What changed in this filing

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Item 1. Financial Statements

2025-08-11 compared with 2025-05-15 · 925 added, 1230 removed, 191 unchanged (92% of the section changed)

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS (UNAUDITED)

USA Rare Earth, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except

(In thousands)

Current assets

3 unchanged sentences

Total current assets 123,545 22,273

Non-current assets:

Property, plant and equipment, net 33,031 26,529

Mineral interests, at cost

Mineral interests 17,125 17,125

Equipment deposits 5,555 3,060

1 unchanged sentence

Other non-current assets 56 52

Total non-current assets

Total assets $ 179,701 $ 69,069

LIABILITIES, MEZZANINE AND STOCKHOLDERS' (DEFICIT) EQUITY

2 unchanged sentences

Accrued liabilities 5,134 3,071

Derivative liability, current

Notes payable, current

Finance lease liability, current

Operating lease liability, current

Other current liabilities

Derivative liability — 1,164

Notes payable — 831

Finance and operating leases, current 421 23

Total current liabilities 8,176 6,925

Deferred grants 8,200 8,200

Finance lease liability, non-current

Operating lease liability, non-current

Earnout liability

Warrant liability

Finance and operating leases, non-current 990 —

Earnout liabilities 100,007 —

Warrant liabilities 169,020 —

Total liabilities 286,393 15,125

1 unchanged sentence

Mezzanine equity

12 % Series A Cumulative Convertible Preferred Stock subject to possible redemption, $ 0.0001 par value, 15,000 authorized, 5,233 issued and outstanding as of March 31, 2025

12 % Series A Convertible Preferred Stock subject to possible redemption

25,242 21,173

Subscription receivable — ( 1,250 )

1 unchanged sentence

Stockholders' (deficit) equity

Common Stock $ 0.0001 , par value, 750,000 authorized;

81,952 shares issued and outstanding as of March 31, 2025

Subscription receivable

Common Stock 10 6

Additional paid-in-capital 46,270 104,244

3 unchanged sentences

Total liabilities, mezzanine and stockholders’ (deficit) equity $ 179,701 $ 69,069

The accompanying notes are an integral part

of these condensed consolidated financial statements.

See Accompanying Notes to Condensed Consolidated Financial Statements

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 1

USA Rare Earth, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

For the Three Months Ended March 31,

Operating costs and expenses

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share)

Operating expenses:

Selling, general and administrative $ 6,227 $ 1,286 $ 13,256 $ 3,933

Research and development 2,577 1,725 4,266 3,776

Total operating costs and expenses

Operating loss

Total operating expenses 8,804 3,011 17,522 7,709

Loss from operations ( 8,804 ) ( 3,011 ) ( 17,522 ) ( 7,709 )

Other income (expense):

Interest and dividend income

Gain on fair market value of financial instruments

Interest and other expense

Total other income

Net income (loss)

Net income (loss) attributable to non-controlling interest

Net income (loss) attributable to common stockholders

Net income (loss) per common share - basic

Net income (loss) per common share - diluted

Weighted average shares outstanding - basic

Weighted average shares outstanding - diluted

The accompanying notes are an integral part

of these condensed consolidated financial statements.

Interest and dividend 765 45 952 154

(Loss) gain on fair market value of financial instruments ( 134,662 ) 229 ( 74,362 ) 230

Interest expense and other income (loss), net ( 12 ) ( 82 ) ( 99 ) ( 166 )

Total other income (loss), net ( 133,909 ) 192 ( 73,509 ) 218

Net loss ( 142,713 ) ( 2,819 ) ( 91,031 ) ( 7,491 )

Net loss attributable to non-controlling interest ( 207 ) ( 222 ) ( 357 ) ( 422 )

Net loss attributable to common stockholders $ ( 142,506 ) $ ( 2,597 ) $ ( 90,674 ) $ ( 7,069 )

Net loss per share:

Basic and diluted $ ( 1.54 ) $ ( 0.04 ) $ ( 0.99 ) $ ( 0.12 )

Number of shares used in per share calculations:

Basic and diluted 92,769 59,425 91,598 59,319

See Accompanying Notes to Condensed Consolidated Financial Statements

USA Rare Earth, Inc.

Condensed Consolidated

Statements of Mezzanine Equity and

Stockholders’ Equity

| Q2'2025 Quarterly Report (Form 10-Q) | 2

USA Rare Earth, Inc.

Condensed Consolidated Statements of Mezzanine Equity

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

Shares Amount Shares Amount

(In thousands)

( Unaudited )

Stockholders’

(Deficit) Equity

Stockholders’

Balance as of

January 1, 2025 as recast*

Equity-based compensation -

incentive units

Issuance of common stock -

12 % Series A Convertible Preferred Stock

Beginning balance (1)

5,233 $ 32,397 2,739 $ 21,173

USARE LLC Convertible Preferred unit dividends

Issuance of preferred stock and warrants, net of issuance costs — — 2,279 11,745

Forgiveness of related party promissory note — — 131 1,527

Deferred offering costs — — — ( 3,237 )

Deemed dividend and accretion to redemption value

— 11,569 — 11,676

( 1,519 ) ( 18,724 ) ( 1,519 ) ( 18,724 )

Ending balance 3,714 $ 25,242 3,714 $ 25,242

Subscription Receivable

Beginning balance (1)

$ — $ ( 1,250 )

Forgiveness of related party promissory note — 1,250

Ending balance $ — $ —

Total Mezzanine Equity

Beginning balance (1)

$ 32,397 $ 19,923

Ending balance 25,242 25,242

(1) Recast as of January 1, 2025.

The shares of the Company’s preferred stock prior to the Merger have been retrospectively recast to reflect the change in the capital structure as a result of the Merger as described in Note 3, “Merger Transaction”.

See Accompanying Notes to Condensed Consolidated Financial Statements

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 3

USA Rare Earth, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

Shares Amount Shares Amount

(In thousands)

Beginning balance (1)

81,952 $ 8 60,091 $ 6

Transaction bonus — — 78 —

Extinguishment of note payable — — 140 —

Convertible Preferred dividends

(Class A and C)

Issuance of preferred stock

and warrants, net of issuance costs

Forgiveness of related party promissory note

USARE LLC Convertible Preferred unit dividends — — 182 —

Reverse recapitalization merger — — 21,461 2

Conversion of 12 % Series A Convertible Preferred Stock

2,610 — 2,610 —

Exercise of Warrants 3,051 1 3,051 1

PIPE financing

8,550 1 8,550 1

Other issuances

Ending balance 96,189 $ 10 96,189 $ 10

Additional Paid-In Capital

Beginning balance (1)

$ 24 $ 104,244

Equity-based compensation - incentive units — 241

Transaction bonus — 841

Extinguishment of note payable — 1,506

USARE LLC Convertible Preferred unit dividends — ( 1,082 )

Issuance of preferred stock and warrants, net of issuance costs — 5,367

Deferred offering costs — ( 4,234 )

Deemed dividend - preferred

accretion to redemption value

Issuance of Common Stock in

Deemed dividend - preferred accretion to redemption value ( 11,569 ) ( 11,676 )

Reverse recapitalization merger — 27,718

Earnout liability at Closing

of the Merger

Conversion of Series A Investor

Warrants into liability-classified warrants

Forward purchase agreements

Early terminations of forward

purchase agreements

Accretion of forward purchase

as of March 31, 2025

* The shares of the Company’s common stock prior to the Merger have been retrospectively recast to reflect the change in the capital structure as a result of the Merger as described in Note 3.

Convertible Preferred

C-1 Convertible Preferred

Stockholders’

Balance as of January

1, 2024 as previously reported

application of recapitalization

Balance as of January 1, 2024

Earnout liability

Conversion of Series A Warrants into liability-classified warrants

Warrant exercises

38,469 38,469

Conversions of 12 % Series A Convertible Preferred Stock

18,724 18,724

Forward purchase agreements prepayment — ( 351 )

Early termination of forward purchase agreements 336 399

Accretion of forward purchase agreements ( 67 ) 2

Common stock issuance

Ending balance $ 46,270 $ 46,270

Subscription Receivable

Beginning balance (1)

$ ( 17,187 ) $ —

Forward purchase agreements prepayment — ( 20,389 )

Early termination of forward purchase agreements 17,120 20,391

Accretion of forward purchase agreements 67 ( 2 )

Ending balance $ — $ —

Accumulated Deficit

Beginning balance (1)

$ ( 37,994 ) $ ( 72,872 )

Reverse recapitalization merger — ( 16,954 )

Net loss ( 142,506 ) ( 90,674 )

Ending balance $ ( 180,500 ) $ ( 180,500 )

Non-Controlling Interest

Beginning balance (1)

$ 2,493 $ 2,643

Net loss ( 207 ) ( 357 )

Ending balance $ 2,286 $ 2,286

Total Stockholders’ (Deficit) Equity

Beginning balance (1)

$ ( 52,656 ) $ 34,021

Ending balance ( 131,934 ) ( 131,934 )

(1) Recast as of January 1, 2025.

The shares of the Company’s common stock prior to the Merger have been retrospectively recast to reflect the change in the capital structure as a result of the Merger as described in Note 3, “Merger Transaction”.

See Accompanying Notes to Condensed Consolidated Financial Statements

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 4

USA Rare Earth, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

Three Months Ended June 30, 2024 (1)

Six Months Ended June 30, 2024 (1)

Units Amount Units Amount

(In thousands)

Beginning balance (as previously reported) — $ —

Retroactive application of recapitalization 59,213 6

Beginning balance (as adjusted) 59,425 $ 6 59,213 6

USARE LLC Convertible Preferred Stock Class C and C-1 dividends 215 — 427 —

Ending balance 59,640 $ 6 59,640 $ 6

Common Units Class A

Beginning balance (as previously reported) 206,520 $ 3,704

Retroactive application of recapitalization ( 206,520 ) ( 3,704 )

Beginning balance (as adjusted) and ending balance — $ —

Common Units Class B

Beginning balance (as previously reported) 20,779 $ 3,189

Retroactive application of recapitalization ( 20,779 ) ( 3,189 )

Beginning balance (as adjusted) and ending balance — $ —

Convertible Preferred Units Class C

Beginning balance (as previously reported) 54,592 $ 73,079

Retroactive application of recapitalization ( 54,592 ) ( 73,079 )

Beginning balance (as adjusted) and ending balance — $ —

Convertible Preferred Units Class C-1

Beginning balance (as previously reported) 7,861 $ 13,404

Retroactive application of recapitalization ( 7,861 ) ( 13,404 )

Beginning balance (as adjusted) and ending balance — $ —

Additional Paid-In Capital

Beginning balance (as previously reported) $ —

Retroactive application of recapitalization 93,370

Beginning balance (as adjusted) $ 94,333 93,370

Equity-based compensation ( 315 ) 34

Class C and C-1 Convertible

Preferred dividends

Issuance of warrants — 614

Dilution of non-controlling

as of March 31, 2024

* The shares of the Company’s common stock prior to the Merger

have been retrospectively recast to reflect the change in the capital structure as a result of the Merger as described in Note 3.

The accompanying notes are an integral part

of these condensed consolidated financial statements.

Convertible Preferred dividends 2,973 2,973

Ending balance $ 96,991 $ 96,991

Accumulated deficit

Beginning balance (as previously reported) $ ( 54,223 )

Retroactive application of recapitalization —

Beginning balance (as adjusted) $ ( 58,683 ) ( 54,223 )

USARE LLC Convertible Preferred dividends

( 2,973 ) ( 2,973 )

Dilution of non-controlling interest 10 22

Net loss ( 2,597 ) ( 7,069 )

Ending balance $ ( 64,243 ) $ ( 64,243 )

Non-controlling interest

Beginning balance (as previously reported) $ 3,331

Retroactive application of recapitalization —

Beginning balance (as adjusted) $ 3,119 3,331

Dilution of non-controlling interest ( 10 ) ( 22 )

Net loss ( 222 ) ( 422 )

Ending balance $ 2,887 $ 2,887

Total stockholders’ equity

Beginning balance (as adjusted) $ 38,775 $ 42,484

Ending balance 35,641 35,641

(1) The shares of the Company’s common stock, common stock units and preferred stock units prior to the Merger have been retrospectively recast to reflect the change in the capital structure as a result of the Merger as described in Note 3, “Merger Transaction”.

See Accompanying Notes to Condensed Consolidated Financial Statements

USA Rare Earth, Inc.

Condensed Consolidated

Statements of Cash Flows

| Q2'2025 Quarterly Report (Form 10-Q) | 5

USA Rare Earth, Inc.

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

(In thousands)

For the Three Months Ended March 31,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Net loss $ ( 91,031 ) $ ( 7,491 )

Adjustments to reconcile net loss to cash used in operating activities

Equity-based compensation 1,282 34

Depreciation and amortization

Non-cash interest expense

Depreciation 135 163

Amortization of right of use assets

Loss on sale of property and equipment

Loss on Hatch note extinguishment

Gain on fair market value of financial instruments

Changes in assets and liabilities:

Prepaid and other current assets

Non-cash interest expense 73 —

Amortization of discount on note payable — 94

Settlement of litigation through the issuance of common shares 1,674 —

Loss (gain) on fair market value of financial instruments 74,362 ( 230 )

Other non-cash adjustments 419 39

Changes in operating assets and liabilities:

Prepaid and other assets ( 1,035 ) ( 32 )

Accounts payable ( 2,785 ) 95

Accrued and other current liabilities

Operating lease liabilities

Other liabilities

Accrued and other liabilities ( 1,364 ) ( 976 )

Operating lease liability ( 103 ) ( 76 )

Net cash used in operating activities ( 18,238 ) ( 8,277 )

Cash flows from investing activities:

Purchase of property, plant and equipment

Equipment deposits

Cash used in investing activities

Capital expenditures and equipment deposits ( 6,297 ) ( 1,055 )

Net cash used in investing activities ( 6,297 ) ( 1,055 )

Cash flows from financing activities:

Proceeds from issuance of series A-2 preferred and warrants

Proceeds from issuance of series A preferred and warrants

Issuance cost for series A preferred and warrants

Proceeds from issuance of USARE LLC Preferred Series A-1 and A-2 units, and warrants 15,250 —

Proceeds from issuance of USARE LLC Preferred Series A units, and warrants 8,000 —

Payment of issuance cost for USARE LLC Preferred Series A, and warrants ( 400 ) —

Payment of issuance cost for USARE LLC Convertible Preferred Class C-1 units — ( 483 )

IPXX contribution of capital through merger 22,867 —

Prepayment of Forward Purchase Agreements ( 20,789 ) —

Proceeds from early termination of forward purchase agreements

Payment of issuance costs of Class C-1 Convertible Preferred units

Proceeds from termination of Forward Purchase Agreements 20,789 —

Payment of securities issuance costs ( 8,281 ) ( 89 )

Proceeds from issuance of equity and warrants under PIPE financing, net 70,178 —

Proceeds from exercise of warrants

Net cash provided by (used in) financing activities 129,565 ( 572 )

Net increase (decrease) in cash

Net change in cash and cash equivalents $ 105,030 $ ( 9,904 )

Cash and cash equivalents, beginning of year 16,761 13,199

Cash and cash equivalents, end of period $ 121,791 $ 3,295

Supplemental Disclosure of Noncash Investing and Financing Activities:

Class C and C-1 convertible preferred stock dividends

Class A-1 and A-2 convertible preferred stock dividends

Finance right-out-use assets obtained in exchange for finance lease liabilities

Operating right-of-use assets obtained in exchange for operating lease liabilities

The accompanying notes are an integral part

of these condensed consolidated financial statements.

Supplemental disclosure of cash flow information:

USARE LLC Convertible Preferred Class C and C-1 unit dividends $ 1,960 $ 3,621

USARE LLC Convertible Preferred Class A-1 and A-2 unit dividends 1,082 —

Finance right of use assets obtained in exchange for finance lease liabilities 1,233 —

Non-cash lease liabilities arising from obtaining right of use assets 427 —

See Accompanying Notes to Condensed Consolidated Financial Statements

USA Rare Earth, Inc.

Notes to the Condensed Consolidated Financial

| Q2'2025 Quarterly Report (Form 10-Q) | 6

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

The mission of USA Rare Earth, Inc.

(formerly known as Inflection Point

Acquisition Corp.

II or “IPXX”), collectively with its subsidiaries (the “Company,” or “USAR”)

is to establish a domestic rare earth magnet supply chain that supports the future state of energy, mobility, technology and national

security in the United States (“U.S.”).

USAR is developing a rare earth sintered neo magnet (“neo magnet”

or “NdFeB”) manufacturing plant in Stillwater, Oklahoma, and intends to establish domestic rare earth and critical minerals

supply, extraction, and processing capabilities to both supply its magnet manufacturing plant and market surplus materials to third parties.

Rare earth magnets are critical to various business sectors and industries, including the defense, automotive, aviation, industrial, AI

Robotics, medical, and consumer electronics industries, among others.

USAR is planning to take a broad approach to the industries it serves

with the intention of providing high quality NdFeB magnets to a variety of industries and customers.

USAR’s focus on developing

domestic rare earth production aligns with national priorities, offering the potential of a sustainable and secure domestic supply of

materials critical to key industries.

USAR was a special purpose acquisition company incorporated as a Cayman

Islands exempted corporation on March 6, 2023.

The Company was incorporated for the purpose of effecting a merger, share exchange,

asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

Following the closing of

the Merger Transactions (as defined below), shares of USAR common stock (“Common Stock”) and USAR warrants began trading on

Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “USAR” and “USARW”, respectively, on March 14,

These condensed

consolidated financial statements refer to the mining operations of the Company, conducted through Round Top Mountain Development, LLC

(“RTMD”), at Round Top Mountain in Texas (“Round Top”) and the Company’s research and development facility

in Colorado as the “Round Top Project”.

RTMD has mining rights in Texas and is developing processing technology for the rare

earth minerals which are to be mined in Texas.

(formerly known as Inflection Point Acquisition Corp.

II or “IPXX”), collectively with its subsidiaries (the “Company,” or “USAR”) is to establish a domestic rare earth magnet supply chain that supports the future state of energy, mobility, technology and national security in the United States (“U.S.”).

USAR is developing a rare earth element (“REE”) sintered Neodymium Iron Boron (“NdFeB“ or “neo”) magnet manufacturing plant in Stillwater, Oklahoma, and intends to establish domestic rare earth and critical minerals supply, extraction, and processing capabilities to both supply its magnet manufacturing plant and market surplus materials to third parties.

Rare earth magnets are critical to various business sectors and industries, including the defense, automotive, aviation, industrial, AI Robotics, medical, and consumer electronics industries, among others.

USAR is planning to take a broad approach to the industries it serves with the intention of providing high-quality neo magnets to a variety of industries and customers.

USAR’s focus on developing domestic rare earth production aligns with national priorities, offering the potential of a sustainable and secure domestic supply of materials critical to key industries.

USAR was a special purpose acquisition company incorporated as a Cayman Islands exempted company on March 6, 2023.

The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

Following the closing of the Merger Transactions (as defined below), shares of USAR common stock (“Common Stock”) and USAR warrants began trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “USAR” and “USARW”, respectively, on March 14, 2025.

These Condensed Consolidated Financial Statements refer to the mining operations of the Company, conducted through Round Top Mountain Development, LLC (“RTMD”), at Round Top Mountain in Texas (“Round Top”) and the Company’s research and development facility in Colorado as the “Round Top Project”.

RTMD has mining rights in Texas and is developing processing technology for the rare earth minerals which are to be mined in Texas.

IPXX Business Combination Agreement

On August 21, 2024, IPXX entered into a Business

Combination Agreement (as amended on November 12, 2024 and January 30, 2025, the “Business Combination Agreement”), by and

among IPXX, USA Rare Earth, LLC, a Delaware limited liability company (“USARE LLC”), and IPXX Merger Sub, LLC, a Delaware

limited liability company and a direct wholly owned subsidiary of IPXX (“Merger Sub”).

Pursuant to the Business Combination

Agreement, Merger Sub merged with and into the USARE LLC, with the USARE LLC continuing as the surviving company (the “Merger”).

On March 12, 2025, as contemplated by the Business Combination Agreement,

IPXX filed a notice of deregistration with the Cayman Islands Registrar of Companies and filed a certificate of incorporation and certificate

of corporate domestication with the Delaware Secretary of State, pursuant to which IPXX was domesticated and continues as a Delaware corporation,

changing its name to USA Rare Earth, Inc (the “Domestication”).

As a result of the Domestication, each issued and outstanding

Class A ordinary share of IPXX automatically converted, on a one-for-one basis, into a share of Common Stock and each of the issued and

outstanding warrants to purchase Class A ordinary shares of IPXX automatically became a warrant exercisable for one share of Common Stock

on the same terms as the pre-Domestication warrants.

Additionally, each unit of IPXX issued and outstanding as of immediately prior to

the Domestication was automatically canceled and each unit holder received one share of Common Stock and one-half of one USAR warrant

exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants.

On March 13, 2025 (the “Closing Date”

or “Closing”), USAR consummated the previously announced Merger and related transactions (the “Merger Transactions”)

contemplated by the Business Combination Agreement and USARE LLC became a direct wholly owned subsidiary of USAR.

As a result of

the Merger Transactions, all issued and outstanding Class A and B common units, Class C and C-1 preferred units, equity-based incentive

units and warrants to acquire Class B common units and Class C preferred units of USARE LLC were converted into shares of Common Stock

using an exchange ratio of approximately 0.204 .

On the Closing Date all incentive units were considered fully vested.

of shares of Common Stock issuable for USARE LLC warrants and incentive units was calculated using the treasury method of accounting on

a cashless exercise basis.

Additionally, all issued and outstanding Class A-1 and A-2 preferred units of USARE LLC were converted on a

one-for-one basis into shares of USAR Series A Preferred stock.

Warrants to acquire USAR Class A common stock issued to the holders of

Preferred Class A-1 and A-2 units were converted into a right to acquire Common Stock on a one-for-one basis.

As a result of the Merger, USAR is a holding company,

in which substantially all of the assets and business are held by USARE LLC and its subsidiaries and continues to operate through USARE

LLC and its subsidiaries.

The Merger is accounted for as a reverse recapitalization in accordance with generally accepted accounting principles

On August 21, 2024, IPXX entered into a Business Combination Agreement (as amended on November 12, 2024 and January 30, 2025, the “Business Combination Agreement”), by and among IPXX, USA Rare Earth, LLC, a Delaware limited liability company (“USARE LLC”), and IPXX Merger Sub, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of IPXX (“Merger Sub”).

Pursuant to the Business Combination Agreement, Merger Sub merged with and into USARE LLC, with USARE LLC continuing as the surviving company (the “Merger”).

On March 12, 2025, as contemplated by the Business Combination Agreement, IPXX filed a notice of deregistration with the Cayman Islands Registrar of Companies and filed a certificate of incorporation and certificate of corporate domestication with the Delaware Secretary of State, pursuant to which IPXX was domesticated and continues as a Delaware corporation, changing its name to USA Rare Earth, Inc.

(the “Domestication”).

As a result of the Domestication, each issued and outstanding Class A ordinary share of IPXX automatically converted, on a one-for-one basis, into a share of Common Stock and each of the issued and outstanding warrants to purchase Class A ordinary shares of IPXX automatically became a warrant exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants.

Additionally, each unit of IPXX issued and outstanding as of immediately prior to the Domestication was automatically canceled and each unit holder received one share of Common Stock and one-half of one USAR warrant exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 7

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

On March 13, 2025 (the “Closing Date”), USAR consummated the previously announced Merger and related transactions (the “Merger Transactions”) contemplated by the Business Combination Agreement and USARE LLC became a direct wholly owned subsidiary of USAR.

As a result of the Merger Transactions, all issued and outstanding Class A and Class B common units, Class C and Class C-1 preferred units, equity-based incentive units and warrants to acquire Class B common units and Class C preferred units of USARE LLC were converted into shares of Common Stock using an exchange ratio of approximately 0.204 .

On the closing of the Merger, all incentive units were considered fully vested.

The number of shares of Common Stock issuable for USARE LLC warrants and incentive units was calculated using the treasury method of accounting on a cashless exercise basis.

Additionally, all issued and outstanding Class A-1 and Class A-2 preferred units of USARE LLC taking into account payment-in-kind dividends on such units from the date of issuance through the Closing Date were converted on a one-for-one basis into shares of USAR Series A Preferred stock.

Warrants to acquire USAR Class A common units issued to the holders of Class A-1 and Class A-2 Preferred units were converted into a right to acquire Common Stock on a one-for-one basis.

As a result of the Merger, USAR is a holding company, in which substantially all of the assets and business are held by USARE LLC and its subsidiaries and continues to operate through USARE LLC and its subsidiaries.

The Merger is accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the U.S.

GAAP”) and not as a business combination.

Under this method of accounting, IPXX is treated as the acquired

company for financial reporting purposes.

Accordingly, for accounting purposes, the Merger will be treated as the equivalent of USARE

LLC issuing stock for the net assets of IPXX, accompanied by a recapitalization.

USARE LLC has been determined to be the accounting predecessor

to the combined entity.

Unless otherwise noted or the context otherwise

requires, references to the “Company,” “USAR,” “USA Rare Earth, Inc.,” refer to the business of USARE

LLC and its subsidiaries prior to the Closing and to the business of USAR and its subsidiaries, including USARE LLC, following the Closing.

GAAP, IPXX is treated as the acquired company for financial reporting purposes.

Accordingly, for accounting purposes, the Merger was treated as the equivalent of USARE LLC issuing stock for the net assets of IPXX, accompanied by a recapitalization.

USARE LLC has been determined to be the accounting predecessor to the combined entity.

Unless otherwise noted or the context otherwise requires, references to the “Company,” “USAR,” “USA Rare Earth, Inc.,” refer to the business of USARE LLC and its subsidiaries prior to the closing of the Merger and to the business of USAR and its subsidiaries, including USARE LLC, following the closing of the Merger.

See additional information in Note 3, “Merger Transaction.”

Going Concern

The accompanying condensed consolidated financial statements have been

prepared in conformity with U.S.

GAAP, which contemplates continuation of the Company as a going concern and the continuity of operations,

realization of assets, and liquidation of liabilities in the normal course of business.

The Company has generated no revenues since inception,

continues to incur losses from operations, and has an accumulated deficit.

For the three months ended March 31, 2025, the Company had net income of $ 51.7 million, which includes a non-cash fair value gain on financial instruments of $ 60.3 million.

For the three months

ended March 31, 2024, the Company had a net loss of $ 4.7 million.

For the three months ended March 31, 2025 and 2024, the Company used

$ 10.3 million and $ 4.2 million cash in operating activities, respectively.

Subsequent to March 31, 2025, the Company received additional

cash proceeds of $ 11.5 million upon early terminations of the Forward Purchase Agreements (“FPA”).

In addition, on May

5, 2025, the Company announced the closing of a private investment in public equity (“PIPE”) financing for $ 75.0 million with

a single institutional investor.

Although, as of March 31, 2025, the Company had

cash on its condensed consolidated balance sheet of $ 23.4 million, and has subsequently raised additional proceeds from the early terminations

of the FPA and financing from the PIPE, the Company will need to raise additional capital to implement its strategic plan.

Based on the Company’s need to raise additional

capital as well as milestones required for its current strategic plan to generate sustainable commercial revenues, there is substantial

doubt regarding its ability to continue as a going concern for the twelve months following the issuance of these condensed consolidated

financial statements.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with U.S.

GAAP, which contemplates continuation of the Company as a going concern and the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

The Company has generated no revenues since inception, continues to incur losses from operations, and has an accumulated deficit.

For the six months ended June 30, 2025, the Company had net loss of $ 91.0 million, which includes a non-cash fair value loss on financial instruments of $ 74.4 million.

For the six months ended June 30, 2025, net cash used for operating activities was $ 18.2 million.

Although, as of June 30, 2025, the Company had cash and cash equivalents on its Condensed Consolidated Balance Sheet of $ 121.8 million, the Company will need to raise additional capital to implement its current strategic plan, specifically pre-purchasing of raw material inventory in advance of manufacturing due to long lead times.

Based on the Company’s need to raise additional capital as well as milestones required for its current strategic plan to generate sustainable commercial revenues, there is substantial doubt regarding its ability to continue as a going concern for the twelve months following the issuance of these Condensed Consolidated Financial Statements.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 8

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim unaudited condensed consolidated

financial statements have been prepared in accordance with U.S.

GAAP for interim financial reporting and pursuant to the rules and regulations

of the Securities and Exchange Commission (“SEC”).

Certain information and footnote disclosures normally included in annual

financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and regulations relating

to interim financial statements.

In management’s opinion, these unaudited condensed consolidated financial statements have

been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments

necessary for the fair statement of the Company’s financial position as of March 31, 2025 and December 31, 2024 and the results

of operations and cash flows for the three months ended March 31, 2025 and 2024.

The results of operations for the three months ended

March 31, 2025 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual

The December 31, 2024 balances reported herein are derived from the audited consolidated financial statements of USARE LLC.

The accompanying unaudited condensed consolidated

financial statements should be read in conjunction with the audited consolidated financial statements of USARE LLC as of and for the years

ended December 31, 2024 and 2023 contained in a Form 8-K dated and filed with the SEC on March 19, 2025.

These financial statements have been prepared

on a basis that assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction

of liabilities and commitments in the normal course of business.

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S.

GAAP for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

In management’s opinion, these unaudited Condensed Consolidated Financial Statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2025 and December 31, 2024 and the results of operations and cash flows for the three and six months ended June 30, 2025 and 2024.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.

The December 31, 2024 balances reported herein are derived from the Company’s audited Consolidated Financial Statements filed as Exhibit 99.1 to the Current Report on Form 8-K filed by the Company with the SEC on June 18, 2025.

The accompanying unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements as of and for the years ended December 31, 2024 and 2023 filed as Exhibit 99.1 to the Current Report on Form 8-K filed by the Company with the SEC on June 18, 2025.

These financial statements have been prepared on a basis that assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

Reclassifications

Certain prior period amounts have been reclassified in certain notes to the Condensed Consolidated Financial Statements to conform to the current period presentation.

Emerging Growth Company Status

The Company is an emerging growth company as defined in the Jumpstart

Our Business Startups Act (“JOBS Act”).

The JOBS Act, as defined, provides emerging growth companies with certain exemptions

from public company reporting requirements for up to five fiscal years while a company remains an emerging growth company.

these exemptions, the Company need only provide two fiscal years of audited financial statements instead of three, it has reduced disclosure

obligations such as for executive compensation, and it is not required to comply with auditor attestation requirements from Section 404(b)

of the Sarbanes-Oxley Act of 2002, as amended, regarding its internal control over financial reporting.

Additionally, the JOBS Act has

allowed the Company the option to delay adoption of new or revised financial accounting standards until private companies are required

to comply with new or revised financial accounting standards.

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act (“JOBS Act”).

The JOBS Act, as defined, provides emerging growth companies with certain exemptions from public company reporting requirements for up to five fiscal years while a company remains an emerging growth company.

As part of these exemptions, the Company need only provide two fiscal years of audited financial statements instead of three, it has reduced disclosure obligations such as for executive compensation, and it is not required to comply with auditor attestation requirements from Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, regarding its internal control over financial reporting.

Additionally, the JOBS Act has allowed the Company the option to delay adoption of new or revised financial accounting standards until private companies are required to comply with new or revised financial accounting standards.

Principles of Consolidation

The condensed consolidated financial statements include the accounts

of the Company, as well as its wholly-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is

the primary beneficiary.

The Condensed Consolidated Financial Statements include the accounts of the Company, as well as its wholly-owned subsidiaries and variable interest entities (“VIEs”) for which the Company is the primary beneficiary.

All intercompany transactions and balances have been eliminated in consolidation.

The preparation of condensed consolidated financial

statements in conformity with U.S.

GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts

of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of expenses during the reporting period.

The amounts that involve significant estimates include equity-based compensation, asset

and liability valuations, certain equity issuances, and other fair value estimates reported .

The assumptions used in calculating

fair value represent the Company’s best estimates.

However, these estimates involve inherent uncertainties and the application

As a result, if factors change or the Company uses different assumptions, any gain or loss recognized using estimates could

be materially di fferent.

and Cash Equivalents

instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash deposits.

considers cash equivalents to be highly liquid investments, including U.S.

treasury and agency securities purchased with original maturities

of three months or less.

The Company maintains its cash in institutions insured by the Federal Deposit

Insurance Corporation (“FDIC”).

Management considers the risk of loss to be minimal.

Cash and cash equivalents consist of cash and

liquid investments with an original maturity of three months or less.

At March 31, 2025 and December 31, 2024, cash and cash

equivalents consisted of $ 23.4 million and $ 16.8 million, respectively, of funds held in bank and investment accounts with financial institutions

The Company continually monitors its cash positions

with the financial institutions through which it invests.

The Company maintains balances in various U.S.

financial institutions in excess

federally insured limits.

Offering Costs

Deferred offering costs consist of direct legal, advisory, and other

fees related to the Business Combination Agreement, and the Merger transactions as described in Note 1, “Organization”.

costs are capitalized as incurred and are presented as part of current assets in the Company’s condensed consolidated balance sheets

and totaled zero and $ 5.1 million as of March 31, 2025 and December 31, 2024, respectively.

Upon the completion of the Merger Transactions,

deferred offering costs directly related to the issuance of shares were netted against the proceeds from the Merger and recorded as an

offset to stockholders’ equity.

in Ownership Interest Without Loss of Control

Changes in a parent’s ownership interest

that do not result in a change in control of the subsidiary that is a business are accounted for as equity transactions (i.e., no gain

or loss is recognized in earnings) and in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation .

The carrying amount of the non-controlling interest (“NCI”) is adjusted to reflect the change in the NCI’s ownership

interest in the subsidiary.

Any difference between the amount by which the NCI is adjusted and the fair value of the consideration received

is attributed to shareholders’/members’ equity and recognized in additional paid-in capital (“APIC”).

GAAP defines fair value as the price that

would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement

date (exit price), and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value using the following definitions

(from highest to lowest priority):

● Level 1 — Unadjusted

quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

● Level 2 — Observable inputs other than quoted

prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices

for similar assets and liabilities in active markets;

quoted prices for identical or similar assets and liabilities in markets that are

or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

● Level 3 — Prices or valuation techniques requiring

inputs that are both significant to the fair-value measurement and unobservable.

To the extent that valuation is based

on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3 .

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to

the fair value measurement.

See additional information in Note 4, “Fair Value Measurements”.

In accordance

with ASC 360-10, Impairment or Disposal of Long-Lived Assets , the Company periodically reviews the carrying value of its long-lived

assets, such as property, plant and equipment, mineral interests and equipment deposits, to test whether current events or circumstances

indicate that such carrying value may not be recoverable.

When impairment indicators are identified, a recoverability analysis

is performed by comparing estimated future net cash flows with the carrying value and future obligations on an undiscounted basis .

If an asset’s carrying value exceeds such estimated cash flows, the Company would record an impairment loss for the difference between

the asset’s carrying amount and its fair value.

Where estimates of future net cash flows are not determinable and where other

conditions indicate the potential for impairment, management uses available market information and/or third-party valuation experts to

assess if the carrying value can be recovered and to estimate fair value.

The Company did not record an impairment loss related to long-lived

assets for the three months ended March 31, 2025 and the year ended December 31, 2024.

Plant, and Equipment

Property, plant, and equipment are stated at cost,

less accumulated depreciation.

Advance payments of equipment not yet received are recorded as equipment deposits on the condensed consolidated

balance sheets.

Depreciation is calculated using the straight-line method over the following estimated useful lives of the related assets:

Property and Equipment Useful Life

Land improvements 20 - 30 years

Buildings 20 - 30 years

Magnet plant equipment 10 - 20 years

Lab equipment 3 - 15 years

Leasehold improvements Lesser of estimated useful life or remaining lease term

Depreciation commences once the asset is ready

for its intended use.

Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation, is removed from

the accounts and any resulting gain or loss is reflected in the condensed consolidated statements of operations.

The costs of normal maintenance, repairs, and

minor replacements are expensed as incurred.

Mineral Properties and Evaluation and Exploration Costs

Mining property acquisition costs, including indirectly related acquisition

costs, are capitalized when incurred.

The cost of mining properties is included in mineral interests on the Company’s condensed

consolidated balance sheets.

Acquisition costs include cash consideration and the fair market value of shares issued as consideration.

Evaluation and exploration costs are expensed as incurred.

When it is determined that a mining deposit can be economically and legally

extracted or produced based on established proven and probable reserves under Item 1300 of Regulation S-K, development costs incurred

after such determination will be considered for capitalization.

The establishment of proven and probable reserves is based on results

of feasibility studies, which indicate whether a property is economically feasible.

The Company also capitalizes the cost for value beyond

proven and probable (“VBPP”) reserves when it acquires the rights to mining properties.

Upon commencement of commercial production,

capitalized costs will be amortized over their estimated useful lives or units of production, whichever is a more reliable measure.

amounts relating to a property that is abandoned or otherwise considered uneconomic for the foreseeable future are written off.

The recoverability of the carrying values of mining

properties is dependent upon economic reserves being discovered or developed on the properties.

Development and/or start-up of a project

will depend on, among other things, management’s ability to raise sufficient capital for these purposes.

The Company assesses the carrying value of mining

properties for impairment whenever information or circumstances indicate the potential for impairment.

This would include events and circumstances

such as the inability to obtain all the necessary permits, changes in the legal status of mining properties, government actions, the results

of exploration activities and technical evaluations, and changes in economic conditions, including the price of commodities or input prices.

The Company leases real estate and lab equipment

in noncancelable operating and finance leases accounted for in accordance with ASC 842, Leases .

At the inception of an arrangement, the Company

determines whether the arrangement is, or contains, a lease.

A contract is, or contains, a lease when there is a right to control the

use of an identified asset for a period of time.

A lease is a finance lease if one or more of the

following criteria are met:

(i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option

to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for the major part of the remaining useful life

of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or (v)

the asset is specialized in nature to have no alternative use to the lessor at the end of the lease term.

A lease is classified as an operating lease if it does not meet any

of the finance lease criteria noted above.

The Company’s operating leases consist of real estate and the Company’s finance

leases consist of lab equipment.

At lease commencement, the Company recognizes

a right-of-use asset and lease liability for all leases, except short-term leases with an original term of 12 months or less.

A right-of-use

asset is initially measured by adding the initial measurement of the lease liability, any lease payments made to the lessor at or before

lease commencement, any initial direct costs incurred by the lessee, and subtracting any lease incentives received.

The lease liability

is initially measured at the present value of the minimum lease payments, discounted using the rate implicit in the lease or the Company’s

incremental borrowing rate based on the original lease term.

The rate implicit in the lease is used whenever that rate is readily determinable.

If the rate implicit in the lease is not readily determinable, the Company utilizes its incremental borrowing rate, which is the rate

for a collateralized loan with the same term as the lease.

The Company recognizes lease expense for its operating

leases on a straight-line basis over the lease term plus variable lease payments as incurred.

The Company recognizes lease expense for

its finance leases as the amortization of the right-of-use asset on a straight-line basis over the lease term or useful life of the underlying

asset, interest expense on the lease liabilities, and any variable lease payments as incurred.

The Company amortizes right-of-use assets

for finance leases over the useful life of the asset when it is reasonably certain to exercise a purchase option, otherwise the right-of-use

asset is amortized over the shorter of the lease term or the useful life of the asset.

Variable lease payments that depend on an index

or a rate are initially measured using the index or rate at the commencement date.

Lease costs are presented in the condensed consolidated

statements of operations as follows:

(i) operating lease expense in General and administrative expenses, (ii) finance lease right-of-use

asset amortization in Depreciation, and (iii) interest on finance lease liabilities in Interest expense, net.

Finance lease right-of-use

assets are presented within Property, plant and equipment, net on the condensed consolidated balance sheets.

does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company evaluates all of its

financial instruments to determine if such instruments are derivatives or contain embedded derivatives that should be bifurcated from

the host contract, pursuant to ASC 815, Derivatives and Hedging .

The classification of derivative instruments, including whether

such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period

The Company’s

note payable, extinguished during the three months ended March 31, 2025, contained an embedded derivative that was bifurcated from the

host contract and recognized as a liability.

This liability was remeasured at fair value at December 31, 2024 and the Company reviewed

whether there were material changes during interim periods.

Changes to the fair value are recognized as fair market gains or losses

in other income and expense in the condensed consolidated statements of operations.

See Note 10, “Note Payable” for further

details of the Company’s note payable.

In accordance with ASC 815, unvested Earnout Shares

(as defined below) are classified as a liability because they are not considered to be indexed to the Company’s common stock due

to the change of control provisions in the Business Combination Agreement.

At each period end, the Earnout Shares are remeasured to their

fair value with the changes during that period recognized in other income (expense) on the condensed consolidated statement of operations.

Upon issuance and release of the shares after each Triggering Event (as defined in Note 3, “Merger Transaction”) is met, the

related Earnout Shares will be remeasured to fair value at that time with the changes recognized in other income (expense), and such Earnout

Shares will be reclassed to shareholders’ equity on the condensed consolidated balance sheet.

As of March 31, 2025, none of

the Triggering Events have occurred.

Government Grants

Because there is no specific guidance under U.S.

GAAP that addresses the recognition and measurement of government assistance received by non-government entities, the Company accounts

for government assistance by analogy to International Accounting Standards (“IAS”) 20, Accounting for Government Grants

The guidance within IAS 20 allows companies to choose between two options for how the associated profit or loss

relating to the deferred income over the life of an underlying asset will be presented for grants related to assets.

The Company has elected

to account for these grants through profit and loss over the depreciable life of the underlying assets.

The guidance within IAS 20 also

allows companies to choose between two options of accounting for grants related to income.

The Company has elected to report this category

of grants as a reduction in the related expenses.

See Note 13, “Government Grants” for further details of the Company’s

government grants.

The Company accounts for warrants as either equity

or liability classified instruments based on an assessment of the warrant’s specific terms pursuant to the guidance of ASC 480,

Distinguishing Liabilities from Equity and ASC 815.

The assessment considers whether the warrants are freestanding financial instruments

pursuant to ASC 480, that meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements

for equity classification under ASC 815.

As of March 31, 2025, warrants to purchase approximately

5.28 million shares of the Company’s Common Stock are liability-classified and warrants to purchase 18.50 million shares of the

Company’s common stock are equity-classified.

As of December 31, 2024 all of the Company’s outstanding warrants were equity-classified.

The Company expenses equity-based compensation

to employees and non-employees in accordance with ASC 718, Compensation - Stock Compensation .

The fair value of equity-based compensation

awards is measured at the date of grant and amortized over the requisite service period, which is generally the vesting period, with a

corresponding increase in additional paid-in capital.

The Company uses the Black-Scholes option valuation model to calculate the fair

value of awards granted.

In the case of a share-based compensation award

that is either cancelled or forfeited prior to vesting, the amortized expense associated with the unvested awards is reversed.

has elected to account for forfeitures as they occur.

See Note 12, “Equity-Based Compensation” for further information regarding

equity-based compensation expense and the assumptions used in estimating the expense.

As the Company

has an accumulated deficit, dividends are recorded as a reduction to additional paid in capital.

Once additional paid-in capital is reduced

to zero, dividends are recorded against accumulated deficit.

Paid-in-kind dividends are recorded at estimated fair value in

accordance with ASC 845, Nonmonetary Transactions.

Net Income (Loss) per Share

The Company reports both basic and diluted earnings

Basic earnings per share is calculated based on the weighted average number of shares of common stock outstanding and excludes

the dilutive effect of warrants, incentive units and other types of convertible securities.

Diluted earnings per share is calculated based

on the weighted average number of shares of common stock outstanding and the dilutive effect of warrants, incentive units and other types

of convertible securities are included in the calculation.

Securities are excluded from the diluted earnings per share calculation if

their effect is anti-dilutive, such as in periods where a net loss has been reported.

Variable Interest Entities

The Company assesses its investments and other significant relationships

to determine whether it has a variable interest in any legal entities and whether or not those entities are VIEs.

A VIE is an entity with

insufficient equity at risk for the entity to finance its activities without additional subordinated financial support or in which equity

investors lack the characteristics of a controlling financial interest.

If an entity is determined to be a VIE, the Company evaluates

whether it is the primary beneficiary.

The primary beneficiary analysis is a qualitative analysis based on power and economics.

has concluded that it is the primary beneficiary and has consolidated the VIE because it has both (i) the power to direct the activities

of the VIE that most significantly influence the VIE’s economic performance and (ii) the obligation to absorb losses of, or the

right to receive benefits from, the VIE that could potentially be significant to the VIE.

The Company accounts for income taxes under an

asset-and-liability approach.

Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized

for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are

expected to reverse, net operating loss carryforwards and tax credits.

Valuation allowances are provided when necessary to reduce net

deferred tax assets to an amount that is more likely than not to be realized.

The Company has provided a full valuation allowance against

its net deferred tax assets as of March 31, 2025 and December 31, 2024.

In addition, and given the Company’s cumulative losses,

no current income tax benefit has been recognized in the condensed consolidated statements of operations.

The Company’s policy is

to include interest and penalties related to unrecognized tax benefits within the Company’s provision for income taxes.

Recently Issued Accounting Pronouncements

Not Yet Adopted

In January 2025, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-01 - Income Statement—Reporting Comprehensive

Income—Expense Disaggregation Disclosures (Subtopic 220-40):

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 9

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with U.S.

GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

The amounts that involve significant estimates include equity-based compensation, asset and liability valuations, certain equity issuances, and other fair value estimates reported.

The assumptions used in calculating fair value represent the Company’s best estimates.

However, these estimates involve inherent uncertainties and the application of judgment.

As a result, if factors change or the Company uses different assumptions, any gain or loss recognized using estimates could be materially different.

Significant Accounting Policies

For a detailed description of the Company’s Significant Accounting Policies, please refer to the Company’s Form 10-Q filed with the SEC on May 15, 2025.

Recently Adopted Accounting Pronouncement

In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards , which improves current U.S.

GAAP by adding an illustrative example to demonstrate how an entity should apply the scope guidance to determine whether a profits interest award should be accounted for in accordance with Topic 718.

This ASU is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years and did not have a material effect on the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-01 - Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date .

This ASU amends the effective

date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning

after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

The Company is currently

evaluating the impact of adopting this ASU on its financial reporting disclosures.

In November 2024, the FASB issued its ASU 2024-03,

Income Statement - Reporting Comprehensive Income (Topic 220):

This ASU amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

The Company is currently evaluating the impact of adopting this ASU on its financial reporting disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income (Topic 220):

Disaggregation of Income Statement Expenses .

requires additional disclosures by disaggregating the costs and expense line items that are presented on the face of the income statement.

This ASU requires additional disclosures by disaggregating the costs and expense line items that are presented on the face of the income statement.

The disaggregation includes:

(i) amounts of purchased inventory, employee compensation, depreciation, amortization, and other related

costs and expenses;

(i) amounts of purchased inventory, employee compensation, depreciation, amortization, and other related costs and expenses;

(ii) an explanation of costs and expenses that are not disaggregated on a quantitative basis;

and (iii) the definition

and total amount of selling expenses.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within

fiscal years beginning after December 15, 2027, with early adoption permitted.

The ASU should be applied prospectively.

Retrospective

application is permitted for all prior periods presented in the financial statements.

The Company is currently evaluating the impact

of adopting this ASU on its financial reporting disclosures.

In December 2023, the FASB issued ASU 2023-09, Income

Taxes (Topic 740):

Improvements to Income Tax Disclosures , which is intended to enhance the transparency and decision usefulness of

income tax disclosures.

The amendments in this ASU provide for enhanced income tax information primarily through changes to the rate reconciliation

and income taxes paid.

and (iii) the definition and total amount of selling expenses.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

This ASU should be applied prospectively.

Retrospective application is permitted for all prior periods presented in the financial statements.

The Company is currently evaluating the impact of adopting this ASU on its financial reporting disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in this ASU provide for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid.

This ASU is effective for the Company prospectively to all annual periods beginning after December 15, 2024.

Company is currently evaluating the impact of this standard on its disclosures.

Recently Adopted Accounting Pronouncement

In March 2024, the FASB issued ASU 2024-01, Compensation

- Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards , which improves current GAAP by adding

an illustrative example to demonstrate how an entity should apply the scope guidance to determine whether a profits interest award should

be accounted for in accordance with Topic 718.

This ASU is effective for fiscal years beginning after December 15, 2024, including interim

periods within those fiscal years and did not have a material effect on the Company’s condensed consolidated financial statements.

The Company is currently evaluating the impact of this standard on its disclosures.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 10

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Merger Transaction

As discussed in Note 1, “Organization”,

IPXX and USARE LLC entered into a Business Combination Agreement on August 21, 2024.

In connection with the transactions contemplated

by the Merger, the following funding events occurred prior to the Closing:

August 21, 2024, the Company and certain accredited investors, including certain funds related to IPXX entered into Securities Purchase

Agreements (“SPA”) for such investors to purchase (i) USARE LLC Class A Convertible Preferred Units and (ii) USARE Class

A Preferred Investor Warrants for gross cash proceeds of $ 25.5 million and a subscription receivable of $ 1.25 million for shares issued

in exchange for forgiveness of 50 % of Mr.

Michael Blitzer’s, IPXX’s Chairman and Chief Executive Officer, promissory note

January 31, 2025, the Company and certain accredited investors, including USARE LLC Class A-2 Convertible Preferred Unit Investors, Mr.

Blitzer, and Collective Capital Management LLC entered into SPAs for such investors to purchase (i) USARE LLC Class A-2 Convertible Preferred

Units and (ii) USARE LLC Class A Preferred Investor Warrants for an aggregate purchase price of approximately $ 15.3 million which closed

on February 3, 2025.

The Merger was accounted for as a reverse recapitalization whereby

USARE LLC is the successor continuing existing business operations.

Outstanding Class A-1 and A-2 preferred units of USARE LLC were converted

into Series A convertible preferred stock on a one-for-one basis taking into account payment-in-kind dividends on such units from the

date of issuance through the Closing Date.

Immediately prior to the Closing Date, outstanding Class C and C-1 preferred units of USARE

LLC were converted into Class B units taking into account certain antidilution provisions and payment-in-kind dividends on such units

from the date of issuance through the Closing Date.

Outstanding Class A and B units including the newly converted C and C-1 preferred

units of USARE LLC were converted into shares of Common Stock using an exchange ratio of approximately 0.204 .

Additionally, immediately

prior to the effective time of the Merger, the following occurred:

LLC’s unvested incentive units became immediately vested and all vested incentive units

were converted to Common Stock, see Note 12, “Equity-Based Compensation”;

● USARE LLC’s warrants to purchase Class B units and Class C preferred

units were exercised on a cashless basis and converted to Common Stock, see Note 11, “Mezzanine and Stockholders’ (Deficit)

● The Hatch Note converted into approximately 0.68 million of USARE LLC’s

Class A units, see Note 10, “Note Payable”;

● The Company issued approximately 0.78 million Series A Preferred Stock and Series A Preferred Investor Warrants exercisable for an aggregate of approximately 0.78 million shares of the Common Stock at $ 12.00 per share pursuant to SPAs with two accredited investors, including an affiliate of IPXX, for an aggregate consideration of $ 8.0 million;

● The Company issued approximately 0.13 million shares of Series A Preferred

Stock in exchange for Mr.

Business Combination Agreement

As discussed in Note 1, “Organization”, IPXX and USARE LLC entered into a Business Combination Agreement on August 21, 2024.

In connection with the transactions contemplated by the Merger, the following funding events occurred prior to the Closing Date:

• On August 21, 2024, USARE LLC and certain accredited investors, including certain funds related to IPXX entered into Securities Purchase Agreements (“SPA”) for such investors to purchase (i) USARE LLC Class A Convertible Preferred Units and (ii) USARE LLC Class A Preferred Investor Warrants for gross cash proceeds of $ 25.5 million and a subscription receivable of $ 1.25 million for shares issued in exchange for forgiveness of 50 % of Mr.

Michael Blitzer’s, IPXX’s Chairman and Chief Executive Officer, promissory note at the Closing Date.

• On January 31, 2025, the Company and certain accredited investors, including USARE LLC Class A-2 Convertible Preferred Unit investors, Mr.

Blitzer, and Collective Capital Management LLC entered into SPAs for such investors to purchase (i) USARE LLC Class A-2 Convertible Preferred Units and (ii) USARE LLC Class A Preferred Investor Warrants for an aggregate purchase price of approximately $ 15.3 million which closed on February 3, 2025.

The Merger was accounted for as a reverse recapitalization whereby USARE LLC is the successor continuing existing business operations.

Outstanding USARE LLC Class A-1 and Class A-2 Convertible Preferred Units were converted into USAR Series A 12 % Convertible Preferred Stock on a one-for-one basis taking into account payment-in-kind dividends on such units from the date of issuance through the Closing Date.

Immediately prior to the Closing Date, outstanding USARE LLC Class C and Class C-1 Preferred Units were converted into USARE LLC Class B Common Units taking into account certain anti-dilution provisions and payment-in-kind dividends on such units from the date of issuance through the Closing Date.

Outstanding USARE LLC Class A and Class B Common Units, including the newly converted USARE LLC Class C and Class C-1 Preferred Units, were converted into shares of Common Stock using an exchange ratio of approximately 0.204 .

Additionally, immediately prior to the effective time of the Merger, the following occurred:

• USARE LLC’s unvested incentive units became immediately vested and all vested incentive units were converted to Common Stock, see Note 12, “Equity-Based Compensation;”

• USARE LLC’s warrants to purchase Class B Common Units and Class C Convertible Preferred Units were exercised on a cashless basis and converted to Common Stock, see Note 11, “Mezzanine and Stockholders' Equity;”

• The Hatch Note converted into approximately 0.68 million of USARE LLC’s Class A Common Units, see Note 10, “Note Payable;”

• The Company issued approximately 0.78 million Series A 12 % Convertible Preferred Stock and Series A warrants exercisable for an aggregate of approximately 0.78 million shares of the Common Stock at $ 12.00 per share pursuant to SPAs with two (2) accredited investors, including an affiliate of IPXX, for an aggregate consideration of $ 8.0 million;

• The Company issued approximately 0.13 million shares of 12 % Series A Convertible Preferred Stock in exchange for Mr.

Blitzer’s forgiveness of the remaining 50 % of the convertible promissory note;

● The Company issued approximately 0.88 million shares of Common Stock pursuant to USARE LLC’s arrangements with Cohen & Company Capital Markets, A Division of J.V.B.

Financial Group, LLC (“CCM”).

following table summarizes the number of equity instruments outstanding immediately following the Merger and the PIPE investment (in

• The Company issued approximately 0.88 million shares of Common Stock pursuant to USARE LLC’s arrangements with Cohen & Company Securities, LLC (fka J.V.B.

Financial Group, LLC) (“CCS”).

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 11

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

The following table presents a summary of the number of equity instruments outstanding immediately following the closing of the Merger and the PIPE investment.

Shares % of Common (1)

% of Voting (1)

(In thousands)

Public shareholders 2,077 3 % 2 %

Inflection Point Holdings II LLC 6,250 7.6 % 7.2 %

Sponsor 6,250 8 % 7 %

USARE LLC shareholders 72,748 89 % 83 %

5 unchanged sentences

Total Voting Shares 87,185 100 %

In connection with the Merger, approximately $ 22.8 million of cash

held in trust, net of redemptions by IPXX’s public shareholders, became available for use by the Company as well as $ 8.0 million

proceeds received from the closing of the PIPE investment.

In addition, the Company incurred certain Earnout obligations and entered into

FPAs, discussed further below.

The following table summarizes the net proceeds from the Merger (in

(1) Percentage may not total due to rounding.

In connection with the Merger, approximately $ 22.8 million of cash held in trust, net of redemptions by IPXX’s public shareholders, became available for use by the Company as well as $ 8.0 million in proceeds received from the closing of the PIPE investment.

In addition, the Company incurred certain earnout obligations and entered into Forward Purchase Agreements (“FPAs”), discussed further below.

The following table presents the net proceeds from the Merger.

(In thousands)

Cash - PIPE investment $ 8,000

3 unchanged sentences

Transaction costs allocated to equity $ ( 8,331 )

Issuance costs for the PIPE investment

FPA Prepayments ( 20,789 )

4 unchanged sentences

Net cash used by USARE LLC ( 350 )

In connection

with the Closing of the Merger, USAR is required to issue to certain USARE LLC shareholders as of the effective date of the Merger and

CCM up to 10.10 million additional shares of Common Stock in two tranches (the “Earnout Shares”) upon certain triggering events.

The first tranche of the Earnout includes 5.05 million Earnout Shares that would be distributed if, during the time period beginning on

the date of the first anniversary of the Closing and ending on the date of the sixth anniversary of the Closing (the “Earnout Period”),

the market price of the Common Stock is greater than or equal to $ 15.00 per share and less than $ 20.00 per share for a period of at least

twenty out of thirty consecutive trading days.

The second tranche of 5.05 million Earnout Shares would be distributed if, during the Earnout

Period, the market price of the Common Stock is greater than or equal to $ 20.00 per share.

The aggregate Earnout shares may also vest

upon a change of control as defined in the Business Combination Agreement pursuant to which USAR or its shareholders have the right to

receive consideration if the implied value per share of Common Stock is equal to or above such price targets, with the amount of such

consideration dependent upon the implied per share value reaching the thresholds discussed above.

Management considered the guidance within ASC

815 and determined that the contractual requirement to issue the Earnout Shares meets the definition of a derivative.

Management next

considered whether or not the Earnout Shares meet the requirements for the scope exception under the “Own Equity” scope exception

in ASC 815 for contracts indexed to an entity’s own equity.

The change of control clause in the Business Combination Agreement represents

an exercise contingency related to an event outside of the Company’s control, which is not based on an observable market or an observable

The obligation to issue the Earnout Shares that include exercise contingencies that are outside the control of the Company are

classified as liabilities and excluded from equity classification.

Instruments not classified in equity do not meet the “Own Equity”

scope exception.

The Earnout Shares are classified as liabilities and no additional

analysis under ASC 815 is required.

The Merger is accounted for as a reverse recapitalization and the Earnout Shares represent consideration

of IPXX securities that are being transferred to the holders of the Company.

As such, the Earnout Shares are recorded through the recapitalization

of equity within additional paid-in capital upon recognition and are remeasured on a recurring basis.

As of the Closing Date, the Earnout

Shares had a fair value of $ 99.6 million.

As of March 31, 2025, the Earnout Shares had a fair value of $ 46.2 million, with

the changes in the fair value between the Closing Date and March 31, 2025 of $ 53.4 million recognized as a gain in fair value

of financial instruments under other income (expense) within the condensed consolidated statements of operations.

See Note 4, “Fair

Value Measurements” for further information.

Purchase Agreements

11, 2025, IPXX entered into a FPA with three separate investors (“Sellers”) pursuant to which the investors agreed

to hold up to a total of approximately 1.89 million publicly held Class A ordinary shares of IPXX (“Public Shares”)

in connection with the Closing of the Merger.

Each FPA amended, restated and superseded in its entirety a separate FPA with each of the

Sellers, dated March 10, 2025, which had identical terms to those described herein, except that the Reset Price (as defined in the FPAs)

was not subject to the floor price described below.

For purposes of the FPAs, the Public Shares held by each Seller are referred to as

such Seller’s “Maximum Shares.” Each Seller, acting separately and solely for its own account, was permitted, if necessary,

to (i) reverse its previous election to redeem its Public Shares in connection with the Merger Transactions pursuant to the redemption

rights set forth in IPXX’s amended and restated memorandum and articles of association or (ii) purchase Public Shares through a

broker in the open market from holders of Public Shares (other than IPXX), including from holders who previously elected to redeem their

Public Shares in connection with the Merger Transactions pursuant to the redemption rights set forth in IPXX’s amended and restated

memorandum and articles of association.

The aggregate number of Public Shares subject to each FPA (the “FPA Shares”) was the

aggregate number of Public Shares as notified to the Company by the applicable Seller, but in no event more than such Seller’s Maximum

Shares set forth above.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 12

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Earnout Liability

In connection with the closing of the Merger, USAR is required to issue to certain USARE LLC shareholders as of the effective date of the Merger and CCS, up to 10.1 million additional shares of Common Stock in two (2) tranches (the “Earnout Shares”) upon certain triggering events.

• The first tranche of 5.05 million Earnout Shares would be distributed if, during the time period beginning on the date of the first anniversary of the Closing Date and ending on the date of the sixth anniversary of the Closing Date (the “Earnout Period”), the market price of the Common Stock is greater than or equal to $ 15.00 per share and less than $ 20.00 per share for a period of at least twenty out of thirty consecutive trading days.

• The second tranche of 5.05 million Earnout Shares would be distributed if, during the Earnout Period, the market price of the Common Stock is greater than or equal to $ 20.00 per share for a period of at least twenty out of thirty consecutive trading days.

The aggregate Earnout Shares may also vest upon a change of control as defined in the Business Combination Agreement pursuant to which USAR or its shareholders have the right to receive consideration if the implied value per share of Common Stock is equal to or above such price targets, with the amount of such consideration dependent upon the implied per share value reaching the thresholds discussed above.

Management considered the guidance within Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, and determined that the contractual requirement to issue the Earnout Shares meets the definition of a derivative.

Management next considered whether or not the Earnout Shares meet the requirements for the scope exception under the “Own Equity” scope exception in ASC 815 for contracts indexed to an entity’s own equity.

The change of control clause in the Business Combination Agreement represents an exercise contingency related to an event outside of the Company’s control, which is not based on an observable market or an observable index.

The obligation to issue the Earnout Shares that includes exercise contingencies that are outside the control of the Company are classified as liabilities and excluded from equity classification.

Instruments not classified in equity do not meet the “Own Equity” scope exception.

The Earnout Shares are classified as liabilities and no additional analysis under ASC 815 is required.

The Merger is accounted for as a reverse recapitalization and the Earnout Shares represent consideration of IPXX securities that are being transferred to the holders of the Company.

As such, the Earnout Shares are recorded through the recapitalization of equity within additional paid-in capital upon recognition and are remeasured on a recurring basis.

See Note 4, “Fair Value Measurements” for further information.

The Earnout Period has not commenced as of June 30, 2025, and therefore, none of the Triggering Events have occurred.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 13

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Forward Purchase Agreements

On March 11, 2025, IPXX entered into FPAs with three (3) separate investors (“Sellers”) pursuant to which the Sellers agreed to hold up to a total of approximately 1.89 million publicly held IPXX Class A ordinary shares (“Public Shares”) in connection with the closing of the Merger.

Each FPA amended, restated and superseded in its entirety a separate FPA with each of the Sellers, dated March 10, 2025, which had identical terms to those described herein, except that the Reset Price (as defined in the FPAs) was not subject to a floor price of $ 4.00 .

For purposes of the FPAs, the Public Shares held by each of the Sellers are referred to as such Seller’s “Maximum Shares.” Each Seller, acting separately and solely for its own account, was permitted, if necessary, to (i) reverse its previous election to redeem its Public Shares in connection with the Merger Transactions pursuant to the redemption rights set forth in IPXX’s amended and restated memorandum and articles of association or (ii) purchase Public Shares through a broker in the open market from holders of Public Shares (other than IPXX), including from holders who previously elected to redeem their Public Shares in connection with the Merger Transactions pursuant to the redemption rights set forth in IPXX’s amended and restated memorandum and articles of association.

The aggregate number of Public Shares subject to each FPA investor (the “FPA Shares”) was the aggregate number of Public Shares as notified to the Company by the applicable Seller, but in no event more than such Seller’s Maximum Shares set forth above.

Each Seller notified the Company that it would subject the Maximum Shares to their respective FPAs.

The FPA Shares

are subject to reduction following the full or partial optional early termination of the FPAs as described below.

Each FPA provided that no later than the earlier

of (a) one business day after the Closing and (b) the date any assets from IPXX’s trust account are disbursed in connection with

the Merger Transaction, the Seller under such FPA was paid directly, out of the funds held in IPXX’s trust account, an amount (the

“Prepayment Amount”) equal to the product of (i) the FPA Shares and (ii) an amount (the “Initial Price”) equal

to the redemption price per share payable to investors who elected to redeem in connection with the Merger Transactions, which Initial

Price was approximately $ 11.00 .

The Company prepaid approximately $ 20.8 million to the trust account at the closing of the merger to secure

its purchase obligation to repurchase for any outstanding FPA Shares at the Initial Price per share of $ 11.00 on the date that is 90 days

after the closing of the merger (the “Maturity Date”).

On any day the Nasdaq is open for trading following the Closing of

the Merger through the Maturity Date, the Sellers may sell any, or all, of their FPA Shares (the “Terminated Shares”).

any Terminated Shares, the Seller must remit the Initial Price to the Company but retains any profit over that price.

At the Maturity

Date, the Company is obligated to purchase any outstanding FPA Shares at a price per share equal to the Initial Price.

The optional early termination economically results

in the prepaid forward contract being akin to a written put option with the Sellers’ right to sell all or a portion of the FPA Shares

to the Company on the Maturity Date.

Pursuant to the guidance in ASC 815, the FPAs

are each a single freestanding financial instrument comprising of a subscription receivable under SEC Rule 5-02.29 of Regulation S-X.

Prior to the date that was 90 days after the Closing Date (the “Maturity Date”), each Seller was permitted to sell any, or all, of their FPA Shares.

Pursuant to the guidance in ASC 815, the FPAs are each a single freestanding financial instrument comprising of a subscription receivable under SEC Rule 5-02.29 of Regulation S-X.

The FPAs were not precluded from equity classification and therefore the Company recorded the FPAs within equity as a subscription receivable.

The subscription receivable was initially measured at its fair value of $ 20.4 million.

The difference between the fair value of the subscription

receivable and the prepayment amount of $ 20.8 million was recorded to additional paid in capital.

As the FPA Shares are equity-classified,

they are not remeasured as long as they remain classified within equity.

dates between the closing of the merger and March 31, 2025, the Sellers exercised their rights under the FPAs with respect to approximately

0.30 million FPA Shares.

Upon the optional early termination, the Sellers remitted cash to the Company at the Initial Price, resulting

in cash proceeds received in the amount of $ 3.3 million from the Sellers which was recorded as a reduction of the subscription receivable

at the Terminated Shares’ fair value with an offset to additional paid-in capital.

The difference between the fair value of the subscription receivable and the prepayment amount of $ 20.8 million was recorded to additional paid in capital.

As the FPA Shares are equity-classified, they are not remeasured as long as they remain classified within equity.

On various dates between the Closing Date of the Merger and June 30, 2025, the Sellers exercised their early termination rights under the FPAs with respect to approximately 1.89 million FPA Shares.

As of June 30, 2025, all FPAs have been terminated.

Upon the early termination of the FPAs, the Sellers remitted cash to the Company at the initial price of $ 11.00 , resulting in cash proceeds received in the amount of $ 20.8 million from the Sellers, which was recorded as a reduction of the subscription receivable at the fair value of the terminated shares on the date of termination with an offset to additional paid-in capital.

Fair Value Measurements

The following tables present the Company’s financial instruments

measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024 (in thousands):

of March 31, 2025

Money market funds

Total assets, measured at

Earnout liability

Warrant liability

Total liabilities, measured

at fair value

As of December 31, 2024

Money market funds

Total assets, measured at

Fair Value of Financial Instruments on a Recurring Basis

The following table presents the financial assets and liabilities measured on a recurring basis by contractual maturity, including pricing category, amortized cost, gross unrealized gains and losses, and fair value.

As of June 30, 2025 As of December 31,2024

Pricing Category Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

(In thousands)

Money market funds Level 1 $ 117,876 $ — $ — $ 117,876 $ 15,709 $ — $ — $ 15,709

Derivative liability Level 3 $ — $ — $ — $ — $ 1,164 $ — $ — $ 1,164

Earnout liability Level 3 100,007 — — 100,007 — — — —

Warrant liability Level 3 53,715 — — 53,715 — — — —

Common Stock warrant Level 3 91,600 — — 91,600 — — — —

Prefunded warrant Level 1 23,705 — — 23,705 — — — —

Total liabilities $ 269,027 $ — $ — $ 269,027 $ 1,164 $ — $ — $ 1,164

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 14

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Level 3 Valuation and Reconciliation

Derivative Liability

Total liabilities, measured

at fair value

Money market funds are valued at cost, which approximates

These amounts are included on the condensed consolidated balance sheets in cash and cash equivalents as of March 31,

2025 and December 31, 2024.

The balances of assets and liabilities categorized

within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled as follows:

Balance at January 1, 2025

Establishment of earnout and warrant liabilities

Change in estimated fair value

Settlement of the Note upon conversion

Balance at March 31, 2025

Valuation of the Derivative Liability

On February 26, 2025, the Company remeasured the derivative liability

using the Black-Scholes model upon the change in terms of the Hatch Note.

See Note 10, “Note Payable” for additional information

regarding the Hatch Note.

The following table summarizes the significant inputs:

Class C-1 unit price

Class A common unit price

On February 26, 2025, the Company remeasured the derivative liability using the Black-Scholes model upon the change in terms of the Hatch Note.

The Hatch Note was settled on February 26, 2025, and therefore, no further remeasurement was performed after the settlement date.

See Note 10, “Note Payable” for additional information regarding the Hatch Note.

The following table summarizes the significant inputs to value the derivative liability.

Class C-1 unit price n/a $ 1.47

Class A common unit price 2.16 n/a

Expected volatility 55.0 % - 59.1 %

55.0 % - 59.1 %

Risk-free rate 4.20 % - 4.34 %

4.20 % - 4.34 %

Credit risk spread 0.29 0.29

Remaining term (in years) 0.20 - 0.57

Valuations of the Earnout Liability

valued the earnout liability using a Monte Carlo simulation which includes Level 3 unobservable inputs on the initial valuation

date (March 13, 2025) and March 31, 2025 .

The following table summarizes the significant

(1.) The Hatch Note was settled on February 26, 2025, and therefore, no further remeasurement was performed after the settlement date.

The following table presents the reconciliation of the derivative liability measured at fair value on a recurring basis.

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

(In thousands)

Beginning balance $ — $ 420 $ 1,164 $ 420

Change in estimated fair value (1)

— — ( 716 ) —

Settlement of the Note upon conversion — — ( 448 ) —

Ending balance $ — $ 420 $ — $ 420

(1.) Change in estimated fair value is recognized in (Loss) gain on fair market value of financial instruments in the Company’s Condensed Consolidated Statements of Operations.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 15

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Earnout Liability

The Company valued the Earnout liability using a Monte Carlo simulation which includes Level 3 unobservable inputs on the initial valuation date (March 13, 2025) and June 30, 2025.

The following table summarizes the significant inputs to value the Earnout liability.

2025 March 13,

Share price $ 10.96 $ 10.79

Expected volatility 72.0 % 66.0 %

1 unchanged sentence

Remaining term (in years) 5.7 6.0

Valuations of the Warrant Liability

The Company issued Series A Investor Warrants

in exchange for prior Class A Purchase Warrants in connection with the Merger and related transactions.

The Company valued the liability

classified Series A Investor Warrants using a Monte Carlo simulation, which includes Level 3 unobservable inputs on the initial

valuation date (March 13, 2025) and March 31, 2025.

The following table summarizes the significant inputs :

Expected volatility

60.0 - 65.0 %

The following table presents the reconciliation of the Earnout liability measured at fair value on a recurring basis.

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

(In thousands)

Beginning balance $ 46,232 $ —

Establishment of liability at March 13, 2025 — 99,639

Change in estimated fair value (1)

Ending balance $ 100,007 $ 100,007

(1.) Change in estimated fair value is recognized in (Loss) gain on fair market value of financial instruments in the Company’s Condensed Consolidated Statements of Operations.

Warrant Liability

On March 13, 2025, the Company issued Series A Investor Warrants in exchange for prior Class A Purchase Warrants in connection with the Merger and related transactions.

The Company valued the liability classified Series A Investor Warrants using a Monte Carlo simulation, which includes Level 3 unobservable inputs on the initial valuation date (March 13, 2025) and June 30, 2025.

On May 2, 2025, the exercise price reset from $ 12.00 to $ 7.00 as a result of the $75M PIPE (as defined below).

See Common Stock Warrant Liability and $75M PIPE Prefunded Warrant Liability sections in this footnote below, and Note 11, “Mezzanine and Stockholders' Equity” for further details related to the $75M PIPE financing.

The following table summarizes the significant inputs to value the Series A Investor Warrants liability.

2025 March 13,

Share price $ 10.96 $ 10.79

Exercise price (1)

$ 7.00 $ 12.00

Expected volatility 130.0 % 65.0 %

Risk-free rate 4.06 % 3.95 %

Dividend yield — % — %

Put term (in years) 3.9 4.4

(1.) On May 2, 2025, the Company reset the exercise price of this warrant from $ 12.00 to $ 7.00 .

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 16

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

The following table presents the reconciliation of the Series A Investor Warrants liability measured at fair value on a recurring basis.

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

(In thousands)

Beginning balance $ 34,475 $ —

Establishment of liability at March 13, 2025 — 40,652

Change in estimated fair value (1)

35,758 29,581

Warrant exercises

( 16,518 ) ( 16,518 )

Ending balance $ 53,715 $ 53,715

(1.) Change in estimated fair value is recognized in (Loss) gain on fair market value of financial instruments in the Company’s Condensed Consolidated Statements of Operations .

Private Investment in Public Entity Financing

On May 2, 2025, the Company closed its private investment in public equity financing (“$75M PIPE”) with a single institutional investor.

The $75M PIPE included issuance of Common Stock, Common Stock warrants and Prefunded warrants.

Both Common Stock and Prefunded warrants are treated as liabilities and are remeasured at each reporting date, with the corresponding gain or loss recognized in (Loss) gain on fair market value of financial instruments on the Company’s Condensed Consolidated Statements of Operations.

See Note 11, “Mezzanine and Stockholders' Equity – Private Investment in Public Entity Financing” for further information regarding the issuances under the $75M PIPE.

Common Stock Warrant Liability Valuation

The Company valued the Common Stock warrant, which includes Level 3 unobservable inputs using a Monte Carlo simulation model at issuance and at reporting date.

The following table summarizes the significant inputs to value the Common Stock warrant liability.

Share price $ 10.96 $ 10.31

Exercise price $ 7.00 $ 7.00

Expected volatility 130.0 % 140.0 %

Risk-free rate 4.06 % 4.21 %

Dividend yield — % — %

Call term (in years)

Put term (in years)

(1) Put term is 6-years from date of first exercise.

The following table presents the reconciliation of the Common Stock warrant liability measured at fair value on a recurring basis.

Three and Six Months Ended June 30, 2025

(In thousands)

Establishment of liability at May 2, 2025 $ 84,807

Change in estimated fair value (1)

Ending balance $ 91,600

(1.) Change in estimated fair value is recognized in (Loss) gain on fair market value of financial instruments in the Company’s Condensed Consolidated Statements of Operations.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 17

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Prefunded Warrant Liability Valuation

The Company valued the Prefunded warrant based on the Company’s share value at issuance and at reporting date.

The following table summarizes the significant inputs to value the Prefunded warrants measured at fair value on a recurring basis.

Share price $ 10.96 $ 10.31

Exercise price $ 0.0001 $ 0.0001

The following table presents the reconciliation of the Prefunded warrant liability measured at fair value on a recurring basis.

Three and Six Months Ended June 30, 2025

(In thousands)

Establishment of liability at May 2, 2025 $ 22,309

Change in estimated fair value (1)

Ending balance $ 23,705

(1.) Change in estimated fair value is recognized in (Loss) gain on fair market value of financial instruments in the Company’s Condensed Consolidated Statements of Operations.

Property, Plant and Equipment, Net

Property, plant, and equipment,

net is comprised of the following (in thousands):

2025 December 31,

(In thousands)

Land $ 707 $ 707

Land improvements 403 403

Construction in progress - Buildings

Construction in progress - Magnet plant equipment

Building improvements 2,553 —

Lab equipment 3,011 500

1 unchanged sentence

Computer equipment 13 —

Construction in progress 26,239 25,775

Property, plant and equipment, gross 33,272 27,731

5 unchanged sentences

Total property, plant and equipment, net $ 33,031 $ 26,529

Depreciation and amortization expense is comprised

of the following (in thousands):

For the Three Months Ended

The following table presents the depreciation expense related to the Company’s property, plant and equipment, and the amortization expense related to the Company’s finance lease right-of-use assets.

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

(In thousands)

Depreciation expense $ 108 $ 73 $ 135 $ 163

Amortization expense 61 — 67 —

Total $ 169 $ 73 $ 202 $ 163

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 18

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Variable Interest Entity

Round Top Mountain Development

On May 17, 2021, the Company completed the acquisition

of 80 % of the equity interests of RTMD, pursuant to a contribution agreement with the Company, Texas Mineral Resource Corp.

and RTMD, whereby TMRC and the Company contributed their respective rights and interests to and in Round Top Mountain in Texas to RTMD.

Concurrently, the Company, TMRC, and RTMD entered into a limited liability company agreement of RTMD which documented the governance of

This acquisition resulted in the consolidation of RTMD, which is a VIE, and the recording of a non-controlling interest for the

remaining 20 % of equity interest.

Due to TMRC’s failure to fund its share of mandatory capital contributions called for by USARE

LLC, the Company’s ownership interest in RTMD has increased to approximately 80.57 % as of March 31, 2025 and December 31, 2024.

June 26, 2023, RTMD, the USARE LLC and TMRC entered into an amended and restated limited liability company agreement of RTMD pursuant

to which, in the event that TMRC does not fund its share of mandatory capital contributions called for by USARE LLC as the manager of

RTMD, USARE LLC is obligated to cover the shortfall by making additional capital contributions to RTMD (or in the event that USARE LLC

does not fund, the capital call will be withdrawn).

If USARE LLC does fund the capital contribution, additional equity interests in RTMD

will be issued to USARE LLC and TMRC will be proportionally diluted in accordance with the terms of the amended and restated limited liability

company agreement.

As of March 31, 2025 and December 31, 2024, TMRC’s interest in RTMD had been reduced to 19.43 % as a result

of failing to fund calls for mandatory cash contributions.

See Note 2, “Summary of Significant Accounting Policies” for the

Company’s accounting policy related to VIEs.

The Company’s condensed consolidated financial

statements include assets and liabilities associated with RTMD.

The following were recorded in the Company’s condensed consolidated

balance sheets (in thousands):

On May 17, 2021, the Company completed the acquisition of 80 % of the equity interests of RTMD, pursuant to a contribution agreement with the Company, Texas Mineral Resource Corp.

(“TMRC”), and RTMD, whereby TMRC and the Company contributed their respective rights and interests to and in Round Top Mountain in Texas to RTMD.

Concurrently, the Company, TMRC, and RTMD entered into a limited liability company agreement of RTMD which documented the governance of RTMD.

This acquisition resulted in the consolidation of RTMD, which is a variable interest entity (“VIE”), and the recording of a non-controlling interest for the remaining TMRC equity interest.

Effective June 26, 2023, RTMD, USARE LLC and TMRC entered into an amended and restated limited liability company agreement of RTMD pursuant to which, in the event that TMRC does not fund its share of mandatory capital contributions called for by USARE LLC as the manager of RTMD, USARE LLC is obligated to cover the shortfall by making additional capital contributions to RTMD (or in the event that USARE LLC does not fund, the capital call will be withdrawn).

If USARE LLC does fund the capital contribution, additional equity interests in RTMD will be issued to USARE LLC and TMRC will be proportionally diluted in accordance with the terms of the amended and restated limited liability company agreement.

Due to TMRC’s failure to fund its share of mandatory capital contributions called for by USARE LLC, the Company’s ownership interest in RTMD, since December 31, 2024, was increased to approximately 80.57 % and TMRC’s interest in RTMD was reduced to 19.43 %.

The following table presents the assets and liabilities associated with RTMD included in the Company’s Condensed Consolidated Balance Sheets.

2025 December 31,

(In thousands)

Cash and cash equivalents $ 195 $ 66

Prepaid expenses and other current assets 198 178

Lease right-of-use asset

Right-of-use asset 389 30

Mineral interests 17,125 17,125

Property, plant and equipment, net 228 264

Other assets 25 20

Consolidated assets $ 18,160 $ 17,683

3 unchanged sentences

Consolidated liabilities $ 665 $ 205

RTMD did not record depletion expense for the

Mineral interests for the three months ended March 31, 2025 and 2024.

RTMD’s creditors have no recourse against

the Company for the RTMD consolidated liabilities included within the Company’s condensed consolidated balance sheets as of March

31, 2025 and December 31, 2024.

The assets of the consolidated VIE can only be

used to settle the obligations of the consolidated VIE and not the obligations of the Company.

RTMD did not record depletion expense for the mineral interests for the three and six months ended June 30, 2025 and 2024.

RTMD’s creditors have no recourse against the Company for the RTMD consolidated liabilities included within the Company’s Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024.

The assets of the consolidated VIE can only be used to settle the obligations of the consolidated VIE and not the obligations of the Company.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 19

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Mineral Interests

The Company acquired two mineral rights leases

along with an associated groundwater lease in Hudspeth County, Texas as part of the acquisition of RTMD.

Mineral property acquisition

costs, including acquired intangibles, licenses and lease payments, are capitalized.

The net carrying value of mineral rights were $ 17.1

million as of March 31, 2025 and December 31, 2024.

Impairment losses are recorded on mineral interests

when indicators of impairment are present and the carrying amount exceeds the associated estimated future undiscounted cash flows.

of March 31, 2025 and December 31, 2024, the Company had not recognized any impairment losses related to mineral interests held.

The Company acquired two ( 2 ) mineral rights leases along with an associated groundwater lease in Hudspeth County, Texas as part of the acquisition of RTMD.

Mineral property acquisition costs, including acquired intangibles, licenses and lease payments, are capitalized.

The net carrying value of mineral rights were $ 17.1 million as of June 30, 2025 and December 31, 2024.

Impairment losses are recorded on mineral interests when indicators of impairment are present and the carrying amount exceeds the associated estimated future undiscounted cash flows.

As of June 30, 2025 and December 31, 2024, the Company had not recognized any impairment losses related to mineral interests held.

Accrued Liabilities

A summary of the Company’s accrued

liabilities (in thousands):

Accrued payroll and related

Accrued other liabilities

The following table presents a summary of the accrued liabilities by category.

2025 December 31,

(In thousands)

Payroll and related employee taxes $ 1,349 $ 1,908

Litigation settlement (1)

Construction in progress

Total accrued liabilities $ 5,134 $ 3,071

(1.) On July 1, 2025, the Company entered into a settlement agreement with various plaintiffs.

The Company agreed to issue 159 thousand shares of Common Stock and agreed to pay $ 150 thousand to certain plaintiffs.

As the litigation settlement was probable and estimable, the Company recorded the litigation settlement during the quarter ended June 30, 2025.

See Note 8, “Commitments and Contingencies – Ramco Complaint and Kleiner Notice Settlement” for further discussion surrounding the litigation settlement.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 20

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Commitments and Contingencies

Potential Future Environmental Contingency

The Company’s planned exploration and development

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 will conduct its operations to protect public health

and the environment and believes that its current engineering operations are materially in compliance with all applicable laws and regulations.

While the Company’s mining activities are not yet operational, the Company has made, and expects to make in the future, expenditures

to comply with all local and federal environmental laws and regulations.

The ultimate amount of reclamation and other future site-restoration

costs to be incurred for future mining interests is unknown and uncertain as of March 31, 2025.

From time to time, the Company may become subject to legal proceedings,

claims or litigation arising in the ordinary course of business.

In addition, the Company may receive notices alleging infringement of

patents or other intellectual property rights.

The outcomes of any legal proceedings, claims, notices or litigation are subject to uncertainty,

and any claims against the Company, whether meritorious or not, can be time-consuming, result in costly litigation, require significant

management time, create negative perceptions with communities, stakeholders, and government agencies and result in the diversion of significant

operational resources.

If an unfavorable outcome was to occur in any proceeding, claim or litigation, we could be adversely affected in

the period in which they are resolved and the impact could be material to the Company’s business, financial condition, cash flow

or results of operations, depending on the specific circumstances of the outcome.

The Company accrues loss contingencies when it is both

probable that the Company will incur the loss and when it can reasonably estimate the amount of the loss or range of loss.

The Company’s planned exploration and development 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 will conduct its operations to protect public health and the environment and believes that its current engineering operations are materially in compliance with all applicable laws and regulations.

While the Company’s mining activities are not yet operational, the Company has made, and expects to make in the future, expenditures to comply with all local and federal environmental laws and regulations.

The ultimate amount of reclamation and other future site-restoration costs to be incurred for future mining interests is unknown and uncertain as of June 30, 2025.

From time to time, the Company may become subject to legal proceedings, claims or litigation arising in the ordinary course of business.

In addition, the Company may receive notices alleging infringement of patents or other intellectual property rights.

The outcomes of any legal proceedings, claims, notices or litigation are subject to uncertainty, and any claims against the Company, whether meritorious or not, can be time-consuming, result in costly litigation, require significant management time, create negative perceptions with communities, stakeholders, and government agencies and result in the diversion of significant operational resources.

If an unfavorable outcome was to occur in any proceeding, claim or litigation, the Company could be adversely affected in the period in which they are resolved and the impact could be material to the Company’s business, financial condition, cash flow or results of operations, depending on the specific circumstances of the outcome.

The Company accrues loss contingencies when it is both probable that the Company will incur the loss and when it can reasonably estimate the amount of the loss or range of loss.

Ramco Complaint

was filed in Delaware Chancery Court by Ramco Asset Management, LLC (“ Ramco ”), US Trading Company Metals RE, LLC, and

Dinsha Dynasty Trust (collectively, the “ Plaintiffs ”) on July 29, 2022 against USA Rare Earth, LLC (“ USA Rare

Earth ”), Morzev Pty Ltd., Mordechai Gutnick ATF the Morzev Trust, Mordechai Gutnick, and Pini Althaus (collectively, the “ Defendants ”),

captioned Ramco Asset Management, LLC v.

A complaint was filed in Delaware Chancery Court by Ramco Asset Management, LLC (“Ramco”), US Trading Company Metals RE, LLC, and DinSha Dynasty Trust (“DinSha”) (collectively, the “Plaintiffs”) on July 29, 2022 against USA Rare Earth, LLC (“USARE LLC”), Morzev Pty Ltd., Mordechai Gutnick ATF the Morzev Trust, Mordechai Gutnick, and Pini Althaus (collectively, the “Defendants”), captioned Ramco Asset Management, LLC v.

USA Rare Earth, LLC, C.A.

2022-0665-SG (as amended, the “Complaint”).

connection with this matter and a disagreement regarding the number of units of USA Rare Earth LLC that were issued to the Plaintiffs

in transactions during 2019, the Complaint alleged causes of action for breach of contract, breach of fiduciary duty, breach of the Corporations

Act (Australia), fraud and misrepresentation, and breach of the duty of good faith and fair dealing.

The Complaint seeks a variety of

relief, including compensatory and punitive damages, curative equity, attorneys fees and expenses and other relief as may be granted by

USA Rare Earth thereafter filed a motion to dismiss Plaintiffs’ claims.

After motion practice and argument, the

court dismissed all claims, except for Ramco’s alleged breach of contract claim and alleged breach of good faith and fair dealing

as asserted against USA Rare Earth.

The remaining plaintiff has not quantified its alleged damages.

Ramco and USA Rare Earth are now engaged

in discovery, with trial scheduled for November 2025.

USA Rare Earth intends to contest this matter vigorously.

In connection with this matter and a disagreement regarding the number of units of USARE LLC that were issued to the Plaintiffs in transactions during 2019, the Complaint alleged causes of action for breach of contract, breach of fiduciary duty, breach of the Corporations Act (Australia), fraud and misrepresentation, and breach of the duty of good faith and fair dealing.

The Complaint seeks a variety of relief, including compensatory and punitive damages, curative equity, attorneys fees and expenses and other relief as may be granted by the court.

USARE LLC thereafter filed a motion to dismiss Plaintiffs’ claims.

After motion practice and argument, the court dismissed all claims, except for Ramco’s alleged breach of contract claim and alleged breach of good faith and fair dealing as asserted against the Company.

On July 1, 2025, USARE LLC, Ramco, DinSha and Stewart Kleiner entered into a settlement agreement in full settlement of, amongst other things, the Complaint.

See subsection “Ramco Complaint and Kleiner Notice Settlement” below.

Kleiner Notice

On April 1, 2025, the Company received notice

from Stewart Kleiner asserting that a milestone triggering payment of certain equity outlined in a May 10, 2019 advisory agreement had

been achieved as a result of the Company’s reverse merger with Inflection Point Acquisition Corp.

The Company does not believe

that the milestone was triggered and as such has denied payment at this time.

A July 28, 2019 amendment to the advisory agreement guaranteed

payment of the equity by Mordechai Gutnick in the event of a conflict between Mr.

On April 1, 2025, the Company received notice from Stewart Kleiner (Managing Member of Ramco and Grantor of DinSha) asserting that a milestone triggering payment of certain equity outlined in a May 10, 2019 advisory agreement (the “Milestone Payment Notice”) had been achieved as a result of the Company’s reverse merger with Inflection Point Acquisition Corp.

A July 28, 2019 amendment to the advisory agreement guaranteed payment of the equity by Mordechai Gutnick in the event of a conflict between Mr.

Kleiner and the Company.

As of the date of the filing of this report, the Company has not accrued

a loss with respect to the Ramco Complaint or Kleiner Notice described above, the outcome of which is uncertain.

Transaction Bonuses

has agreements with certain individuals and entities that require payment of cash and/or equity upon certain criteria as defined by the

applicable agreement.

The transaction bonuses are recognized when they are deemed to be probable or when the qualifying transaction has

been consummated.

During the three months ended

March 31, 2025, the Company completed the Merger, which triggered $ 1.9 million of cash transaction bonuses to certain employees and consultants

pursuant to existing transaction bonus agreements.

Of the $ 1.9 million cash bonuses, $ 1.15 million was paid out in the three months ended

March 31, 2025, and $ 0.8 million was accrued as of March 31, 2025.

The expense for the cash bonuses was recognized in Selling, general

and administrative expense.

In addition, approximately 0.38 million Class A Units were issued to certain consultants pursuant to existing

bonus agreements which provided for the payment of these Class A Units immediately prior to the completion of the Merger.

Units were then converted to common stock at closing for $ 0.8 million.

The Company also accrued $ 0.2 million for restricted stock units

to be issued to certain employees.

On July 1, 2025, the Company, USARE LLC, Ramco, DinSha and Mr.

Kleiner entered into a settlement agreement in full settlement of, amongst other things, the Milestone Payment Notice and the guaranteed payment of equity by Mr.

Gutnick was released.

See subsection “Ramco Complaint and Kleiner Notice Settlement” below.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 21

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Ramco Complaint and Kleiner Notice Settlement

On July 1, 2025, Ramco, DinSha, Mr.

Kleiner, the Company and USARE LLC entered into a settlement agreement and release pursuant to which, in full settlement of the Complaint and the Milestone Payment Notice, amongst other things, the Company agreed to issue 159 thousand shares of Common Stock to DinSha and agreed to pay $ 150 thousand to Ramco.

The settlement agreement is expressly not to be construed as an admission of liability by the Company.

During the second quarter of 2025, the Company determined that the consideration paid (both cash and the fair value of the Common Stock components) were both probable and estimable, and should be classified as settlement of litigation.

During the quarter ended June 30, 2025, the Company recorded an estimated fair value charge of $ 1.8 million in its Condensed Consolidated Statements of Operations.

Transaction Bonus

The Company has agreements with certain individuals and entities that require payment of cash and/or equity upon certain criteria as defined by the applicable agreement.

The transaction bonuses are recognized when they are deemed to be probable or when the qualifying transaction has been consummated.

During the three months ended March 31, 2025, the Company completed the Merger, which triggered $ 1.9 million of cash bonuses to certain employees and consultants pursuant to existing transaction bonus agreements, of which, $ 0.8 million and $ 1.9 million were paid out in the three and six months ended June 30, 2025, respectively.

The expense for the cash bonuses was recognized in Selling, general and administrative operating expense in the Company’s Condensed Consolidated Statements of Operation.

In addition, approximately 0.38 million USARE LLC Class A units were issued to certain consultants pursuant to existing transaction bonus agreements which provided for the payment of these Class A units immediately prior to the completion of the Merger.

The Class A units were then converted to common stock at closing for $ 0.8 million.

The Company also accrued $ 0.2 million for restricted stock units to be issued to a certain employee.

The expense for the equity transaction bonuses was recognized in Equity-based compensation.

31, 2025, the Company has agreements in place regarding the potential payment of up to $ 1.5 million in cash related to other transaction

bonuses which are not triggered by the Merger.

No amounts were accrued for these bonuses as of March 31, 2025 and December 31, 2024 as

the triggering event had not occurred.

The Company has operating leases for two

offices in Wheat Ridge, Colorado, which expire on March 31, 2028 and a regional office in Sierra Blanca, Texas, which expires May 1,

In 2024, the Company entered into finance lease

agreements for lab equipment with purchase options that the Company is reasonably certain to exercise in its magnet plant in Stillwater,

Oklahoma, which commenced in the three months ended March 31, 2025 and will expire in March of 2028 and 2029.

The agreements did not include

termination options for either party to the lease or restrictive financial or other covenants.

Balance Sheet Components

The Company’s finance and operating leases were recorded on the

condensed consolidated balance sheets as follows (in thousands):

Finance Leases:

Property plant and equipment, net

As of June 30, 2025, the Company has agreements in place regarding the potential payment of up to $ 1.5 million in cash related to other transaction bonuses which are not triggered by the Merger.

No amounts were accrued for these bonuses as of June 30, 2025 and December 31, 2024, as the triggering event had not occurred.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 22

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Balance Sheet Components and Lease Activity

The following table presents the finance and operating leases on the Company’s Condensed Consolidated Balance Sheets.

2025 December 31,

(In thousands)

Finance leases, included in property plant and equipment, net

Operating leases, included in lease right-of-use assets, net

Total $ 1,555 $ 30

Finance lease liability, current $ 277 $ —

Finance lease liability, non-current 735 —

Operating Leases:

Lease right-of-use assets

Total finance lease liabilities 1,012 —

Operating lease liability, current (1)

Operating Lease liability, non-current 255 —

Finance lease assets are reported net of accumulated

amortization of $ 6 thousand as of March 31, 2025.

Total operating lease liabilities 399 23

Total lease liabilities $ 1,411 $ 23

(1.) Includes sub-lease deposits of $ 13 thousand.

Finance Leases

The following table presents the active finance leases at June 30, 2025 and the amounts recognized in the Company’s Condensed Consolidated Balances at lease commencement.

Equipment Location Purpose

Property & Equipment Finance Lease Liability

(In thousands)

Stillwater, OK

Lab Equipment

Mar 2029 $ 765 $ 673

Stillwater, OK

Lab Equipment

Mar 2029 152 133

Stillwater, OK

Lab Equipment

Mar 2028 316 245

The lease agreements include purchase options that the Company is reasonably certain to exercise.

The agreements did not include termination options for either party to the lease or restrictive financial or other covenants.

Operating Leases

The following table presents certain facts regarding the Company’s material property leases as of June 30, 2025.

Square Footage

Option to Extend (1)

ROU Asset Value at Commencement

(In thousands)

Wheat Ridge, CO

Office/Warehouse

5,575 Mar 2028 *

Wheat Ridge, CO

Office/Warehouse

3,433 Mar 2028 *

(1) Number of renewal options(s) / Number of year(s) per renewal option.

* No option to extend the lease at termination.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 23

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Lease Activity

The following table presents the finance and operating lease activities.

Three Months Ended June 30, 2025 Six Months Ended June 30, 2025

(In thousands)

Finance Lease

Right-of-use assets acquired $ — $ 1,233

Amortization expense 61 67

Interest expense 12 13

Operating Lease

Right-of-use asset acquired $ — $ 427

Lease expense 32 68

Cash paid 72 127

Remaining Lease Terms and Discount Rates

The following table presents certain information related to the weighted-average remaining lease terms (in years) and weighted-average discount rates used to value acquired right-of-use assets.

2025 December 31,

Finance Leases

Remaining lease term (years) 3.44 —

Discount rate 4.53 % — %

Operating Leases

Remaining lease term (years) 2.75 0.29

Discount rate 4.28 % 8.76 %

Maturities of Lease Liabilities

Future minimum lease payments under non-cancelable

finance and operating leases on an annual undiscounted cash flow basis as of March 31, 2025 were as follows (in thousands):

The following table presents future minimum lease payments under non-cancelable finance and operating leases on an annual undiscounted cash flow basis as of June 30, 2025.

Finance Leases Operating Leases

(In thousands)

Year Ending December 31,

2025 (9 months)

2025 (remaining six months) $ 158 $ 72

Total lease payments 1,092 410

1 unchanged sentence

Present value of future minimum lease payments $ 1,012 $ 386

Less current obligations under leases

Non-current lease obligations

Lease Terms and Discount Rates:

The following table presents certain information

related to lease terms and discount rates :

2025 December 31,

Finance Leases:

Weighted-average remaining lease term (in years) 3.77 -

Weighted-average discount rate 4.51 % -

Operating Leases:

Weighted-average remaining lease term (in years) 3.00 0.29

Weighted-average discount rate 4.28 % 8.76 %

The following table presents the finance and operating

lease activity (in thousands):

Three months ended

Finance Leases:

Right-of-use amortization expense

Lease liability interest expense

Operating Leases:

Lease expense

The Company obtained finance lease right-of-use assets and operating

lease right-of-use assets in exchange for lease liabilities of $ 1.23 million and $ 427 thousand, respectively, for the three months ended

March 31, 2025.

On July 28, 2023, USARE LLC and Hatch LTD

(“Hatch”) entered into an unsecured $ 1.0 million Senior Convertible Promissory Note agreement (the “Note”)

with a 10 % interest rate.

The Note had an original maturity date of July 28, 2025 , when the principal plus accrued interest of $ 200

thousand would become due, barring earlier conversion under certain events.

A Side Letter and Memorandum of Understanding, signed

contemporaneously with the Note, provided for potential issuances of an aggregate amount of $ 4.0 million in additional notes in two

additional tranches, the option of which expired, unexercised, one year after the Note.

The Note originally

had conversion options that could be triggered under the following scenarios:

● Qualified financing – Capital issuance of at least $ 100 million.

Upon the occurrence of a qualified financing, the principal and unpaid accrued interest under the Note will automatically convert, with the Company having the option to pay accrued interest in cash, to a number of securities equal to the outstanding balance divided by the lesser of:

(i) discount of 80 % times the per unit purchase price paid in the qualified financing, and (ii) the valuation cap of $ 600 million divided by the fully diluted capitalization just prior to closing.

● Non-qualified financing – Any capital issuance by the Company that does not constitute a qualified financing.

Upon the occurrence of a non-qualified financing, the principal and unpaid accrued interest may be paid in full or converted, at Hatch’s option, to a number of securities equal to the outstanding balance divided by the lesser of:

(i) discount of 80 % times the per unit purchase price paid in the non-qualified financing, and (ii) the valuation cap of $ 600 million divided by the fully diluted capitalization just prior to closing;

however, should the non-qualified financing be consummated based upon a post-money valuation of the Company of less than the valuation cap of $ 600 million, the conversion will be subject to the Company’s written consent

● Fundamental conversion – A sale, transfer, or other disposition of all or substantially all of the Company’s assets or exclusive license to all or substantially all of the Company’s material intellectual property, a merger or consolidation with another entity, or a transfer of equity of more than 50 % of the outstanding voting securities.

The principal and unpaid and accrued interest may be paid in full or converted, at Hatch’s option, to a number of securities equal to the outstanding balance divided by the quotient of the valuation cap of $ 600 million divided by the fully diluted capitalization just prior to closing

● Maturity conversion – Conversion at maturity.

The principal and unpaid accrued interest may be paid in full or converted, at Hatch’s option, to a number of securities equal to the outstanding balance divided by the quotient of the valuation cap of $ 600 million divided by the fully diluted capitalization just prior to closing.

issuance, the Company determined that the conversion feature under certain scenarios of the Note was an embedded derivative in

accordance with ASC 815.

The Company obtained a fair value analysis and valuation completed by a third-party specialist and recorded

a discount of $ 446 thousand on the Note with an offset to derivative liability for the initial recognition of the compound embedded derivative.

The discount was amortized using the effective interest rate method over the expected life of the Note.

Additional valuations of the

compound embedded derivative were done by third-party specialists at each subsequent year end to adjust the balance of the derivative

Management reviewed the valuation of the embedded derivative periodically to ensure no material change has occurred during

the interim reporting periods during those annual years.

Based on a valuation performed as of December 31, 2024, the Company’s

derivative liability was $ 1.2 million.

Changes to the fair value were recognized as fair market gains or losses in other income (expense)

in the condensed consolidated statements of operations.

On February 26, 2025, USARE LLC and Hatch entered

into a Letter Agreement to settle the Note in full by issuing approximately 0.68 million shares of USARE LLC Class A common to Hatch,

contingent upon success of the Merger.

The Letter Agreement effectively modified the conversion terms by changing the type and number

of shares in which the Note would be converted.

On February 26, 2025, the Company accounted for the modification in terms by adjusting

the December 31, 2024 valuation for the change to fair value of the derivative liability.

A gain on the derivative liability of $ 716 thousand

was recognized during the three months ended March 31, 2025.

The Note was settled as of the Closing Date of the Merger and accounted

for as an extinguishment.

The Company did not fair value the derivative immediately before extinguishment due to the relative proximity

to the modification.

The fair value of the USARE LLC Class A common issued to Hatch was calculated using the closing common stock price

on March 13, 2025, adjusted for the conversion ratio used to convert USARE LLC Class A units to Common Stock at the Merger.

recognized a loss on extinguishment of $ 11 thousand.

Upon Closing of the Merger, the approximately

0.68 million USARE LLC Class A common converted into approximately 0.14 million shares of Common Stock.

Interest expense recognized through

extinguishment from the discount on the Note for the three months ended March 31, 2025 and 2024 was approximately $ 54 thousand and $ 44 thousand,

respectively.

An additional $ 20 thousand and $ 25 thousand for the three months ended March 31, 2025 and 2024, respectively, was recognized

as interest expense through the date of extinguishment for the stated interest on the Note.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 24

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

On July 28, 2023, USARE LLC and Hatch LTD (“Hatch”) entered into an unsecured $ 1.0 million Senior Convertible Promissory Note agreement (the “Note”) with a 10 % interest rate.

The Note had an original maturity date of July 28, 2025 , when the principal plus accrued interest of $ 0.2 million would become due, barring earlier conversion under certain events.

A side letter and memorandum of understanding, signed contemporaneously with the Note, provided for potential issuances of an aggregate amount of $ 4.0 million in additional notes in two ( 2 ) tranches, the option of which expired unexercised, one year after the Note.

On February 26, 2025, USARE LLC and Hatch entered into a Letter Agreement to settle the Note in full by issuing approximately 0.68 million shares of USARE LLC Class A common units to Hatch, contingent upon success of the Merger.

The Letter Agreement effectively modified the conversion terms by changing the type and number of shares in which the Note would be converted.

On February 26, 2025, the Company accounted for the modification in terms by adjusting the December 31, 2024 valuation for the change to fair value of the derivative liability.

A gain on the derivative liability of $ 0.7 million was recognized during the three months ended March 31, 2025.

The Note was settled as of the Closing Date of the Merger and accounted for as an extinguishment.

The Company did not fair value the derivative immediately before extinguishment due to the relative proximity of the date of the Note’s modification to the Closing Date of the Merger.

The fair value of the USARE LLC Class A common units issued to Hatch was calculated using the closing common stock price on March 13, 2025, adjusted for the conversion ratio used to convert USARE LLC Class A common units to Common Stock at the Merger.

The Company recognized a loss on extinguishment of $ 11 thousand.

Upon closing of the Merger, the 0.68 million USARE LLC Class A common units converted into 0.14 million shares of Common Stock.

The following table presents the interest expense recognized on the Note for the periods indicated.

For 2025, the amount of interest expense was recognized through the extinguishment of the Note.

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

(In thousands)

Amortization of Note discount $ — $ 50 $ 54 $ 94

The effective interest rate of the Note was 44.875 %.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 25

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Mezzanine and Stockholders' Equity

The total number of shares outstanding as of March

31, 2025 and the total number of shares of all classes of stock that USAR has authority to issue is follows (in thousands, except for

Class of Stock

The total number of shares outstanding as of June 30, 2025 and the total number of shares of all classes of stock that USAR has authority to issue is follows:

Class of Stock Authorized Par Value Outstanding

(In thousands, except par value)

Common Stock 750,000 $ 0.0001 96,189

Preferred Stock 50,000 $ 0.0001 3,714

1 unchanged sentence

Common Stock Voting Rights .

of record of Common Stock has one vote for each share of Common Stock that is outstanding and held on all matters on which stockholders

are entitled to vote generally.

Each holder of record of Common Stock has one vote for each share of Common Stock that is outstanding and held on all matters on which stockholders are entitled to vote generally.

Dividend Rights .

The payment of future

dividends on the shares of Common Stock depends on the Company’s financial condition and is subject to the discretion of the Board.

upon Liquidation .

Upon liquidation, the holders of Common Stock are entitled to receive the remaining assets of the Company available

for distribution to its stockholders ratably in proportion to the number of shares held by them after payment of debts and other liabilities

and subject to the rights of the holders of outstanding Preferred Stock .

Arrangements .

Pursuant to the Company’s bylaws, certain former members of USARE LLC, (excluding the former holders of the USARE

LLC Class A Convertible Preferred Units and the USARE LLC Class A Preferred Investor Warrants, solely with respect to securities received

in exchange for such USARE LLC securities) (together with their permitted transferees, the “USARE Lock-Up Holders”), unless

released by the Company’s board of directors, are not permitted, prior to six months after the Closing Date to sell or otherwise

dispose of any shares of Common Stock that were issued to them in connection with the transactions contemplated by the Merger (“USAR

Lock-Up Shares”) without the prior written consent of the Company’s board of directors.

Additionally, the USARE Lock-Up Holders

are not permitted to, prior to one year after the Closing Date, transfer more than 50 % of their USAR Lock-Up Shares, without the prior

written consent of the Company’s board of directors.

Notwithstanding the foregoing, in connection with the Closing of the Merger,

our board of directors released specified USARE Lock-Up Holders, generally the holders who were expected to own less than 0.2 % of the

Common Stock issued to all USARE Lock-Up Holders in the Merger, from the lock-up described above.

Pursuant to a Lock-Up Agreement,

dated March 13, 2025, by and between the Company and Inflection Point Holdings II LLC (the “Sponsor”) and its permitted assigns

agreed not to, sell or otherwise dispose of 6.25 million shares of Common Stock (the “Sponsor Lock-Up Shares”) that were issued

to the Sponsor in connection with the Merger Transactions in exchange for 6.25 million ordinary shares of IPXX issued to it prior to the

Company’s initial public offering.

Additionally, the Sponsor agreed that it would not, prior to one year after the Closing Date,

transfer more than 50 % of its Sponsor Lock-Up Shares, without the prior written consent of the Company’s board of directors.

Preferred Stock

As of March 31, 2025, the Company’s

approximately 5.23 million issued and outstanding shares of Preferred Stock were designated as Series A Preferred Stock.

The Company’s

certificate of incorporation authorizes the Board to establish one or more series of Preferred Stock, which will be available for issuance

without further action by the holders of Common Stock.

15.00 million shares of Preferred Stock have been designated as Series A Preferred

The payment of future dividends on the shares of Common Stock depends on the Company’s financial condition and is subject to the discretion of the Board.

Rights Upon Liquidation .

Upon liquidation, the holders of Common Stock are entitled to receive the remaining assets of the Company available for distribution to its stockholders ratably in proportion to the number of shares held by them after payment of debts and other liabilities and subject to the rights of the holders of outstanding Preferred Stock.

Lock-Up Arrangements .

Pursuant to the Company’s bylaws, certain former members of USARE LLC, (excluding the former holders of the USARE LLC Class A Convertible Preferred Units and the USARE LLC Class A Preferred Investor Warrants, solely with respect to securities received in exchange for such USARE LLC securities) (together with their permitted transferees, the “USARE Lock-Up Holders”), unless released by the Company’s Board of Directors (the “Board”), are not permitted, prior to six months after the Closing Date to sell or otherwise dispose of any shares of Common Stock that were issued to them in connection with the transactions contemplated by the Merger (“USAR Lock-Up Shares”) without the prior written consent of the Company’s board of directors.

Additionally, the USARE Lock-Up Holders are not permitted to, prior to one year after the Closing Date, transfer more than 50 % of their USAR Lock-Up Shares, without the prior written consent of the Board.

Notwithstanding the foregoing, in connection with the closing of the Merger, the Board released specified USARE Lock-Up Holders, generally the holders who were expected to own less than 0.2 % of the Common Stock issued to all USARE Lock-Up Holders in the Merger, from the lock-up described above.

Pursuant to a Lock-Up Agreement, dated March 13, 2025, by and between the Company and Inflection Point Holdings II LLC (the “Sponsor”) and its permitted assigns agreed not to sell or otherwise dispose of 6.25 million shares of Common Stock (the “Sponsor Lock-Up Shares”) that were issued to the Sponsor in connection with the Merger Transactions in exchange for 6.25 million ordinary shares of IPXX issued to it prior to the Company’s initial public offering.

Additionally, the Sponsor agreed that it would not, prior to one year after the Closing Date, transfer more than 50 % of its Sponsor Lock-Up Shares, without the prior written consent of the Board.

12% Series A Convertible Preferred Stock

Preferred stock issued were designated as 12 % Series A Convertible Preferred Stock (“Series A Preferred Stock”).

The Company’s certificate of incorporation authorizes the Board to establish one or more series of preferred stock, which will be available for issuance without further action by the holders of Common Stock.

15.0 million shares of preferred stock have been designated as Series A Preferred Stock.

Each share of Series A Preferred Stock has a stated value of $ 12.00 (the “Stated Value”).

The Series A Preferred Stock accrues dividends daily at the rate of 12 % per annum of the Stated Value (if paid in kind), plus the amount

of previously accrued dividends paid in kind, or 10 % per annum of the Stated Value (if paid in cash), plus the amount of previously accrued

The Series A Preferred Stock accrues dividends daily at the rate of 12 % per annum of the Stated Value (if paid in kind), plus the amount of previously accrued dividends paid in kind, or 10 % per annum of the Stated Value (if paid in cash), plus the amount of previously accrued dividends.

Such dividends will compound semi-annually.

Upon any liquidation, the holders of Series A Preferred Stock will be entitled to receive out of the available proceeds

(i) 100 % of the Stated Value per share of Preferred Stock plus accumulated dividends (“Accrued Value”) or (ii) an amount per

share that would be payable had all shares of Series A Preferred Stock been converted into Common Stock immediately prior to the liquidation

Thereafter, the holders of Series A Preferred Stock will be entitled to receive their pro-rata share, of the remaining available

proceeds available for distribution to stockholders, on an as-converted to Common Stock basis.

The Series A Preferred Stock will

(i) vote together with the Common Stock as a single class, except as required by law and (ii) subject to certain protective provisions.

Holders of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock

into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders

entitled to vote on such matters.

Each share of Series A Preferred

Stock is convertible into Common Stock at any time at the option of the holder at a rate equal to the Accrued Value, divided by the then-applicable

conversion price.

The conversion price is initially $ 12.00 , subject to adjustments for stock dividends, splits, combinations and similar

events and customary anti-dilution adjustments, including with respect to future issuances or sales of Common Stock at prices less than

$ 10.00 per share.

In addition, if the 20-day volume-weighted average price of the Common Stock on the twenty-first trading day following

the date that is six months after Closing Date is less than the conversion price then in effect, the conversion price will be adjusted

to the greater of (i) such volume weighted average price and (ii) $ 7.50 .

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 26

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Liquidation Preference :

Upon any liquidation, the holders of Series A Preferred Stock will be entitled to receive out of the available proceeds (i) 100 % of the Stated Value per share of Preferred Stock plus accumulated dividends (“Accrued Value”) or (ii) an amount per share that would be payable had all shares of Series A Preferred Stock been converted into Common Stock immediately prior to the liquidation event.

Thereafter, the holders of Series A Preferred Stock will be entitled to receive their pro-rata share of the remaining available proceeds available for distribution to stockholders, on an as-converted to Common Stock basis.

The Series A Preferred Stock will (i) vote together with the Common Stock as a single class, except as required by law and (ii) subject to certain protective provisions.

Holders of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matters.

Each share of Series A Preferred Stock is convertible into Common Stock at any time at the option of the holder at a rate equal to the Accrued Value, divided by the then-applicable conversion price.

The conversion price is initially $ 12.00 , subject to adjustments for stock dividends, splits, combinations and similar events and customary anti-dilution adjustments, including with respect to future issuances or sales of Common Stock at prices less than $ 10.00 per share.

In addition, if the 20 -day volume-weighted average price of the Common Stock on the twenty-first trading day following the date that is six months after the Closing Date is less than the conversion price then in effect, the conversion price will be adjusted to the greater of (i) such volume weighted average price and (ii) $ 7.50 .

On May 2, 2025, the conversion price was reduced to $ 7.00 .

Unless prohibited by applicable

law governing distributions to stockholders, the Series A Preferred Stock is redeemable at the option of the holder commencing any time

after the 5th anniversary of the Closing at a price equal to the Accrued Value.

Unless prohibited by applicable

law governing distributions to stockholders, the Series A Preferred Stock shall be redeemable at the option of the Company commencing

any time (A) prior to the 1st anniversary of the Closing at a price equal to the 150% of the Accrued Value, (B) on or after the 1st anniversary

but prior to the 2nd anniversary of the Closing at a price equal to the 140% of the Accrued Value, (C) on or after the 2nd anniversary

of the Closing but prior to the 3rd anniversary of the Closing at a price equal to the 130% of the Accrued Value, (D) on or after the

3rd anniversary of the Closing but prior to the 4th anniversary of the Closing at a price equal to the 120% of the Accrued Value, (E)

on or after the 4th anniversary of the Closing but prior to the 5th anniversary of the Closing at a price equal to the 110% of the Accrued

Value, or (F) on or after the 5th anniversary of the Closing at a price equal to the 100% of the Accrued Value.

In accordance with ASC 480-10-S99, the Company

classified Series A Preferred Stock subject to redemption in mezzanine equity as the redemption provisions are not solely within the control

of the Company.

USAR Warrants

31, 2025, the Company granted warrants to acquire approximately 23.78 million shares of Common Stock as follows (shares in thousands):

Issuable Upon

Exercise Exercise

Price Balance

Classification

Public Warrants 12,500 $ 11.50 Equity

Private Warrants 6,000 11.50 Equity

Series A Investor Warrants 5,279 12.00 Liability

Unless prohibited by applicable law governing distributions to stockholders, the Series A Preferred Stock is redeemable at the option of the holder commencing any time after the 5 th anniversary of the Closing at a price equal to the Accrued Value.

Call Rights :

Unless prohibited by applicable law governing distributions to stockholders, the Series A Preferred Stock shall be redeemable at the option of the Company commencing any time:

(a) prior to the 1 st anniversary of the Closing at a price equal to the 150 % of the Accrued Value,

(b) on or after the 1 st anniversary but prior to the 2 nd anniversary of the Closing at a price equal to 140 % of the Accrued Value,

(c) on or after the 2 nd anniversary of the Closing but prior to the 3 rd anniversary of the Closing at a price equal to 130 % of the Accrued Value,

(d) on or after the 3 rd anniversary of the Closing but prior to the 4 th anniversary of the Closing at a price equal to 120 % of the Accrued Value,

(e) on or after the 4 th anniversary of the Closing but prior to the 5 th anniversary of the Closing at a price equal to 110 % of the Accrued Value, or

(f) on or after the 5 th anniversary of the Closing at a price equal to 100 % of the Accrued Value.

In accordance with ASC 480-10-S99, the Company classified the Series A Preferred Stock subject to redemption in mezzanine equity as the redemption provisions are not solely within the control of the Company.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 27

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

The following table presents the number of potential shares of Common Stock that outstanding warrant holders may acquire as of June 30, 2025.

Balance Sheet Classification Exercise Price

Potential Common Stock Shares Issuable Upon Exercise (1)

(In thousands, except for exercise price)

Investor Public Warrants Equity $ 11.50 12,369

Investor Private Warrants Equity $ 11.50 6,000

Series A Warrants (2) (3)

Liability $ 7.00 6,130

Common Stock warrants (3)

Liability $ 7.00 10,714

Prefunded warrants (3)

Liability $ 0.0001 2,164

Total Warrants 37,377

of the Domestication, (a) each of the then issued and outstanding warrants to purchase Class A ordinary shares of IPXX automatically became

a USAR Warrant exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants;

and (b) each unit of IPXX

issued and outstanding as of immediately prior to the Domestication was automatically canceled and each holder received one share of Common

Stock and one-half of one USAR Warrant exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants,

with any fractional USAR Warrants to be issued in connection with such separation rounded down to the nearest whole warrant.

USARE LLC Series A Investor Warrants

As a result of the Merger transaction closing,

the USARE LLC Class A Units Purchase Warrants automatically converted into Series A Investor Warrants of USAR.

The USARE LLC Class A Units

Purchase Warrants were previously classified as equity.

As the legal form of the warrants changed as a result of the Merger, management

reassessed the classification of the warrants.

The Series A Investor USAR Warrants provide for

a Black-Scholes value calculation, as defined, in the event of certain transactions (“Fundamental Transactions,” as defined

in the Series A Investor USAR Warrants), which includes a floor on volatility utilized in the Black Scholes value calculation at 100%

The Company has determined that this provision introduces leverage to the holders of the warrants that could result in a value

that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares.

pursuant to ASC 815, the Company has classified the fair value of the Series A Investor USAR Warrants as a liability to be re-measured

at the end of every reporting period with the change in value reported in the condensed consolidated statement of operations.

The following table summarizes the activity related

to the USARE LLC warrants to acquire shares of USARE LLC Class A common units as of January 1, 2025, and changes during the three months

ended March 31, 2025 (units in thousands):

(1) Amount presented is net of exercises.

(2) On March 13, 2025, the Company granted warrants to acquire approximately 23.8 million shares of Common Stock.

On May 3, 2025, the exercise price of the outstanding Series A warrants was reduced from $ 12.00 to $ 7.00 due to the $75M PIPE (as defined below).

The number of shares of Common Stock issuable related to the outstanding Series A warrants on May 3, 2025 was subsequently increased by approximately 171 %.

(3) See the follow ing section entitled “Private Investment in Public Entity Financing”.

Private Investment in Public Entity Financing

On May 2, 2025, the Company closed its private investment in public equity financing (the “$75M PIPE”) with a single institutional investor.

Under the $75M PIPE agreement, the Company issued the following shares of Common Stock, Common Stock warrant, and Prefunded warrant:

Common Stock Shares and Warrants Issued Exercise Price

(In thousands)

Common Stock shares

Common Stock warrants

10,714 $ 7.00

Prefunded warrants 2,164 $ 0.0001

In exchange for the above issuances, the Company received cash of $ 75.0 million.

The $75M PIPE agreement specified that:

• exercisability of the Common Stock warrantCommon Stock and Prefunded warrant are contingent upon investor’s beneficial ownership of the Company, which may not exceed 9.99 % at time of exercise;

• the Common Stock warrant will expire six ( 6 ) years from the initial exercise date;

• the Prefunded warrant does not expire;

• embedded put rights upon a Fundamental Transaction, as defined in the agreement;

• can be exercised in whole or in part;

• can only be exercised as long as the warrant is still outstanding;

• other conditions and covenants as outlined in the agreement.

Upon closing of the $75M PIPE, the Company recognized a loss of $ 36.9 million on the value of the issued Common Stock shares, as the fair value of the related Common Stock warrant and Prefunded warrant on the issuance date exceeded the value of the financing received.

The recognized loss on the value of the issued shares of Common Stock was recognized in (Loss) gain on fair market value of financial instruments on the Company’s Condensed Consolidated Statements of Operations.

As of June 30, 2025, the Common Stock warrant remains unexercisable.

See Note 4, “Fair Value Measurements – Private Investment in Public Entity Financing” for further information regarding the valuation of the $75M PIPE Common Stock warrant and Prefunded warrant.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 28

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Conversion of IPXX Warrants

As a result of the Domestication, (a) each of the then issued and outstanding warrants to purchase Class A ordinary shares of IPXX automatically became a USAR Warrant exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants;

and (b) each unit of IPXX issued and outstanding as of immediately prior to the Domestication was automatically canceled and each holder received one share of Common Stock and one-half of one USAR Warrant exercisable for one share of Common Stock on the same terms as the pre-Domestication warrants, with any fractional USAR Warrants to be issued in connection with such separation rounded down to the nearest whole warrant.

USARE LLC Series A Investor Warrants

As a result of the Merger transaction closing, the USARE LLC Class A Units Purchase Warrants automatically converted into USAR Series A Investor Warrants.

The USARE LLC Class A Units Purchase Warrants were previously classified as equity.

As the legal form of the warrants changed as a result of the Merger, management reassessed the classification of the warrants.

The USAR Series A Investor Warrants provide for a Black-Scholes value calculation, as defined, in the event of certain transactions (“Fundamental Transactions,” as defined in the USAR Series A Investor Warrants), which includes a floor on volatility utilized in the Black-Scholes value calculation at 100% or greater.

The Company has determined that this provision introduces leverage to the holders of the warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares.

Accordingly, pursuant to ASC 815, the Company has classified the fair value of the USAR Series A Investor Warrants as a liability to be re-measured at the end of every reporting period with the change in value reported in the Condensed Consolidated Statement of Operations.

The activity related to the USARE LLC Class A Purchase Warrants to acquire USARE LLC Class A common units as of January 1, 2025, and changes during the six months ended June 30, 2025 are summarized as follows:

Units Weighted Average Exercise Price Intrinsic Value

(In thousands, except for exercise price)

Outstanding as of January 1, 2025 3,000 $ 12.00 $ 0

1 unchanged sentence

Conversion to Series A Preferred Investor Warrant ( 5,279 )

Outstanding as of March 31, 2025

USARE LLC Warrants to Acquire Class B Common Units

The following table summarizes the activity related

to the USARE LLC warrants to acquire USARE LLC Class B common units as of January 1, 2025, and changes during the three months ended

March 31, 2025 (units and intrinsic value in thousands):

Outstanding as of June 30, 2025 —

USARE LLC Warrants to Acquire Class B Common Units

The activity related to the USARE LLC warrants to acquire USARE LLC Class B common units as of January 1, 2025, and changes during the six months ended June 30, 2025 are summarized as follows:

Units Weighted Average Exercise Price Intrinsic Value

(In thousands, except for exercise price)

Outstanding as of January 1, 2025 8,315 $ 0.24 $ 16,000

Cashless exercise to class B Common Units ( 8,315 )

Outstanding as of March 31, 2025

USARE LLC Warrants to Acquire Class C Preferred Units

The following table summarizes the activity related

to the USARE LLC warrants to acquire USARE LLC Class C convertible preferred units as of January 1, 2024, and changes during the three

months ended March 31, 2025 (units and intrinsic value in thousands):

Outstanding as of June 30, 2025 —

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 29

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

USARE LLC Warrants to Acquire Class C Preferred Units

The activity related to the USARE LLC warrants to acquire USARE LLC Class C convertible preferred units as of January 1, 2025, and changes during the six months ended June 30, 2025 are summarized as follows:

Units Weighted Average Exercise Price Intrinsic Value

(In thousands, except for exercise price)

Outstanding as of January 1, 2025 1,949 $ 1.06 $ 1,956

Dividends 19 1.73

Cashless exercise to Common B Units ( 1,968 )

Outstanding as of March 31, 2025

Upon Closing of the Merger, the following

USARE LLC warrants to acquire Class B common and Class C convertible preferred units of USARE LLC were converted into shares of Common

Stock using the treasury method of accounting on a cashless exercise basis and an exchange conversion ratio of approximately 0.204 shares

of Common Stock for a Class A unit of USARE LLC as follows (shares in thousands):

Class B Common Warrants

Class C Convertible Preferred Warrants

Outstanding as of June 30, 2025 —

USARE LLC Class B Common and Class C Convertible Preferred Units

Upon closing of the Merger, the following USARE LLC warrants to acquire Class B common and Class C convertible preferred units of USARE LLC were converted into shares of Common Stock using the treasury method of accounting on a cashless exercise basis and an exchange conversion ratio of approximately 0.204 shares of USAR Common Stock for each Class A unit of USARE LLC.

(In thousands)

USARE LLC Class B Common Warrants 1,521

USARE LLC Class C Convertible Preferred Warrants 379

Total USAR Common Stock 1,900

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 30

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Equity-Based Compensation

The Company has the following equity award plans:

2024 Omnibus Incentive Plan (the “USAR

Incentive Plan”)

The Company has reserved 13.00 million shares

of Common Stock for issuance pursuant to the USAR Incentive Plan, and the maximum number of shares that may be issued pursuant to the

exercise of incentive stock options granted under the USAR Incentive Plan is 13.00 million, subject to certain adjustments.

31, 2025, the Company has not granted any equity-based awards under the USAR Incentive Plan.

Incentive Plans

2024 Omnibus Incentive Plan

The Company has reserved 13.0 million shares of Common Stock for issuance pursuant to the 2024 Omnibus Incentive Plan (the “2024 Incentive Plan”), and the maximum number of units that may be issued pursuant to the vesting of incentive awards under the 2024 Incentive Plan is 13.0 million units, subject to certain adjustments.

Each unit represents the right to receive one share of Common Stock.

The Company has not granted any equity-based awards under the 2024 Incentive Plan as of June 30, 2025.

USARE LLC Incentive Plan

USARE LLC issued incentive units under the Amended

and Restated Incentive Plan dated May 1, 2020 and the Second Amended and Restated Equity Incentive Plan dated August 26, 2022 and amended

November 2, 2022 and February 10, 2024 (the “Legacy Incentive Plan”).

The incentive units were intended to constitute “profit

interests” within the meaning of the U.S.

Internal Revenue Service (“IRS”) Revenue Procedures 93-27 and 2001-43 (or

the corresponding requirements of any subsequent guidance promulgated by the IRS or other applicable law).

The rights and preferences

of the incentive units were defined in the respective incentive unit agreements.

The Company did not forfeit or grant any new incentive

units under the Legacy Incentive Plan as of the closing date of the merger and during the three months ended March 31, 2025.

no new grants will be awarded under this plan.

USARE LLC utilized an independent valuation company

to estimate the fair value of the underlying equity units into which the incentive units granted under the Legacy Incentive Plan would

be converted.

During the year ended December 31, 2024, the Company then used this valuation in a Black-Scholes pricing model to determine

the fair value of the incentive units granted.

Black-Scholes pricing method is considered to be a Level 3 fair value measurement

requiring highly judgmental assumptions including expected volatility.

The expected volatility was estimated by taking the average historical

price volatility for industry peers, consisting of several public companies in its industry which are either similar in size, stage of

life cycle, or financial leverage, over a period equivalent to the expected term of the awards.

USARE LLC recognized the associated costs

across the vesting period using the straight-line method.

All outstanding and unvested incentive units under the USARE LLC Incentive

Plan vested upon the Closing of the Merger as of March 13, 2025 and unrecognized equity-based compensation expense of incentive units

vested on that date of $ 0.2 million was recognized.

The following table summarizes the activity related

to the incentive units as of March 31, 2025, and changes during the three months ended March 31, 2025 (units and intrinsic value in thousands):

Threshold (1)

Outstanding at January 1, 2025

Conversion to USARE LLC Class A units

Outstanding at March 31, 2025

(1) The distribution threshold amount refers to the value that would

need to be exceeded before the holder would receive any consideration upon a liquidation event.

(2) The intrinsic value is calculated based upon the fair value

of the incentive units as of the reported date.

Conversion of Incentive Units – Upon

Closing of the Merger, all outstanding incentive units were considered fully vested and converted into approximately 4.55 million shares

of Common Stock using the treasury method of accounting on a cashless exercise basis and an exchange conversion ratio of approximately

0.204 shares of Common Stock for a share of common stock of USARE LLC.

Vesting Period of Incentive Units –

USARE LLC utilized different vesting periods, generally ranging from one year to three years , depending on the specifics of the grant.

In case of change in control, unless otherwise expressly provided in the participant’s award agreement, the units would become

100 % vested and any restrictions and limitations applicable to the participant’s incentive units would lapse and such incentive

units would become fully transferable.

Incentive Unit and Class A Common Compensation

Expense - The following table summarizes compensation expense related to the Company’s equity-based compensation (in thousands):

For the Three Months Ended

USARE LLC issued incentive units under the Amended and Restated Incentive Plan dated May 1, 2020 and the Second Amended and Restated Equity Incentive Plan dated August 26, 2022 and amended November 2, 2022 and February 10, 2024 (the “Legacy Incentive Plan”).

The incentive units were intended to constitute “profit interests” within the meaning of the U.S.

Internal Revenue Service (“IRS”) Revenue Procedures 93-27 and 2001-43 (or the corresponding requirements of any subsequent guidance promulgated by the IRS or other applicable law).

The rights and preferences of the incentive units were defined in the respective incentive unit agreements.

The Company did not forfeit or grant any new incentive units under the Legacy Incentive Plan as of the closing date of the Merger.

In addition, no new grants will be awarded under this plan.

USARE LLC utilized an independent valuation company to estimate the fair value of the underlying equity units into which the incentive units granted under the Legacy Incentive Plan would be converted.

During the year ended December 31, 2024, the Company then used this valuation in a Black-Scholes pricing model to determine the fair value of the incentive units granted.

The Black-Scholes pricing method is considered to be a Level 3 fair value measurement requiring highly judgmental assumptions including expected volatility.

The expected volatility was estimated by taking the average historical price volatility for industry peers, consisting of several public companies in its industry which are either similar in size, stage of life cycle, or financial leverage, over a period equivalent to the expected term of the awards.

USARE LLC recognized the associated costs across the vesting period using the straight-line method.

All outstanding and unvested incentive units under the Legacy Incentive Plan vested upon the closing of the Merger and unrecognized equity-based compensation expense of incentive units vested on that date of $ 0.2 million was recognized.

Compensation Expense

The following table presents the compensation expense under the Legacy Incentive Plan.

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

(In thousands)

Incentive units

$ — $ ( 38 ) $ 441 $ 259

Class A units (1)

In the three months ended March 31, 2025, USARE

LLC recorded equity-based compensation for issuance of its Class A units to certain consultants immediately prior to the closing of the

merger pursuant to existing bonus agreements.

In the three months ended March 31, 2024, USARE LLC recorded equity-based compensation

for the issuance of Class A units as part of the USARE LLC former CEO’s employment agreement.

— ( 277 ) 841 ( 225 )

Total $ — $ ( 315 ) $ 1,282 $ 34

(1) In the three months ended March 31, 2025, USARE LLC recorded equity-based compensation for issuance of its Class A Units to certain consultants immediately prior to the Closing Date of the Merger pursuant to existing bonus agreements.

In the three and six months ended June 30, 2024, USARE LLC recorded the forfeiture of equity-based compensation of its former CEO.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 31

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

The following table presents the activity related to the incentive units as of June 30, 2025, and changes during the six months ended June 30, 2025.

Units Weighted Average Distribution Threshold (1)

Intrinsic Value (2)

(In thousands, except for weighted average distribution threshold)

Outstanding at January 1, 2025 39,185 $ 0.97 $ 46,152

Conversion to USARE LLC Class A units ( 39,185 ) $ 0.97

Outstanding at June 30, 2025 —

(1) The distribution threshold amount refers to the value that would need to be exceeded before the holder would receive any consideration upon a liquidation event.

(2) The intrinsic value is calculated based upon the fair value of the incentive units as of the reported date.

Conversion of Incentive Units – Upon closing of the Merger, all outstanding incentive units were considered fully vested and converted into approximately 4.55 million shares of Common Stock using the treasury method of accounting on a cashless exercise basis and an exchange conversion ratio of approximately 0.204 shares of Common Stock for a share of Common Stock of USARE LLC.

Vesting Period of Incentive Units – USARE LLC utilized different vesting periods, generally ranging from one year to three years , depending on the specifics of the grant.

In case of a change in control, unless otherwise expressly provided in the participant’s award agreement, the units would become 100 % vested and any restrictions and limitations applicable to the participant’s incentive units would lapse and such incentive units would become fully transferable.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 32

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Government Grants

The Company has government grants for the purchase

or construction of long-lived assets.

The Company presents grants received related to long-lived assets as a non-current deferred grants

liability on the condensed consolidated balance sheets and recognizes revenue through profit or loss over the useful life of the underlying

The Company has government grants for the purchase or construction of long-lived assets.

The Company presents grants received related to long-lived assets as a non-current deferred grants liability on the Condensed Consolidated Balance Sheets and recognizes revenue through profit or loss over the useful life of the underlying assets.

Tax Incremental Financing

On June 6, 2022, the Company executed a Tax Increment

Financing Agreement (the “TIF Agreement”) with the Stillwater Economic Development Authority (the “Authority”),

a public trust having as its beneficiary the City of Stillwater, Oklahoma (the “City”), whereby the Authority will provide

upfront development financing assistance to the Company of up to $ 7.0 million for the development of the Stillwater Facility (the “Upfront

Assistance”).

Additionally, entry into the TIF Agreement made USARE LLC eligible to receive a manufacturing and research and development

ad valorem tax exemption for a period of five years and thereafter requires the Authority to disburse to the Company 90 % of the incremental

ad valorem taxes generated by the ad valorem taxes assessed against the Stillwater Facility and paid by the Company.

Under the terms

of the TIF agreement, among other things, the Company is required to complete the Stillwater Facility and in doing so to make an investment

of approximately $ 140 million and to employ a specified number of employees at specified levels of median compensation at various stages

of the development.

Subject to agreed extensions, USARE LLC is also required to commence certain phases of the development of the Stillwater

Facility by no later than March 31, 2026 and complete that advanced development by no later than June 30, 2027.

Should the Company default

on its obligations under the Stillwater Redevelopment Agreement, the Authority may terminate the agreement and make demand for immediate

repayment in full of the Upfront Assistance.

As of March 31, 2025 and December 31, 2024, the

Company recorded $ 7.0 million of deferred grant income related to cash received to date as part of the TIF Agreement, all of which is

noncurrent as a component of Deferred grants.

The Company has not recognize any of the deferred grant income amounts in profit or loss

related to the TIF Agreement as the associated long-lived asset has not yet been placed into service.

The Company filed the Ad Valorem

Tax Exemption application for the year ending December 31, 2023, in March of 2023.

Approval was received November 14, 2023 from the Stillwater

Economic Development Authority for the Five-Year Ad Valorem Tax Exemption.

As such, the Company has not incurred any real and personal

ad valorem taxes to date.

On June 6, 2022, the Company executed a Tax Increment Financing Agreement (the “TIF Agreement”) with the Stillwater Economic Development Authority (the “Authority”), a public trust having as its beneficiary the City of Stillwater, Oklahoma (the “City”), whereby the Authority will provide upfront development financing assistance to the Company of up to $ 7.0 million for the development of the Stillwater Facility (the “Upfront Assistance”).

Additionally, entry into the TIF Agreement made USARE LLC eligible to receive a manufacturing and research and development Ad Valorem Tax Exemption for a period of five years and thereafter requires the Authority to disburse to the Company 90 % of the incremental Ad Valorem taxes generated by the Ad Valorem taxes assessed against the Stillwater Facility and paid by the Company.

Under the terms of the TIF Agreement, among other things, the Company is required to complete the Stillwater Facility and in doing so to make an investment of approximately $ 140.0 million and to employ a specified number of employees at specified levels of median compensation at various stages of the development.

Subject to agreed extensions, USARE LLC is also required to commence certain phases of the development of the Stillwater Facility by no later than March 31, 2026 and complete that advanced development by no later than June 30, 2027.

Should the Company default on its obligations under the Stillwater Redevelopment Agreement, the Authority may terminate the agreement and make demand for immediate repayment in full of the Upfront Assistance.

As of June 30, 2025 and December 31, 2024, the Company recorded $ 7.0 million of deferred grant income related to cash received to date as part of the TIF Agreement, all of which is noncurrent as a component of Deferred grants.

As of June 30, 2025, the Company has not recognized any of the deferred grant income amounts in profit or loss related to the TIF Agreement as the associated long-lived assets requirement and employment obligations have not been met.

The Company filed the Ad Valorem Tax Exemption application for the year ending December 31, 2023, in March of 2023.

Approval was received November 14, 2023 from the Stillwater Economic Development Authority for the Five-Year Ad Valorem Tax Exemption.

As such, the Company has not incurred any real and personal ad valorem taxes to date.

Governor’s Fund

On April 15, 2022, the Company entered into an

agreement with the Oklahoma Department of Commerce to receive a $ 1.2 million award to be used for the renovation of an existing building

at the Stillwater Facility (the “Governor’s Fund Agreement”), to be paid in $ 0.6 million increments when the Company

had cumulatively spent $ 1.0 million and $ 2.0 million by March 31, 2023 and May 31, 2023, respectively, in qualifying costs related to

developing the Stillwater Facility.

Per the terms of the Governor’s Fund Agreement, the award is subject to repayment if the Company

does not comply with certain investment requirements and employee headcount and compensation standards.

During 2022, the Company incurred qualifying

costs that exceeded the cumulative $ 2.0 million threshold specified in the contract.

The total award of $ 1.2 million was requested and

received by the Company on April 6, 2023 and was recorded as deferred grant income at the time, which will be recognized over the useful

life of the related assets once placed in service.

In 2022, the Company was accepted for the Oklahoma

Quality Jobs Program (“Jobs Program”), an incentive that provides qualifying companies quarterly cash rebates of up to 5 %

of the wages paid for new direct jobs created by the Company for a period of up to 10 years, with a maximum payout of approximately $ 2.8

million, subject to the Company fulfilling certain obligations pursuant to an agreement between USA Rare Earth Magnets, LLC and the State

of Oklahoma, dated December 19, 2022 (the “Jobs Program Agreement”), including that the Company must meet or exceed applicable

payroll and employee headcount requirements and that the Company maintain operations in Oklahoma for a specified period.

To date USARE

LLC has not become eligible to make any claims under the Jobs Program;

the terms of the Jobs Program Agreement require that the first

claim be made on or prior to January 1, 2026.

The Company has not yet recognized any reductions in payroll expense related to the Jobs

Program as a claim is not yet eligible to be filed.

On April 15, 2022, the Company entered into an agreement with the Oklahoma Department of Commerce to receive a $ 1.2 million award to be used for the renovation of an existing building at the Stillwater Facility (the “Governor’s Fund Agreement”), to be paid in $ 0.6 million increments when the Company had cumulatively spent $ 1.0 million and $ 2.0 million by March 31, 2023 and May 31, 2023, respectively, in qualifying costs related to developing the Stillwater Facility.

Per the terms of the Governor’s Fund Agreement, the award is subject to repayment if the Company does not comply with certain investment requirements and employee headcount and compensation standards.

During 2022, the Company incurred qualifying costs that exceeded the cumulative $ 2.0 million threshold specified in the contract.

The total award of $ 1.2 million was requested and received by the Company on April 6, 2022 and was recorded as deferred grant income at the time, which will be recognized over the useful life of the related assets once placed in service.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 33

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

In 2022, the Company was accepted for the Oklahoma Quality Jobs Program (“Jobs Program”), an incentive that provides qualifying companies quarterly cash rebates of up to 5.0 % of the wages paid for new direct jobs created by the Company for a period of up to 10 years, with a maximum payout of approximately $ 2.8 million, subject to the Company fulfilling certain obligations pursuant to an agreement between USA Rare Earth Magnets, LLC, a subsidiary of the Company, and the State of Oklahoma, dated December 19, 2022 (the “Jobs Program Agreement”), including that the Company must meet or exceed applicable payroll and employee headcount requirements and that the Company maintain operations in Oklahoma for a specified period.

The Company is eligible to make claims under the Jobs Program;

however, as of June 30, 2025, no claims have been submitted and the Company has not yet recognized any reductions in payroll expense related to the Jobs Program.

The Company is expecting to apply for claims by the end of 2025 for eligible quarters, as terms of the Jobs Program Agreement require that the first claim be made on or prior to January 1, 2026.

The Company is subject to taxation in the U.S.

and various state jurisdictions.

The Company’s effective tax rate of zero percent is calculated quarterly based upon current assumptions

relating to the full year’s estimated operating results and various tax-related items.

Each quarter, an estimate of the annual

effective tax rate is updated should the Company revise its forecast of earnings based upon its operating results.

If there is a change

in the estimated effective annual tax rate, a cumulative adjustment is made.

The difference between the effective tax rate

of zero percent and the U.S.

federal statutory rate of 21.0 % for the three months ended March 31, 2025 and 2024 was due to changes in

the valuation allowance, which entirely offsets the Company’s net deferred tax assets.

As of March 31, 2025 and 2024, the Company determined

that, based on an evaluation of the Company’s history of net losses and all available evidence, both positive and negative, including

the Company’s latest forecasts and cumulative losses in recent years, it was more likely than not that none or substantially none of

the Company’s deferred tax assets would be realized and, therefore, the Company continued to record a valuation allowance.

NET INCOME (LOSS) PER SHARE

The following table sets forth the computation

of the numerator and denominator for the net income (loss) per share attributable to holders of common stock for the three months

ended March 31, 2025 and 2024 (in thousands, except per share data):

For the Three Months Ended

Net income (loss) attributable to common stockholders

Declared dividends

Undeclared cumulative dividends

Accretion of temporary equity to redemption value

Undistributed net income (loss) attributable to common stockholders

Weighted average shares outstanding - basic

The Company’s effective tax rate of zero percent is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items.

Each quarter, an estimate of the annual effective tax rate is updated should the Company revise its forecast of earnings based upon its operating results.

If there is a change in the estimated effective annual tax rate, a cumulative adjustment is made.

The difference between the effective tax rate of zero percent and the U.S.

federal statutory rate of 21.0% for the three and six months ended June 30, 2025 and 2024 was due to changes in the valuation allowance, which entirely offsets the Company’s net deferred tax assets.

As of June 30, 2025, the Company determined that, based on an evaluation of the Company’s history of net losses and all available evidence, both positive and negative, including the Company’s latest forecasts and cumulative losses in recent years, it was more likely than not that none or substantially none of the Company’s deferred tax assets would be realized and, therefore, the Company continued to record a valuation allowance.

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 34

USA Rare Earth, Inc.

Notes to Condensed Consolidated Financial Statements(Unaudited)

Net Loss per Share

The following table sets forth the computation of the numerator and denominator for net loss per share attributable to holders of Common Stock.

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

(In thousands, except for per share amounts)

Net loss attributable to common stockholders $ ( 142,506 ) $ ( 2,597 ) $ ( 90,674 ) $ ( 7,069 )

Weighted average shares outstanding - basic 92,769 59,425 91,598 59,319

Effect of potentially dilutive securities

Preferred shares 1

Incentive units outstanding prior to conversion to Common Stock at Merger 2

Warrants outstanding prior to conversion to Common Stock at

Weighted average shares outstanding - diluted 92,769 59,425 91,598 59,319

Net income (loss) per share attributable to common stockholders

1 If converted method

2 Treasury stock method

As of March 31, 2025, the Company has warrants

to acquire approximately 23.78 million shares of Common Stock that are excluded from the computation of diluted net income per share

as their effect would be anti-dilutive.

Additionally, the Company has 10.1 million potentially dilutive contingently issuable earn-out

shares that are excluded from the computation of diluted net income because the necessary conditions have not been satisfied as of March

As of March 31, 2024, potentially dilutive incentive units of approximately 8.00 million and warrants to purchase approximately

1.70 million Class B units were excluded from the computation of the diluted net loss per share as their effect would have been anti-dilutive

due to the Company’s net loss during the period.

Net loss per share attributable to common stockholders

Basic $ ( 1.54 ) $ ( 0.04 ) $ ( 0.99 ) $ ( 0.12 )

Diluted $ ( 1.54 ) $ ( 0.04 ) $ ( 0.99 ) $ ( 0.12 )

The following table presents categories of shares that are excluded from the diluted per share computation as their effect would be anti-dilutive.

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

(Shares in thousands)

Preferred Stock 6,595 — 6,595 —

Series A warrants 6,130 — 6,130 —

Earnout shares 10,100 — 10,100 —

Investor warrants 18,369 — 18,369 —

USARE LLC Class B Convertible warrants

Common Stock warrants

10,714 — 10,714 —

Incentive units — 8 — 8

Total 51,908 10 51,908 10

Segment Reporting

The Company operates in a single reportable operating

The Company operates in a single reportable operating segment;

that segment being the vertically integrated, domestic rare earth element magnet production supply chain.

The Company’s

chief operating decision makers review financial information on an aggregate basis for evaluating financial performance.

December 16, 2024, the Company’s Board of Managers were the chief operating decision makers.

As of December 17, 2024, the Company’s

chief operating decision maker is its chief executive officer.

The Company’s chief operating decision makers review financial information on an aggregate basis for evaluating financial performance.

Through December 16, 2024, the Company’s Board of Managers were the chief operating decision makers.

Since December 17, 2024, the Company’s chief operating decision maker is its chief executive officer.

Subsequent Events

On August 5, 2025, the Company announced that it has signed a joint development agreement (“JDA”) with ePropelled, Inc.

(“ePropelled”), a global leader in advanced propulsion and energy management technologies, to develop a strategic supply and purchase relationship of the Company’s sintered neo magnets for use in ePropelled’s state-of-the-art motors, which are used in a multitude of uncrewed air, land, and sea vehicles (commonly referred to as “drones”).

USA Rare Earth, Inc.

| Q2'2025 Quarterly Report (Form 10-Q) | 35

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements