Item 7. Management’s Discussion and Analysis
Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help the reader understand our results of operations and financial condition. It should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part II, Item 8 , “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K. The following discussion may contain forward-looking statements. Forward-looking statements are not guarantees of performance. Although we believe these forward-looking statements are reasonable when made, we cannot assure you that we will achieve or realize these plans or expectations. Our actual results and the timing of events may differ materially from those expressed or implied as a result of various factors, including those set forth in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary.”
Overview
We are building a leading global rare earth value chain, from mine to magnet and beyond. We intend to secure, reshore, and grow the materials intelligence and production technologies required to stand up a resilient rare earth industry. This advanced industrial operating system should strengthen supply-chain security for the national defense, manufacturing and technology of the U.S. and its allies. Our plan is to build an integrated platform to encompass the entire rare earth value chain: extraction and separation of rare earth oxides; conversion of oxides into metals, alloys and strip-cast; and production of sintered NdFeB permanent magnets, which we refer to as neo magnets. This capability should address the supply-chain vulnerabilities created by China’s current dominance of rare earth processing, metal and magnet manufacturing.
Recent Developments, Key Trends, Opportunities and Uncertainties
We are an early-stage company with a limited operating history. We incurred a net loss of $298.5 million for the year ended December 31, 2025 and had an accumulated deficit of $387.4 million as of December 31, 2025. Our 2025 revenues were derived solely from our Less Common Metals business for a portion of the year following the Less Common Metals Acquisition, and we have not yet generated revenues from neo magnet manufacturing or mineral production. We expect to sustain substantial operating expenses without generating sufficient revenues to cover those expenditures for the foreseeable future. Our historical results are not indicative of our future results, and our ability to generate sufficient revenue to achieve profitability will depend largely on the successful development of our integrated mine-to-magnet platform. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations. We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose significant risks and challenges, including those discussed below and in Part I, Item 1A , “Risk Factors.”
Less Common Metals
In the fourth quarter of 2025, we completed the acquisition of Indian Ocean Rare Metals Pte. Ltd., which includes Less Common Metals Ltd. (“Less Common Metals”), its manufacturing subsidiary located in Cheshire, United Kingdom. Less Common Metals is a leading scaled ex-China rare earth metal and alloy manufacturer. The acquisition of Less Common Metals is the vital link in our end-to-end REE supply chain by adding value through processing of REE oxides, rare earth metals and transition metals into specialized and often complex alloys of close compositional control, low and consistent levels of impurities and controlled microstructures. See Note 2, “Merger Transaction and Acquisition – Acquisition of Indian Ocean Rare Earth Metals Pte. Ltd.” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K (the “Notes”) for further information regarding the acquisition.
Private Investment in Public Entity Financing (“PIPE”)
On January 28, 2026, we completed a private placement of 69.8 million shares of our common stock for gross proceeds of $1.5 billion (“$1.5B PIPE”). We intend to use the net proceeds from the $1.5B PIPE to accelerate the build-out of our mine-to-magnet value chain, including the development and expansion of mining, processing, metal-making and magnet manufacturing capabilities, as well as for working capital and general corporate purposes.
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Expected U.S. Government Transaction
On January 26, 2026, we announced that we had entered into a non-binding letter of intent (the “Letter of Intent”) with the U.S. Department of Commerce covering a total of $1.6 billion, including $277.0 million in direct funding awards under the CHIPS Act, and $1.3 billion in senior secured debt with a 15-year term with an expected rate of Treasury plus 150 basis points (“bps”) (collectively, the “Expected U.S. Government Transaction”).
As conditions to entry in definitive documentation for the Expected U.S. Government Transaction (the “Definitive Agreements”), we must satisfy certain conditions, including, without limitation: (i) raise at least $500 million from non-federal sources (which we satisfied with the $1.5B PIPE), (ii) obtain two memoranda of understanding from semiconductor end or midstream users, (iii) obtain neodymium praseodymium oxide and MREC feedstock supply agreements with a term at least through 2027, (iv) exercise a surface purchase option with the Texas GLO, (v) implement certain third-party recommendations and third-party validation of nuclear material licensing requirements at our Colorado Facility, and (vi) define a power infrastructure plan for our magnet manufacturing facility in Stillwater, Oklahoma.
In addition, the U.S. government’s $277.0 million in direct funding awards includes a condition that we issue to the U.S. government, $277.0 million of common stock (approximately 16.1 million shares issued at $17.17 per share). The $1.3 billion in senior secured debt also requires the issuance of warrants to the government representing an additional 10% of the Company’s fully diluted shares outstanding prior to the $1.5B PIPE (approximately 17.5 million shares with an exercise price of $17.17 per share and a 10-year exercise period). The U.S. government’s ownership in the Company is expected to represent between 8% and 16% of the fully diluted shares outstanding prior to the $1.5B PIPE depending on whether the warrants are assumed to be exercised. Issuance of both the direct funding awards and senior secured debt are dependent on our ability to meet certain key performance indicators.
The Letter of Intent for the Expected U.S. Government Transaction provides, and the Definitive Agreements for such collaboration will provide, that the grant and debt financing from the government will be released to us in phases over time subject to our achievement of specified business milestones related to the development of the Round Top deposit, development and expansion of processing and separation facilities, development and expansion of metal making and strip casting facilities, development and expansion of the magnet manufacturing facility, and obtaining additional equity and debt financing. There are four milestones related to Round Top with targeted achievement dates from December 2026 to December 2028: design, scale-up and completion of a definitive feasibility study; early works; solvent extraction; and completion of construction. There are two milestones related to our metal making and strip casting facilities with targeted achievement dates from March 2027 to December 2027: supply, technical feasibility, and construction; and qualification for production and commercialization. There are four milestones related to the development and expansion of our magnet manufacturing facilities with targeted achievement dates from June 2026 to March 2028: initial production capability and demand validation; and incremental production capability and demand validation. In addition, to meet certain milestones to obtain funding awards and debt under the Expected U.S. Government Transaction and execute on our current business plan, we will be required to i) raise at least $600 million of additional equity by December 31, 2027 to satisfy our estimated $4.1 billion of required long-term capital expenditures; and ii) establish a $250 million revolving credit facility by December 31, 2026.
In addition to the Letter of Intent for the Expected U.S. Government Transaction, we signed a non-binding letter of intent with the U.S. Department of Energy’s National Energy Technology Laboratory to collaborate to advance HREE separation technologies at our Colorado Facility and Round Top deposit, leveraging digital twin technology.
The Expected U.S. Government Transaction is expected to accelerate and de-risk our growth objectives across mining, processing, metal-making and magnet manufacturing, and is anticipated to support a business that by 2030 should:
• extract of up to 40,000 metric tons per day of rare earth and critical mineral feedstock from the Round Top deposit, which is expected to begin commercial production in 2028;
• process a combined 8,000 MTPA of third-party MREC and HREE and critical mineral oxides and concentrates at Round Top, which are and largely unavailable domestically;
• reshore 10,000 MTPA of HREE metal- and alloy-making and strip-casting capacity, capabilities that do not currently exist in the U.S., through the expertise of Less Common Metals; and
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• process 2,000 MTPA of swarf, which is a result of our magnet production.
We believe that, if consummated on the terms described in our non-binding Letter of Intent with the U.S. Department of Commerce, the Expected U.S. Government Transaction would represent a transformative source of capital that accelerates the development of our integrated rare earth value chain and positioning as a domestic supplier of REE and neo magnets for both commercial and national security applications.
However, the transaction remains subject to the negotiation and execution of Definitive Agreements, the satisfaction of numerous conditions, and final government approvals, and there is no assurance it will be consummated on the anticipated terms or at all. Even if Definitive Agreements are reached, funding is expected to be disbursed in tranches tied to the achievement of specified milestones, and failure to meet any milestone could result in a withholding or clawback of funding. If the transaction is not completed, we would need to identify alternative sources of capital, which may not be available on acceptable terms, and our ability to execute our business plan could be materially impaired.
Development of the Stillwater Facility and Production of Neo Magnets
We believe that the successful commissioning and ramp-up of our Stillwater, Oklahoma magnet manufacturing facility represents one of our most significant near-term commercial opportunities. If developed as planned, the Stillwater Facility would position us as one of the few domestic producers of sintered NdFeB permanent magnet, enabling us to serve customers across the defense, electric vehicle, and industrial sectors and to generate meaningful product revenues for the first time. We believe domestic production of neo magnets addresses a critical gap in the U.S. supply chain and that demand from both commercial and government customers for domestically sourced magnets should be substantial and grow over time.
However, we have no history of commercial magnet manufacturing, and the Stillwater Facility remains under development. The facility requires substantial capital to be completed, and there may be unanticipated costs or delays associated with the construction. Our plan for producing magnets is based on certain estimates and assumptions we have made about our business over the next few years, including the ability to obtain the equipment and materials needed to produce magnets on a timely basis from third party vendors. Our ability to achieve our production timeline depends on our ability to obtain equipment and materials, the recruitment and retention of skilled personnel, and the timely sourcing of rare earth oxide and metal feedstock from third parties while the Round Top Project matures. Any delays or cost overruns in commissioning the facility, challenges in securing feedstock at competitive prices, or difficulties in attracting and retaining personnel or customers could extend our path to profitability and materially and adversely affect our revenues and cash flows. Further, the magnet technology industry is still in its infancy in the U.S., and thus the technology, processes, and capabilities are still being developed. Due to rapidly rising demand, there is also a risk that substitute products will become available and reduce the need for our type of high-performance magnet.
Proposed Texas Mineral Resources Corporation Acquisition
On March 4, 2026, we entered into a TMRC Merger Agreement to acquire TMRC. As of December 31, 2025, we held an 81.3% interest in RTMD, with TMRC holding the remaining 18.7% interest. The TMRC Mergers are intended to consolidate our ownership of RTMD. Subject to the terms and conditions set forth in the TMRC Merger Agreement, at the effective time of the first merger, each issued and outstanding share of TMRC common stock (subject to specified exclusions) will be converted into the right to receive a number of shares of our common stock equal to the quotient obtained by dividing 3.82 million shares by the aggregate number of TMRC shares outstanding on a fully diluted basis as of immediately prior to the effective time of the first merger, with cash paid in lieu of fractional shares. The closing of the TMRC Mergers is subject to customary conditions, including, among others, the requisite approval of TMRC stockholders, required Nasdaq listing authorization (if applicable), the absence of any law or order prohibiting consummation of the TMRC Mergers, and the effectiveness of a registration statement on Form S-4, which will include a prospectus relating to our shares to be issued as merger consideration and a proxy statement relating to TMRC’s stockholder meeting to approve the proposed transactions.
We believe that consolidating 100% ownership of RTMD through the proposed TMRC Mergers could simplify our corporate structure, streamline our operations and strengthen our operational control over the Round Top Project.
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However, completion of the TMRC Mergers is subject to a number of conditions. Even if the TMRC Mergers are completed, there can be no assurance that owning 100% of RTMD will result in improved operating outcomes, accelerated development of the Round Top Project, or other anticipated strategic or financial benefits. Completion of the transaction will also result in the issuance of shares of our common stock to TMRC stockholders, which will be dilutive to our existing stockholders.
Development of the Round Top Project into a Producing Mine
Round Top Mountain, which is an above-ground mineral deposit near Sierra Blanca, TX contains the Round Top Deposit, the mining and extraction of which comprises our Round Top Project. In late 2025, we completed the first phase of the Round Top Project by submitting a review of our flow sheet to a third-party certification firm. Upon acceptance and certification of this flow sheet, we will move into the pre-feasibility study phase. This stage is expected to be completed during late 2026 or early 2027.
We believe that the long-term successful development of our Round Top Deposit into a producing mine represents a transformative long-term opportunity. A producing Round Top mine would provide a domestic, integrated source of critical REE to supply our planned Stillwater Facility magnet manufacturing operations and potentially third-party customers, significantly reducing dependence on foreign supply chains and strengthening our competitive position.
Nevertheless, Round Top Mountain remains at the exploration stage. We have not yet established that the Round Top Mountain deposit contains any commercially exploitable quantities of proven and probable mineral reserves, and we may not be able to do so. Even if we establish commercially exploitable quantities of mineral reserves, the Round Top Mountain deposit may not be developed into a producing mine and we may not be able to extract those minerals economically. The development of a mineral property into a producing mine is a lengthy, capital-intensive, and an uncertain process. Throughout the process of commercializing the Round Top Mountain deposit, we will be required to complete feasibility studies, construct and commission significant infrastructure, obtain regulatory permits and approvals, and raise substantial additional capital, all before any commercial production can begin. Both mineral exploration and development involve a high degree of risk, and few properties that are explored are ultimately developed into producing mines. There is no assurance that Round Top Mountain will be developed into a producing mine on our anticipated timeline or at all, or that any production that is ultimately achieved will be commercially viable. Failure to develop Round Top Mountain as planned would also impair the long-term feedstock strategy underlying our integrated business model.
Evaluation of Potential Manufacturing Capacity Expansion
We are evaluating opportunities to expand our rare earth magnet manufacturing capacity to support anticipated growth in demand across key sectors, including aerospace, defense, semiconductors, data centers, physical AI, energy, mobility, healthcare, and numerous industrial sectors. As part of this process, we are assessing potential investments in additional production capabilities to enhance operational flexibility and support a more resilient and diversified manufacturing footprint. These assessments include both expansion of existing facilities and development of new manufacturing sites and take into account a range of factors, including workforce availability and our ability to attract and retain qualified personnel, access to transportation infrastructure, availability of reliable and cost-effective utilities (including electrical power and water), site suitability and scalability, regulatory considerations, and community and stakeholder support.
Results of Operations
Our operating revenues and gross margins have been derived solely from our ownership of Less Common Metals subsidiary for the period of November 18, 2025 through December 31, 2025, following the acquisition of IORM. We had no operating revenues or gross margins prior to November 18, 2025. In addition, we are dependent on equity or other external financings to fund our pursuit and development of our consolidated business plans (including magnet production at our Stillwater Facility), to fund our mineral exploration and evaluation operations, our evaluation and intended development of the Round Top Project (collectively, our “R&D” costs), selling, general and administrative (“SG&A”) costs, interest expense and other costs. As a result, we expect to incur operating losses until such time as either (i) the Stillwater Facility is fully completed and operational to the extent that it generates net profits, or (ii) an economic mineral resource is identified, developed and put into profitable commercial production at the Round Top Project.
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Revenue, Gross Profit and Gross Margin
The following table sets forth our revenue, cost of sales, gross profit and gross margin for the period indicated.
Year Ended December 31, 2025
(In thousands, except for percentage)
Revenue $ 1,643
Cost of revenue 1,448
Gross profit $ 195
Gross margin 11.9 %
Comparison of the year ended December 31, 2025 to the year ended December 31, 2024
We acquired IORM, the parent of Less Common Metals on November 18, 2025, and therefore our revenue, cost of revenue, gross profit and margin for year ended December 31, 2025 is confined to the period between November 18, 2025 through December 31, 2025 from our Less Common Metals subsidiary. Other than the activities reported for Less Common Metals, we had no revenues or gross profit for years ended December 31, 2025 and 2024.
Concentration of Revenue
Revenue Attributable to Primary Geographical Markets
Year Ended December 31, 2025
(In thousands)
United States $ 99
Europe 1,496
Asia 48
Total revenue $ 1,643
Revenue Attributable to Domestic and International Sales
Revenue attributable to domestic and international sales as a percentage of total revenue are presented in the following table. See Note 13, “Concentrations – Disaggregation of Revenue,” of the Notes for further discussion regarding our concentration of revenue by geographic location.
Year Ended December 31, 2025
United States 6 %
International 94 %
Total revenue 100 %
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Customers Accounting for 10% or More of Revenues
The following table presents the customers that account for 10% or more of our revenue. Although certain customers might account for greater than 10% of our revenues at any one point in time, the concentration of revenue between a limited number of large customers shifts regularly, depending on timing of shipments and orders. The percentages by customer reflect specific relationships or contracts that would concentrate our revenue for the periods presented and do not indicate a trend specific to any one customer. See Note 13, “Concentrations – Major Customers,” of the Notes for further discussion regarding customer concentration.
Year Ended December 31, 2025
Customer 1 73 %
Customer 2 18 %
The following table sets forth our results of operations and the amount of change between the periods indicated. The period-to-period comparison of financial results is not necessarily indicative of future results.
Year Ended December 31, Change
2025 2024
(In thousands, except for percentages)
Operating expenses:
Selling, general and administrative $ 43,135 $ 9,244 $ 33,891 370.0 %
Research and development 15,885 6,341 9,544 150.0 %
Amortization of intangible assets 678 — 678 NM
Total operating expenses $ 59,698 $ 15,585 $ 44,113 NM
Other expense, net:
Interest and dividend income $ 5,446 $ 292 $ 5,154 NM
Loss on fair market value of financial instruments, net (244,488) (379) (244,109) NM
Impairment of equity investment — (405) 405 (100.0) %
Interest expense and other income (loss), net (139) (315) 176 (60.0) %
Total other expense, net $ (239,181) $ (807) $ (238,374) NM
Benefit from taxes:
Benefit from taxes $ (160) $ — $ (160) NM
NM Not meaningful.
Selling, general and administrative. The increase in SG&A expenses of $33.9 million was primarily due to an increase in legal services and consulting costs of $16.0 million, primarily due to merger and acquisition-related costs, and financing cost, stock-based compensation of $6.8 million, which includes modification of stock-based compensation of $1.6 million related to the termination of our former CEO, payroll and employee-related costs of $5.2 million related to an increase in headcount as we build our infrastructure, including recruiting fees of $1.7 million related to hiring of key personnel to handle certain areas of our operations, marketing, litigation settlement of $2.3 million, and other costs of $3.7 million, including travel costs of $0.9 million and marketing costs of $0.8 million.
Research and development. The increase in R&D expenses of $9.5 million was primarily due to an increase in employee-related costs of $4.4 million due to an increase in headcount, employee severance costs and stock-based compensation costs, development costs of $2.2 million, legal costs of $1.5 million, facility costs of $0.5 million, and other costs of $0.9 million.
Amortization of Other Intangible Assets. The increase of $0.7 million was due to the intangible assets acquired through our acquisition of Less Common Metals.
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Other expense, net:.
• Interest and dividend income . The increase of $5.2 million in interest and dividend income was primarily due to higher balances in our money market funds.
• Loss on fair market value of financial instruments, net . The change in fair market value of financial instruments of $(244.1) million was primarily due to the day one loss of the Common Stock warrant, the increase in fair value of the Common Stock warrant at exercise, increase in fair value of the Series A warrant exercised, the increase in fair value of the outstanding Series A warrants, and the increase in fair value of the Earnout liabilities at conversion, resulting in a net loss on the fair market value of financial instruments. See Note 3, “Fair Value Measurements,” of the Notes for additional information.
• Impairment of equity investment . We recorded an impairment of $0.4 million in our equity investment in a minerals company in the fourth quarter of 2024. No impairments were recorded in 2025.
Benefit from taxes . The change in the benefit from taxes of $0.2 million is primarily driven by the amortization of the identifiable intangible assets accounted for in purchase accounting and net operating loss our operations in the United Kingdom.
Our effective tax rate was zero percent for each of the years ended December 31, 2025 and 2024. Our effective tax rate is affected by changes in valuation allowances, recurring permanent differences and discrete items that may occur in any given year, but are not consistent from year to year. For further discussion of our valuation allowance, see Note 10, “Income Taxes – Changes in Valuation Allowances,” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
Liquidity and Capital Resources
Overview
We are an early-stage company with a limited operating history. Our 2025 revenues were derived solely from our Less Common Metals business for a portion of the year following the Less Common Metals Acquisition, and we have not yet generated revenues from neo magnet manufacturing or mineral production. Further, we expect to sustain substantial operating expenses without generating sufficient revenues to cover those expenditures for the foreseeable future. However, we believe that our existing cash and cash equivalents should be sufficient to fund our near-term operational and capital expenditure requirements. On the other hand, our long-term capital needs, particularly those associated with the full development of the Round Top Project and the full build-out of the Stillwater Facility, are expected to exceed our current resources, and we will need to raise additional capital. In addition, to meet certain milestones to obtain funding awards and debt under the Expected U.S. Government Transaction and execute on our current business plan, we will be required to i) raise at least $600 million of additional equity by December 31, 2027 to satisfy our estimated $4.1 billion of required long-term capital expenditures; and ii) establish a $250 million revolving credit facility by December 31, 2026. Our ability to raise capital in the future on acceptable terms, whether through equity, debt, or government funding, is not assured and will depend on market conditions, our operational progress, and our ability to satisfy applicable milestones and conditions.
Sources and Uses of Cash
Our primary sources of liquidity have historically consisted of debt and equity financing. For the year ended December 31, 2025, we had a net loss of $298.5 million, which included a non-cash fair value loss on financial instruments of $244.5 million, and net cash used in operating activities was $49.0 million. As of December 31, 2025, we had $359.9 million in cash and cash equivalents.
On January 28, 2026, we completed a private placement of 69.77 million shares of our common stock for gross proceeds of $1.5 billion, which substantially strengthened our liquidity position and is expected to fund our near-term operational and capital expenditure requirements, including the continued development of the Stillwater Facility and the advancement of the Round Top Project.
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We have not yet generated revenues from neo magnet manufacturing or critical mineral production, and we expect to continue to use cash in operating activities for the foreseeable future as we invest in commercializing our integrated mine-to-magnet platform. Our primary near-term uses of cash include:
• Stillwater Facility development and commissioning — completing the installation and qualification of our sintered NdFeB permanent magnet production lines, procuring feedstock, and ramping toward initial commercial production;
• Round Top Project advancement — funding the ongoing Preliminary Feasibility Study, constructing and operating the demonstration facility, and advancing toward a Definitive Feasibility Study and, ultimately, mine construction; and
• General corporate and administrative expenses — supporting our growing operations, including personnel, legal, regulatory, and compliance costs.
Over the longer term, we expect that developing the Round Top Project into a producing mine and expanding the Stillwater Facility to its full planned capacity will require substantial additional capital expenditures beyond our current cash on hand. We have not yet determined the full scope or timing of those expenditures with precision, as they are dependent on the outcomes of our ongoing feasibility studies. However, we expect total capital requirements to be significant, and our ability to fund them will depend on our ability to access additional financing from debt and equity sources.
Trends in Capital Resources
Expected U.S. Government Transaction
The Letter of Intent with the U.S. Department of Commerce covers a total proposed commitment of $1.6 billion. If consummated on the terms described in the Letter of Intent, this transaction would represent a significant new long-term source of capital to fund the development of our integrated rare earth value chain.
The direct funding awards and senior secured debt are each subject to our achievement of specified business milestones and are expected to be released in phases over time. Accordingly, the timing and magnitude of any cash inflows from the Expected U.S. Government Transaction will depend on our ability to satisfy those milestones on the anticipated schedule. There is no assurance that the Definitive Agreements will be entered into or that any funding will be received. If we are unable to satisfy the required milestones or if the Definitive Agreements are not executed, we may not receive any or all of the anticipated government funding, and we would need to identify alternative sources of capital to fund our long-term development plans.
Consummation of the Expected U.S. Government Transaction would also change the mix of our capital resources materially. The addition of $1.3 billion in long-term senior secured debt would introduce significant debt service obligations and leverage into our capital structure, which we currently do not have. Additionally, the direct funding awards require us to issue approximately 16.1 million shares of our common stock to the U.S. government and the senior secured debt requires us to issue warrants representing approximately 17.5 million additional shares at an exercise price of $17.17 per share with a 10-year exercise period, in each case resulting in dilution to our existing stockholders.
Proposed Acquisition of TMRC
On March 4, 2026, we entered into the TMRC Merger Agreement. The merger consideration consists solely of shares of our common stock such that the transaction will not result in a material cash outlay. However, we will bear transaction-related costs, and completion of the transaction will result in dilution to our existing stockholders through the issuance of approximately 3.8 million shares of our common stock to TMRC stockholders.
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Cash Flows
Year Ended December 31,
2025 2024 Change
(In thousands)
Net cash used in operating activities $ (48,985) $ (12,991) $ (35,994)
Net cash used in investing activities (139,566) (3,285) (136,281)
Net cash provided by financing activities 531,715 19,838 511,877
Operating Activities. The $36.0 million increase in net cash used in operating activities, as compared to the comparable period of the prior year, was primarily due to an increase of $27.5 million net loss adjusted for non-cash items, such as the non-cash loss of $244.2 million related to the day one loss under the valuation of our May 2025 $75.0 million financing with a single institutional investor, which included the issuance of our common stock, common stock warrants and prefunded warrants (the “$75M PIPE”) and the change in fair value of outstanding financial instruments, stock-based compensation of $8.8 million and a non-cash litigation settlement of approximately $1.7 million, and an increase in cash used for vendor payments and prepayment of insurance, partially offset by an increase in accrued liabilities related to financing, acquisition and payroll costs.
Investing Activities. The $136.3 million increase in cash used in investing activities, as compared to the comparable period of the prior year, was primarily due to additional investments made for plant improvements and equipment purchases as we execute our strategic business plan and continue to build the manufacturing process at our Stillwater Facility.
Financing Activities. The $511.9 million increase in cash provided by financing activities, as compared to the comparable period of the prior year, primarily due to $303.8 million from proceeds related to the exercise of warrants and $190.1 million in proceeds from the issuance of common stock and warrants related to private investments, including the $75M PIPE. For additional information, see Note 7, “Mezzanine and Stockholders' Equity” of the Notes.
Off-Balance Sheet Arrangements
Other than as described in this Annual Report, we do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts. The more significant estimates include goodwill and other intangible assets, and liability valuations. We have incorporated historical data into the determination of each of these estimates and we have not experienced significant adjustments. We review these assumptions at least annually with the Audit Committee of the Board of Directors. Following are the methods and assumptions used in determining our estimates and an indication of the risks inherent in each.
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Business Combination
The accounting for business combinations is considered a critical accounting estimate because it requires management to make significant judgments in determining the fair values of assets acquired and liabilities assumed, including identifiable intangible assets and goodwill, in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations . These estimates involve the use of complex valuation techniques and assumptions that are inherently uncertain, and changes in these assumptions could have a material impact on the Company’s consolidated financial statements. The purchase price allocation required management to estimate the fair values of acquired tangible and intangible assets and assumed liabilities as of the acquisition date. Significant assumptions used in these valuations included projected future cash flows, discount rates, and growth rates. Management believes these assumptions were reasonable based on information available at the time; however, actual results may differ from these estimates. Changes in key assumptions could affect the recorded amounts of acquired assets and liabilities and future results of operations through amortization expense, remeasurement of contingent consideration, or impairment charges. Goodwill arising from business combinations is not amortized but is tested for impairment at least annually or upon the occurrence of triggering events, and adverse changes in market conditions, integration results, or operating performance could increase the likelihood of a future goodwill impairment that could be material to the Company’s financial position and results of operations.
Goodwill and Other Intangible Assets
Goodwill is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that impairment may exist, or if we elect to bypass the qualitative assessment, a quantitative impairment test is performed. An impairment loss is recognized for the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.
Intangible assets with definite useful lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability is assessed by comparing the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is recognized for the excess of the carrying amount over the asset’s fair value.
The impairment evaluation for goodwill and indefinite-lived intangible assets requires significant judgment, including the determination of reporting units and the estimation of the fair value of those reporting units or assets. Estimates of fair value are based on assumptions about future operating performance, including projected revenues, operating margins, long-term growth rates, and discount rates. Changes in these assumptions, market conditions, or our operating performance could result in future impairment charges.
See Note 4, “Other Financial Information – Goodwill and Other Intangible Assets” of the Notes for more details concerning our goodwill and other intangible assets, as well as the result of its impairment testing.
Warrant and Earnout Shares Liability Valuations
The valuation of certain warrant liabilities, including the Series A Warrant, and Earnout Share liabilities requires the use of significant estimates and assumptions. We engage third-party valuation specialists to assist in determining the fair value of these instruments. The fair values of the warrant and Earnout Share liabilities are estimated using stochastic valuation techniques, including the Black-Scholes option pricing model and Monte Carlo simulation models. These models incorporate significant assumptions, including expected stock price volatility and other relevant inputs.
Because the valuation models incorporate unobservable inputs and assumptions regarding future events, the resulting fair value measurements are subject to variability and may differ materially if underlying assumptions change. Changes in these assumptions may result in significant changes in the fair value of these liabilities in future periods.
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See Note 1, “Organization – Summary of Significant Accounting Policies” of the Notes for a description of our critical and other significant accounting policies.
Recently Adopted Accounting Standards
For information on recently adopted accounting pronouncements, see Note 1, “Organization – Recently Adopted Accounting Pronouncement” of the Notes.
Emerging Growth Company Status
Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.
We expect to retain our emerging growth company status until the earliest of:
• the end of the fiscal year in which our annual revenues exceed $1.235 billion;
• the end of the fiscal year in which the fifth anniversary of our public company registration has occurred;
• the date on which we have issued more than $1.0 billion in non-convertible debt during the previous three-year period; or
• the date on which we qualify as a large accelerated filer.
Item 7A — Quantitative and Qualitative Disclosures About Market Risk
This item is not required under Regulation S-K for “smaller reporting companies”.
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