 150,000 shares to Blue Horizon Advisors LLC, pursuant to the terms of the Advisory Agreement dated April 16, 2021 and as consideration for advisory board services provided, including services related to assessment of the Project, recruiting a U.S. based management team, and advising in connection with the U.S. listing. The Company did no t receive any proceeds in connection with the issuance. 18 Table of Contents