# 5E Advanced Materials, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [5E Advanced Materials, Inc.](/companies/feam.md) (CIK 1888654)
- Form: 10-Q
- Filed: 2024-04-29
- Accepted by EDGAR: Apr 29, 2024, 06:05 ET
- Period: 2024-03-31
- Accession: 0000950170-24-049412
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1888654/000095017024049412/feam-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1888654/000095017024049412/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $0 | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-07-01 to 2024-03-31 | $45.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$4.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-07-01 to 2024-03-31 | −$20.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $822.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-07-01 to 2024-03-31 | $4.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-07-01 to 2024-03-31 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$25.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-07-01 to 2024-03-31 | −$45.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.44 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-07-01 to 2024-03-31 | −$0.94 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.44 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-07-01 to 2024-03-31 | −$0.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 58,513,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-07-01 to 2024-03-31 | 48,956,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-07-01 to 2024-03-31 | −$19.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-07-01 to 2024-03-31 | $88.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $8.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $10.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $97.0m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $7.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $71.5m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $65.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $41.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $25.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 42,387 characters.

*The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K filed on August 30, 2023, as amended (the “Annual Report”). This discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions and other important factors, which include, but are not limited to, the risks described in our Annual Report filed with the SEC, any of which could cause the Company’s actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth elsewhere in this Form 10-Q and under “Item 1A. Risk Factors” and elsewhere in our Annual Report, as amended, and our Quarterly Report on Form 10-Q for the period ended September 30, 2023. In addition, see “Cautionary Note Regarding Forward-Looking Statements.” References to the “Company,” “we,” “our,” and “us,” refer to 5E Advanced Materials, Inc. and its subsidiaries.*

### Overview

5E Advanced Materials, Inc. is focused on becoming a vertically integrated global leader and supplier of specialty boron and advanced boron derivative materials whose mission is to enable decarbonization, increase food security, and ensure domestic supply of critical materials. We hold 100% of the rights through ownership in the 5E Boron Americas (Fort Cady) Complex (the “Project”) located in southern California, through our wholly owned subsidiary 5E Boron Americas, LLC. Our Project is underpinned by a mineral resource that includes boron and lithium, with the boron being contained in a conventional boron mineral known as colemanite. In 2022, our facility was designated as Critical Infrastructure by the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency. Our vision is to safely process boric acid and lithium carbonate through sustainable best practices to enable decarbonization, food security and domestic supply surety.

### 2024 Outlook and Goals

### Highlights for the Three Months ended March 31, 2024

#### Operational Update — Commencement of Mining Operations and First Production of Boric Acid

The Company believes that the commencement of commercial operations and first production of boric acid represents a significant strategic step forward in the Company’s development and mission.

On January 1, 2024, we began well-field injection under our Underground Injection Control permit to begin extracting valuable minerals from the Project. As anticipated, the wellfield took approximately one month for initial conditioning to take place, and in late January, utilizing all four of our production wells, we sent Pregnant Leach Solution (“PLS”) to a Louisiana based lab whereby the lab produced commercial grade boric acid. During March 2024, an independent third-party inductively coupled plasma mass spectrometry analysis confirmed the commercial grade boric acid produced in the Louisiana lab. During the first three months of mining operations, over 50,000 gallons of PLS were accumulated and we achieved an average head grade of 5.5% and the Small-Scale Facility (“SSF”) commenced production in April 2024 as final electrical work was completed in March 2024.

With the first production batch of boric acid from the SSF, we plan to continue to refine operating parameters to meet and exceed customer specifications. We anticipate beginning the customer qualification process with a variety of customer prospects. The customer qualification process will include us providing samples of boric acid for customers to validate their customer established qualification criteria. Upon successful feedback from customers that the product meets their specifications, we then plan to deliver larger volumes of boric acid from the SSF, to the customer production facilities for product validation.

The SSF is expected to initially produce up to 2,000 short tons of boric acid annually and targets initial production of lithium carbonate, with optionality built in to scale up to a run rate of 9,000 short tons and increased lithium production.

The initial high-quality run-of-mine head grade of boric acid provides validation of our initial operational assumptions which we hope will facilitate discussions with stakeholders around funding options for the Phase 1 of the commercial facility and securing commercial contracts for our future products.

#### Fluor Corporation Selected as EPC for FEL-2

We selected Fluor Corporation (“Fluor”) as our engineering, procurement, and construction (“EPC”) services provider. The initial scope of Fluor will be to lead stage 2 of our front end loading (“FEL-2”) which will directly feed into the upgrading of the Company’s current S-K 1300 technical document into a Pre-feasibility Study (“PFS”) upon completion.

We believe the selection of Fluor, a world-class EPC firm with an extensive track record, will serve to be invaluable to us throughout our next phase of execution. We expect the work being conducted by Fluor will play an important role in ultimately getting our 5E Boron Americas Complex to the planned PFS-level study.

#### Funding Opportunities

During March 2024, we submitted a request for proposal response to the U.S. Department of Energy for a grant to fund research to enhance our lithium extraction work. Should we receive an award from this submission, funding is aimed towards increasing the amount of lithium carbonate that we are able to extract, potentially increasing lithium yields to improve project economics. Additionally, we continue to progress boron awareness with multiple federal agencies on the back of the National Defense Authorization Act for fiscal year 2024, requesting a study into boron supply chains.

#### Out-of-Court Restructuring

Beginning in fiscal year 2023, we worked to identify appropriate funding solutions to address the Company’s liquidity profile. With the U.S. Environmental Protection Agency (“EPA”) approval still an open item, public markets capital providers were reluctant to invest. As time progressed, even with cost saving measures implemented, the Company approached the $10 million liquidity covenant (as discussed within Note 7 to the unaudited condensed consolidated financial statements) and management therefore began discussions with its lender. The combination of the EPA status, and the approaching liquidity floor required a commercial resolution. On November 9, 2023, we entered into a standstill agreement (the "Standstill Agreement") with Bluescape Special Situations IV (“Bluescape”), Alter Domus (US) LLC (the “Collateral Agent”), Ascend Global Investment Fund SPC for and on behalf of Strategic SP (“Ascend”), and Mayfair Ventures Pte Ltd in connection with our senior secured convertible notes (the “Convertible Notes”). Pursuant to the Standstill Agreement, Bluescape and the Collateral Agent agreed to not exercise their respective rights, remedies, powers, privileges, and defenses under the Note Purchase Agreement, dated August 11, 2022 (the “Note Purchase Agreement”) with respect to the occurrence of any default or event of default, and all parties to the Standstill Agreement agreed to forbear from instituting or pursuing legal action with respect to the Convertible Notes. The Standstill Agreement also temporarily allowed us to go below the cash covenant of $10 million (as discussed in Note 7 to the unaudited condensed consolidated financial statements).

On December 1, 2023, we extended the effectiveness of the Standstill Agreement from December 1, 2023 to December 5, 2023 at which point we entered into a Restructuring Support Agreement (the “Restructuring Support Agreement”) with Bluescape, the Collateral Agent, and Ascend in connection with certain restructuring transactions with respect to our capital structure, including our Convertible Notes. Pursuant to the Restructuring Support Agreement, the parties agreed to implement the restructuring transactions either as an out-of-court restructuring (the “Out-of-Court Restructuring”) or an in-court restructuring under voluntary pre-packaged cases under chapter 11 of title 11 of the United States Code in a U.S. Bankruptcy Court.

On January 12, 2024, we held a special meeting of stockholders where our stockholders approved the Out-of-Court Restructuring, including (i) an amendment to our certificate of incorporation to increase the number of authorized shares of the Company’s common stock, par value $0.01 (the “Common Stock”) from 180,000,000 to 360,000,000, (ii) the issuance of up to $35 million of Common Stock at a price of $1.025 per share (the “Securities Offering”) to Ascend and Bluescape, if Bluescape decided to exercise its option to participate in the Securities Offering, and (iii) the issuance of additional shares of the Company’s Common Stock upon conversion of the Convertible Notes in connection with an amendment to the Note Purchase Agreement.

On January 18, 2024, pursuant to a subscription agreement with Ascend, dated December 5, 2023 and an amended and restated subscription agreement with 5ECAP LLC (“5ECAP”), dated January 18, 2024 (the “5ECAP Subscription Agreement”), we issued (i) 5,365,854 shares of Common Stock to Ascend at a price of $1.025 per share, which shares included the placement fee to Ascend in shares of Common Stock and (ii) 5,365,854 shares of Common Stock to 5ECAP at a price of $1.025 per share, which shares included the placement fee to 5ECAP in shares of Common Stock (the “First Closing”).

On January 18, 2024, in connection with the Out-of-Court Restructuring, we entered into an amended and restated note purchase agreement (the “Amended and Restated Note Purchase Agreement”) with Bluescape, Ascend, and Meridian Investments Corporation related to the Convertible Notes. Pursuant to the Amended and Restated Note Purchase Agreement, the Convertible Notes bear interest at a rate of 4.50% per annum, payable semi-annually, or 10.00% per annum if we elect to pay such interest through the delivery of additional Convertible Notes and are convertible into a maximum of 66,261,621 shares of Common Stock at a conversion price of $1.5375 per share of Common Stock (including accrued interest paid-in-kind through maturity). The Convertible Notes mature on August 15, 2028. Additionally, following certain corporate events that may occur prior to the maturity date, we will, in certain circumstances that include a change of control transaction or liquidation of our company or any failure of our common stock to be listed on Nasdaq or any other eligible exchange, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event. The Amended and Restated Note Purchase Agreement provides that, until we and the purchasers of the Convertible Notes agree to a final formula for such adjustments in accordance with the Amended and Restated Note

Purchase Agreement, the maximum adjusted conversion rate following such a corporate event will be 754.4715 shares of common stock per $1,000 principal amount of Convertible Notes. The formula ultimately agreed upon by us and the purchasers may result in additional dilution to our stockholders if one of the specified corporate events should occur.

As part of the Amended and Restated Note Purchase Agreement, the minimum cash condition was waived through June 28, 2024, with a reduction in the covenant thereafter from $10 million to $7.5 million. However, on April 28, 2024, the waiver of the minimum cash condition was further extended through December 31, 2024 (as discussed in Note 13 to the unaudited condensed consolidated financial statements).

On January 29, 2024, pursuant to the 5ECAP Subscription Agreement, the Company issued 8,317,074 shares of Common Stock to 5ECAP at a price of $1.025 per share (the “Second Closing”). The completion of the Out-of-Court Restructuring marks a crucial step to strengthen our balance sheet, funds the next phase of our development, and supports the commencement of mining operations for production of boric acid and lithium carbonate.

#### Out-of-Court Restructuring — Liquidity Considerations

Although the equity offerings associated with our Out-of-Court Restructuring improved our cash position by providing $15.8 million of net proceeds after issuance costs and fees to the Company, and we continue to operate under a business plan that includes reductions in certain spending, we will need additional financing in order to continue as a going concern and maintain a cash balance in excess of the $7.5 million minimum cash covenant of the Amended and Restated Note Purchase Agreement (as discussed in Note 7 and Note 13 to the unaudited condensed consolidated financial statements). An event of default under the Amended and Restated Note Purchase Agreement would cause the Convertible Notes balance outstanding to become immediately due and payable, for which we would not have the resources to repay without additional financing. The receipt of potential funding, beyond those that are part of the Out-of-Court Restructuring, cannot be considered probable at this time because these plans are not entirely within management's control as of the date of the condensed consolidated financial statements. Therefore, there exists substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these financial statements are issued. Even if additional financing is successfully consummated, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding our ability to continue as a going concern. Refer to the "Going Concern" discussion within Note 1 of the unaudited condensed consolidated financial statements and “*Liquidity and Capital Resources”* below for more information.

### Results of Operations

The following table summarizes our results of operations for the periods presented.

*(in thousands)*

*(in thousands)*

| COSTS AND EXPENSES | Three Months Ended March 31, 2024 | 2023 | Variance $% |  | Nine Months Ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Project expenses | $1,155 | $1,268 | $(113) | -9% | $4,169 | $8,267 | $(4,098) | -50% |
| General and administrative | 2,997 | 6,004 | (3,007) | -50% | $16,431 | $18,591 | (2,160) | -12% |
| Research and development | — | 45 | (45) | -100% | 45 | 123 | (78) | -63% |
| Impairment | — | 908 | (908) | -100% | — | 908 | (908) | -100% |
| Depreciation and amortization expense | 53 | 53 | - | 0% | 159 | 132 | 27 | 20% |
| Total costs and expenses | 4,205 | 8,278 | (4,073) | -49% | 20,804 | 28,021 | (7,217) | -26% |
| LOSS FROM OPERATIONS | (4,205) | (8,278) | 4,073 | -49% | (20,804) | (28,021) | 7,217 | -26% |
| NON-OPERATING INCOME (EXPENSE) |  |  |  |  |  |  |  |  |
| Interest income | 73 | 388 | (315) | -81% | 215 | 914 | (699) | -76% |
| Other income | 4 | 13 | (9) | -69% | 7 | 49 | (42) | -86% |
| Loss on extinguishment of debt | (20,953) | — | (20,953) | N/A | (20,953) | — | (20,953) | N/A |
| Derivative gain (loss) | — | — | — | N/A | — | 11,743 | (11,743) | -100% |
| Interest expense | (822) | (2,237) | 1,415 | -63% | (4,348) | (5,043) | 695 | -14% |
| Other expense | (2) | (1) | (1) | 100% | (8) | (14) | 6 | -43% |
| Total non-operating income (expense) | (21,700) | (1,837) | (19,863) | \* | (25,087) | 7,649 | (32,736) | \* |
| NET INCOME (LOSS) | $(25,905) | $(10,115) | $(15,790) | 156% | $(45,891) | $(20,372) | $(25,519) | 125% |

\* Represents a percentage change greater than +/- 300%

### Comparison of the three and nine months ended March 31, 2024 and 2023

#### Project expenses

Project expenses include drilling, plug and abandonment, site-preparation, engineering, consumables, testing and sampling, hydrology, permits, surveys, and other expenses associated with further progressing our Project. For the three months ended March 31, 2024, project expenses decreased $113 thousand, or 9%, versus the comparable period in fiscal year 2023. Specifically, the decrease was primarily due to the combined impact of reductions in expenses incurred relating to our water monitoring wells, obtaining technical reports, insurance, and testing and analysis ($0.3 million). These decreases were partially offset by increased site-related costs ($0.2 million) which resulted from final activities preparing our operators and the Small-Scale-Facility for final commissioning.

For the nine months ended March 31, 2024, project expenses decreased $4.1 million, or 50%, versus the comparable period in fiscal year 2023 as there was decreased activity related to the Project. Specifically, the decrease was primarily due to a reduction in expenses incurred relating to our plug and abandonment program ($5.0 million) which occurred primarily in calendar year 2022 and was related to closing historic wells required by our permits ahead of operating the Small-Scale Facility, and reduced expenses incurred for engineering and technical reports that were not eligible for capitalization as construction in progress ($0.3 million). These decreases were partially offset by increases in EPA compliance costs ($0.7 million), testing and analysis ($0.2 million), site-related costs ($0.2 million) and construction related insurance costs ($0.1 million).

#### General and administrative expenses

General and administrative expenses include professional fees, costs associated with marketing, on-going SEC and public company costs, public relations, rent, salaries, sponsorships, share-based compensation and other expenses. Currently, all salaries and benefits for the entire organization are reported in general and administrative expenses. For the three months ended March 31, 2024, general and administrative expenses decreased $3.0 million, or 50%, versus the comparable period in fiscal year 2023. The decrease was primarily due to (i) a reduction in professional and legal fees of $1.9 million which includes a $1.8 million reclassification of legal and accounting fees incurred during the second fiscal quarter of 2024 to either debt or equity issuance costs in the third fiscal quarter due to the successful implementation of the Out-of-Court restructuring in the current quarter, (ii) a decrease in costs related to marketing activities ($0.5 million), and (iii) a decrease in employee severance and relocation costs ($0.9 million). These decreases were partially offset by increased employee compensation and benefits costs ($0.3 million).

For the nine months ended March 31, 2024, general and administrative expenses decreased $2.2 million, or 12%, versus the comparable period in fiscal year 2023. The decrease was primarily due to (i) decreased employee incentive compensation costs ($2.0 million) which is inclusive of a $2.2 million decrease in share-based compensation costs, (ii) a decrease in employee severance and relocation costs ($0.9 million), and (iii) a decrease in costs related to marketing activities ($0.8 million). These decreases were partially offset by increases in costs associated with (i) increased professional fees ($1.3 million) which were primarily attributable to legal fees incurred in connection with our Out-of-Court Restructuring efforts that were not eligible for classification as either debt or equity issuance costs, and (ii) increased employee compensation and benefits costs ($0.2 million).

#### Research and development

Research and development expense includes costs incurred under research agreements with Georgetown University and Boston College that aim to enhance the performance of permanent magnets through increased use of boron. Both engagements were completed during the second fiscal quarter of 2024. For the three months ended March 31, 2024, research and development expenses decreased $45 thousand, or 100%, versus the comparable period in fiscal year 2023. The decrease was attributable to the completion of the engagements during the second fiscal quarter of 2024.

For the nine months ended March 31, 2024, research and development expenses decreased $78 thousand, or 63%, versus the comparable period in fiscal year 2023. The decrease was attributable to the completion of the engagements during the second fiscal quarter of 2024.

#### Impairment

During the nine months ended March 31, 2023, we elected not to renew our mineral lease with Elementis Specialties, Inc. and the mineral lease expired on March 31, 2023 resulting in the recognition of approximately $0.9 million of related impairment expense. There was no comparable impairment expense in the current period.

#### Depreciation and amortization expense

Depreciation and amortization relates to use of our owned or leased vehicles, buildings and equipment and the amortization of our asset retirement obligations. For the three months ended March 31, 2024, depreciation and amortization expense remained consistent with the comparable period in fiscal year 2023. For the nine months ended March 31, 2024, depreciation and amortization expense increased $27 thousand or 20% versus the comparable period in fiscal year 2023. This increase was primarily due to additional assets placed in service during the second and third fiscal quarters of 2023.

During the fourth fiscal quarter of 2024, we anticipate placing the Small-Scale-Facility into service corresponding with the commencement of commercial operations. This will result in all construction in progress balances being transferred into property plant and equipment on our balance sheet, and the recognition of additional depreciation expense in future accounting periods.

#### Interest income

Interest income is derived from the investment of our excess cash and cash equivalents in short-term (original maturities of three months or less) investments of highly liquid treasury bills and certificates of deposit beginning in the first fiscal quarter of 2022 and corresponding with the issuance of the Convertible Notes. For the three months ended March 31, 2024, interest income decreased $315 thousand or 81% versus the comparable period in fiscal year 2023. Similarly, for the nine months ended March 31, 2024, interest income decreased $699 thousand or 76% versus the comparable period in fiscal year 2023. Such decreases correspond to decreases in our average cash and cash equivalent balances between the periods, respectively.

#### Loss on extinguishment of debt

The loss on extinguishment of debt incurred for the three and nine months ended March 31, 2024 resulted from the modification of the terms of our Convertible Notes contained in the Amended and Restated Note Purchase Agreement executed January 18, 2024. The modified terms of the Convertible Notes (as discussed within Note 7 to the unaudited condensed consolidated financial statements) were evaluated and determined to be representative of an in-substance extinguishment of the Convertible Notes and establishment of new debt, for accounting purposes, primarily due to the significance of the changes to the terms of the conversion features. As a result, we wrote-off the remaining principal, accrued interest and unamortized discount and debt issuance costs associated with the prior debt with an aggregate value of $44.2 million, and recognized the modified debt at its fair value of $65.2 million upon execution of the Amended and Restated Note Purchase Agreement. The difference in value between the prior debt and the modified debt resulted in a loss on extinguishment of debt of $21.0 million.

#### Derivative gain

The derivative gain (loss) during the nine months ended March 31, 2023 related to changes in fair value of the embedded conversion feature of our Convertible Notes that was required to be bifurcated and accounted for separately as a stand-alone derivative instrument (as discussed within Note 7 and Note 8 to the unaudited condensed consolidated financial statements). The unrealized gain during the nine months ended March 31, 2023, was primarily due to the decrease in our stock price to $11.63 on November 26, 2022, the date the conversion feature expired and derivative accounting was terminated, from $15.83 on August 26, 2022, the inception date of the Convertible Notes and the date derivative accounting commenced. The expiration of the conversion feature resulted in the transfer of the fair value of the convertible note derivative at expiration to additional paid-in capital.

#### Interest expense

Interest expense primarily relates to interest expense incurred on the Convertible Notes issued on August 26, 2022, and as amended by the Amended and Restated Note Purchase Agreement dated January 18, 2024, and is net of amounts capitalized to construction-in-progress. Prior to the execution of the Amended and Restated Note Purchase Agreement, the Convertible Notes accrued interest at a rate of 6% when interest was paid-in-kind through the issuance of additional notes. Subsequent to the Amended and Restated Note Purchase Agreement, the Convertible Notes accrue interest at a rate of 10% when interest is paid-in-kind through the issuance of additional notes. We also recognize interest expense for the amortization of debt issuance costs and the amortization of the discount on the Convertible Notes. As part of the modification of the terms of our debt associated with the Amended and Restated Note Purchase Agreement, the modified debt was recognized at fair value on our balance sheet which eliminated the prior debt discount that was amortized to interest expense. For the three months ended March 31, 2024, interest expense decreased $1.4 million or 63% versus the comparable period in fiscal year 2023. This decrease was primarily due to (i) the elimination of the amortization of the debt discount associated with the accounting for our debt modification that was consummated January 18, 2024 which results in a shorter period of amortization expense in the current period compared to the prior period ($1.0 million reduction in interest expense), (ii) additional interest being capitalized between periods due to the combined effect of a higher interest rate associated with our modified debt and an increase in our average construction in progress balance between periods ($0.6 million reduction in interest expense), and (iii) a reduction in the amortization expense associated with lower debt issuance costs associated with our modified debt ($55 thousand reduction in interest expense). These decreases were offset to a lesser extent by the effects of (i) interest accruing at 10% under the terms of our Amended and Restated Note Purchase Agreement compared to 6% under our prior agreement, and (ii) accruing additional interest on $1.9 million and $2.1 million of interest that was paid-in-kind during August of 2023 and February of 2024, respectively (for a combined impact of a $273 thousand increase in interest expense).

For the nine months ended March 31, 2024, interest expense decreased $695 thousand or 14% versus the comparable period in fiscal year 2023. This decrease was due to (i) additional interest being capitalized between periods due to the combined effect of a higher interest rate associated with our modified debt, an increase in our average construction-in-progress balance between periods and a full year of capitalized interest in the current period versus a partial year in the comparative period ($1.8 million reduction in interest expense), and (ii) the elimination of the amortization of the debt discount associated with the accounting for our debt modification that was consummated January 18, 2024 which results in a shorter period of amortization expense in the current period compared to the prior period ($221 thousand reduction in interest expense). These decreases in interest expense were offset to a lesser extent by the effects of (i) interest accruing at 10% under the terms of our Amended and Restated Note Purchase Agreement compared to 6% under our prior agreement, and accruing additional interest on $1.9 million and $2.1 million of interest that was paid-in-kind during August of 2023 and February of 2024, respectively (for a combined impact of $1.2 million increase in interest expense), and (ii) higher amortization expense associated with debt issuance costs due to a longer period of amortization expense in the current period compared to the prior period ($74 thousand increase in interest expense).

#### Income Tax

We did not have any income tax expense or benefit for the three and nine months ended March 31, 2024 and 2023, as we have recorded a full valuation allowance against our net deferred tax asset.

#### Cash flows

*($ in thousands)*

|  | For the nine months ended March 31, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Net cash used in operating activities | $(19,637) | $(24,126) | $4,489 | -19% |
| Net cash used in investing activities | (5,878) | (30,038) | 24,160 | -80% |
| Net cash provided by (used in) financing activities | 13,178 | 59,277 | (46,099) | -78% |
| Net increase (decrease) in cash and cash equivalents | $(12,337) | $5,113 | $(17,450) | -341% |

During the nine months ended March 31, 2024, we used $19.6 million of cash for operating activities, a decrease of $4.5 million or 19% compared to the comparable period in fiscal year 2023. Cash used by operating activities decreased between periods primarily due to a decrease in Project related expenses. During the nine months ended March 31, 2024, we used $5.9 million of cash for investing activities, a decrease of $24.2 million or 80% compared to the comparable period in fiscal year 2023. The reduction in investing cash flows was due to reduced spending on construction in progress related to the Small-Scale Facility between periods. Cash flows provided by financing activities for the nine months ended March 31, 2024 were the result of $15.8 million of proceeds received from two closings of a private placement of our Common Stock in January of 2024, after recognition of the related costs and fees, where we issued an aggregate of 19,048,782 shares of our Common Stock. The net proceeds from our private placement of equity during the nine months ended March 31, 2024 were offset by $2.6 million of cash used to pay legal and accounting fees associated with the Amended and Restated Note Purchase Agreement (i.e., debt issuance costs). Cash flows provided by financing activities during the nine months ended March 31, 2023 were the result of the issuance of the Convertible Notes net of debt issuance costs.

### Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $8.0 million and working capital of $2.7 million compared to $20.3 million and $13.3 million as of June 30, 2023, respectively. Our predominant source of cash has been generated through equity financing from issuances of our common stock and equity-linked debt securities. Since inception, we have not generated revenues, and as such, have relied on equity financing and equity-linked debt instruments to fund our operating and investing activities. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions may exceed insured limits. Market conditions can impact the viability of these institutions.

In August 2022, we executed a $60 million private placement of senior secured convertible notes to complete construction and commissioning of our Small-Scale Facility, fund operation of our Small-Scale Facility, and general corporate purposes. In January 2024, as part of the Out-of-Court Restructuring, we completed two closings of a private placement of our Common Stock which resulted in approximately $15.8 million of proceeds to the Company, after recognition of the related costs and fees, to strengthen our balance sheet and to help fund mining and Small-Scale Facility operations. Also in January 2024, and also as part of our Out-of-Court Restructuring, we executed the Amended and Restated Note Purchase Agreement which modified certain terms of our Convertible Notes (refer to the Out-of-Court Restructuring discussion under the heading of 2024 Outlook and Goals). The Amended and Restated Note Purchase Agreement did not provide incremental capital to the Company and resulted in us incurring $2.6 million of related legal and accounting fees.

Over the next 12 months, we have plans to achieve the following milestones that will require additional capital:

- Operate the Small-Scale Facility and progress customer qualification;
- Progress FEL-2, FEL-3, and detailed engineering as well as procure long lead item equipment, specifically our crystallization units;
- Optimize well-field design in an effort to reduce future mining capital and operational expenditures through various drilling techniques such as directional, horizontal and radial drilling;
- Pursue and optimize infrastructure capital expenditures for our larger-scale facility which could include expansion of non-potable water resources, upgrading shore power, connection to a natural gas network, and constructing new access roads into and out of the location for our larger-scale facility; and
- Continue hiring team members necessary to support our operation efforts of becoming a global producer of boric acid, lithium carbonate and gypsum.

Although the Out-of-Court Restructuring transaction discussed above improved our cash position, and we continue to operate under a business plan that includes reductions in certain spending, we will need additional financing in order to continue as a going concern and maintain a cash balance in excess of the $7.5 million minimum cash covenant in the Amended and Restated Note Purchase Agreement. Absent additional financing as outlined above, we may no longer be able to meet our ongoing obligations, continue operations or achieve the milestones outlined above. If we are not able to secure additional financing cash flows and our cash balance falls below $7.5 million after December 31, 2024, an event of default under the Amended and Restated Note Purchase Agreement could occur. An event of default would cause our Convertible Notes balance outstanding to become immediately due and payable, for which we would not have the resources to repay without additional financing.

We intend to explore different potential financing strategies to help support the growth of our business and execution of our business plan, including equity or debt financing, government funding or grants, private capital, royalty agreements or customer prepayments, or other strategic alliances with third parties. However, there is no assurance that we will be able to secure additional financing on adequate terms, in a timely manner, or at all.

The receipt of potential funding, including those that may be executed pursuant to the Equity Distribution Agreement discussed below, cannot be considered probable at this time because these plans are not entirely within management's control as of the date of the condensed consolidated financial statements. Therefore, there exists substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these financial statements are issued. Even if additional financing is successfully consummated, available liquidity may still not be sufficient to eliminate the aforementioned substantial doubt regarding our ability to continue as a going concern. Refer to the “Going Concern” discussion within Note 1 of the unaudited condensed consolidated financial statements for more information.

*2024 Equity Distribution Agreement with Canaccord Genuity LLC and D.A. Davidson & Co.*

On March 28, 2024, we entered into an equity distribution agreement (the “Equity Distribution Agreement”) with Canaccord Genuity LLC and D.A. Davidson & Co. (each, an “Agent” and together, the “Agents”) providing for the offer and sale of up to $15,000,000 of shares of our Common Stock from time to time by us through the Agents, acting as our sales agents, or directly to one or more of the Agents, acting as principal (the “ATM Offering”).

Sales of shares of our Common Stock, if any, as contemplated by the Equity Distribution Agreement, made through any Agent acting as sales agent or directly to any Agent acting as principal, will be made by any method permitted by law, including without limitation (i) by means of ordinary brokers’ transactions (whether or not solicited), (ii) to or through a market maker, (iii) directly on or through any national securities exchange or facility thereof, a trading facility of a national securities association, an alternative trading system or any other market venue, (iv) in the over-the-counter market, (v) block transactions, (vi) in privately negotiated transactions or (vii) through a combination of any such methods. We will pay the applicable Agent a commission equal to 3.0% of the gross sales price of the shares of our common stock sold through the Agents, as our sales agents. We will reimburse the Agents for certain specified expenses in connection with entering into the Equity Distribution Agreement.

None of the Agents are required to sell any specific number or dollar amount of shares of our Common Stock, but each has agreed, subject to the terms and conditions of the Equity Distribution Agreement, to use its commercially reasonable efforts, consistent with its normal trading and sales practices, to sell the shares of the Company’s Common Stock on the terms agreed upon by such Agent and the Company, provided that the number of common stock sold pursuant to the Equity Distribution Agreement will not (at any time) exceed the Company's available placement capacity under ASX Listing Rule 7.1. Any common stock to be sold in excess of the Company's available placement capacity under ASX Listing Rule 7.1 will be subject to, and conditional on, shareholder approval.

Under the terms of the Equity Distribution Agreement, we may also sell shares of our Common Stock to one or more of the Agents, as principal, at a price agreed upon at the time of sale. If we sell shares of our common stock to one or more of the Agents, as principal, we will enter into a separate written agreement with such Agent or Agents, as applicable, setting forth the terms of the transaction. In any such sale to an Agent or Agents as principal, we may agree to pay the applicable Agent or Agents a commission or underwriting discount that may exceed 3.0% of the gross sales price of our common stock sold to such Agent or Agents, as principal.

Any shares of our Common Stock offered and sold in the ATM Offering will be issued pursuant to the Company’s shelf Registration Statement on Form S-3, as amended (No. 333-276162), which was declared effective on February 27, 2024 (the “Registration Statement”), the prospectus supplement relating to the ATM Offering filed with the SEC on March 28, 2024, which forms a part of the Registration Statement, and any applicable additional prospectus supplements related to the ATM Offering that form a part of the Registration Statement.

We did not sell any common stock nor receive any proceeds under the Equity Distribution Agreement during the three months ended March 31, 2024.

### Material Cash Requirements

Our material short-term cash requirements include general and administrative expenses including recurring payroll and benefit obligations for our employees, construction related costs necessary to complete the Small-Scale Facility, operating costs for the Small-Scale Facility, project related costs, payments under certain lease agreements and working capital needs. Our long-term material cash requirements from currently known obligations include repayment of outstanding borrowings and interest payment obligations under our Convertible Notes (which may be avoided to the extent the Notes are converted to shares of our common stock and/or interest is paid-in-kind) and future obligations to reclaim, remediate, or otherwise restore properties to a condition that existed prior to our operations. Refer to the “Construction in Progress,” “Asset Retirement Obligations,” “Accounts Payable and Accrued Liabilities,” “Long-term Debt” and “Commitments and Contingencies” footnotes in the unaudited condensed consolidated financial statements for more information on certain of these expenditures and obligations.

### Contractual Commitments and Contingencies

#### Purchase Obligations

We had purchase order commitments of $4.7 million for the construction works in progress, equipment, software, drilling and technical reports.

### Critical Accounting Policies

A complete discussion of our critical accounting policies is included in our Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 2023. There have been no significant changes in our critical accounting policies during the nine months ended March 31, 2024.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to improve income tax disclosures primarily through enhanced disclosure of income tax rate reconciliation items, and disaggregation of income (loss) from continuing operations, income tax expense (benefit) and income taxes paid, net disclosures by federal, state and foreign jurisdictions, among others. ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, and early adoption is permitted. We are evaluating the impact that ASC 2023-09 will have on the consolidated financial statements and our plan for adoption, including the adoption date and transition method.

## Market risk

As filed, 165 characters.

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 3.

## Controls and procedures

As filed, 1,722 characters.

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management evaluated, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2024. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

### Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in the evaluation for the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 19,089 characters.

In addition to the risk factors set out below and other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as amended, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, which could materially affect our business, financial condition, and future results. We provide below the material changes to our risk factors described in our Annual Report. The risks described below and those in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as amended, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 are not the only risks that we face. Additional risk and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows or results of operations.

***There is substantial doubt regarding our ability to continue as a going concern. We will need to raise substantial additional funding, which may not be available on acceptable terms, if at all, to be able to continue as a going concern and advance our Project.***

There is substantial doubt regarding our ability to continue as a going concern. Our existence in our current form is dependent upon our ability to obtain additional capital. Our cash and cash equivalents as of the date of will not be sufficient for us to continue as a going concern or to fund our long-term operations. Raising funds in the current economic environment is challenging and financing may not be available in sufficient amounts or on acceptable terms, if at all. The issuance of additional securities, whether equity or debt, or the possibility of such issuance, or the securing of financing that investors consider to be unfavorable to us, may cause the market price of our shares to decline. The sale of additional equity or debt securities may dilute the ownership of existing shareholders. If we are not able to procure additional financing and our cash balance falls below $7.5 million on or after December 31, 2024 in contravention of the Amended and Restated Note Purchase Agreement, an event of default under the Amended and Restated Note Purchase Agreement would occur if not cured after 30 days.

***We will need to obtain additional financing to continue as a going concern and to continue our ongoing development and proposed operations.***

We have limited assets upon which to develop and commence our business operations and to rely otherwise. We will need to seek significant additional funds in the future through equity or debt financings, government funding or grants, private capital, royalty agreements or customer prepayments, or other strategic alliances with third parties, either alone or in combination to fund our business plan and to complete our mining exploration initiative. Our business plan, which includes the development of the Project, has required and will continue to require substantial capital expenditures. We will require financing to fund our engineering phases, development, construction, and initial commercial production activities and are required to raise additional capital in respect of continuing our proposed mining exploration program, pre-production activities, including the Small-Scale Facility, legal, operational set-up, general and administrative, marketing, employee salaries and other related expenses.

If we are unable to raise adequate funds, we may have to delay, reduce the scope of or eliminate some or all of our business plan expenditures, and the failure to procure such required financing could have a material and adverse effect on our business, liquidity, financial condition and results of operations as well as our ability to continue as a going concern. If we are unable to continue as a going concern, we might have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

Obtaining additional funding will be subject to various additional factors, including investor acceptance of our business plan, the status of our development program and ongoing results from our exploration and development efforts. If we are not able to secure adequate additional funding when needed, we will need to re-evaluate our operating plan and may be forced to make significant reductions in spending, extend payment terms with suppliers, liquidate assets where possible, limit, suspend or curtail planned development programs and cease operations entirely. Having insufficient funds may also require us to relinquish rights to assets and technology that we would otherwise prefer to develop ourselves, or on less favorable terms than we would otherwise choose. The foregoing actions and circumstances could materially adversely impact our business, liquidity, results of operations and future prospects.

Any such required financing may not be available in amounts or on terms acceptable to us or at all, and the failure to procure such required financing could have a material and adverse effect on our business, financial condition and results of operations, or threaten our ability to continue as a going concern. In addition, if we are unsuccessful in raising the required funds, we may need to modify our operational plans to continue as a going concern, and we may have to delay, reduce the scope of or eliminate some or all of our planned development activities or proposed exploration programs at the Project and elsewhere. In the event additional capital resources are unavailable, we may also be forced to sell some or all of our properties in an untimely fashion or on less than favorable terms. Any of these factors could harm our operating results.

Until successful commercial production is achieved from the Project, allowing for the generation of sufficient revenue to fund our continuing operations, we will continue to incur operating and investing net cash outflows associated with, among other things, developing the Project, maintaining our properties and undertaking ongoing exploration and optimization activities. As a result, we rely on access to capital markets as a source of funding for our capital and operating requirements. We require additional capital to fund our ongoing operations, define mineralization, conduct further technical and economic studies (which may include a bankable feasibility study) and bring the Project into production, which will require funds for construction and working capital. We cannot assure you that such additional funding will be available to us on satisfactory terms, or at all, or that we will be successful in commencing and maintaining commercial borates or lithium extraction, production of boron advanced materials, or that our sales projections for these and other products will be realized.

Depending on the type and the terms of any financing we pursue, shareholders’ rights and the value of their investment in our CHESS Depositary Interests (“CDIs”) and common stock could be reduced. Any additional equity financing will dilute stockholdings, and new or additional debt financing, if available, may involve restrictions on financing and operating activities. In addition, if we issue secured debt securities, the holders of the debt would have a claim to our assets that would be prior to the rights of shareholders until the debt is paid. Interest on such debt securities would increase costs and negatively impact operating results. If the issuance of new securities results in diminished rights to holders of our CDIs and common stock, the market price of our CDIs and common stock could be negatively impacted. Any sale of securities will also need to comply with the applicable rules of the stock exchanges on which our securities are listed or quoted for trading. Further, strategic collaboration or royalty agreements may provide us with non-dilutive or minimally dilutive financing but adversely impact our future results of operations or capital resources. There is no guarantee that we will be able to secure any additional funding or be able to secure funding which will provide us with sufficient funds to meet our objectives, which may adversely affect our business and financial position.

***We have invested and, subject to availability of adequate capital, plan to continue to invest significant amounts of capital in the Project on exploration and development activities, which involve many uncertainties and future operating risks that could prevent us from realizing profits on expected timeframes or at all.***

Our business is capital intensive. Specifically, the exploration and recovery of boric acid and lithium, the mining costs, the maintenance of machinery and equipment, and the compliance with applicable laws and regulations, each require substantial capital expenditures. Subject to the availability of adequate capital, we plan to continue to invest significant capital over the next several years on the development of the Project to bring it into production and will have to continue to invest capital to maintain or increase the amount of mineral resources we hold and our rates of production once commercialization of the Project has occurred. Mining exploration is highly speculative in nature, involves many risks and is frequently unsuccessful. Development and production activities may involve many uncertainties and operating risks that could prevent us from realizing profits, putting pressure on our consolidated balance sheet and credit rating. Unforeseen issues, including increasing the required amount of capital expenditure necessary to bring the Project into production, the impact of volatile boric acid and its derivatives, lithium carbonate, hydrochloric acid (“HCl”), sulphate of potash (“SOP”) and gypsum prices, our ability to enter into supply contracts with buyers, and obstacles or complexities that could arise in the environmental or permitting process may cause us not to proceed with any one or a combination of these activities. Moreover, once mineralization is discovered, it may take a number of years from the initial phases of drilling before production is possible, during which time the economic feasibility of production may change. We previously targeted reaching initial commercial production in fiscal year 2026. Given the permitting hurdles and time to obtain final Environmental Protection Agency approval and resource constraints in fiscal year 2024, we are now targeting to reach initial commercial production in the second half of calendar year 2026 or first half of calendar year 2027. This target continues to be dependent on a number of factors and assumptions, including obtaining the requisite funding for, and the successful construction of, our proposed large-scale complex, in addition to obtaining and maintaining applicable permits, and there can be no assurance that we will be able to meet any such target on time, on budget, or at all due to many factors including our limited experience in successful construction of similar projects, the complexity of the project, supply chain issues, higher costs, construction delays, cost overruns, planned and unplanned shutdowns, turnarounds, outages and other delays and interruptions. If and when production begins, no assurance can be given that we will be able to maintain our production levels or generate sufficient cash flow, capitalize a sufficient amount of our net profit or have access to sufficient equity investments, bank loan or other debt financing alternatives to fund our capital expenditure at a level necessary to continue our exploration and exploitation activities. In addition, we cannot assure you that existing or future projects, if approved and executed, will be completed on schedule, within budget or achieve an adequate return on investment.

The amounts and timing of expenditures will depend on the progress of ongoing development, the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, and other factors, many of which are beyond our control. Whether the mineral deposits we have discovered will be successfully extracted depends on a number of factors, which include, without limitation, the particular attributes of the deposit, prices for the minerals and the volatility of their respective markets, and governmental regulations. If we cannot complete development activities and commence and maintain mining operations, we may never generate revenues and will never become profitable.

The Project may be delayed, more costly than anticipated or unsuccessful for many reasons, including declines in boric acid and its derivatives, lithium carbonate, HCl, SOP and gypsum prices, cost overruns, project implementation schedule slippage, shortages of or delays in the delivery of equipment or purpose-built components from suppliers, escalation in capital costs estimates, mechanical or technical difficulties, increases in operating costs structures, possible shortages of construction or other personnel, other labor shortages or industrial action, pandemic or localized epidemic, environmental occurrences during construction that result in a failure to comply with environmental regulations or conditions on development, or delays and higher-than expected costs, unanticipated natural disasters, accidents, miscalculations, unanticipated financial events, political or other opposition, litigation, acts of terrorism, operational difficulties or other events associated with such construction that may result in the delay, suspension or termination of the Project, resulting in further costs, the total or partial loss of our investment and a material adverse effect on our results of operations, financial performance and prospects.

***There are risks associated with our Convertible Notes that could adversely affect our business and financial condition.***

We initially issued $60.0 million of Convertible Notes in August 2022 under a convertible note purchase agreement which was subsequently amended and restated in January 2024 in connection with our previously announced out-of-court restructuring transactions. The Convertible Notes, as amended and restated, bear interest at a rate of 4.50% per annum, payable semi-annually, or 10.00% per annum if we elect to pay such interest through the delivery of additional Convertible Notes, and are convertible into up to 66,261,621 shares of our common stock at a conversion rate of 650.4065 shares of common stock per $1,000 principal amount of Convertible Notes (including accrued interest paid-in-kind) in accordance with the terms of the Amended and Restated Note Purchase Agreement. The Convertible Notes mature on August 15, 2028. Additionally, following certain corporate events that may occur prior to the maturity date, we will, in certain circumstances that include a change of control transaction or liquidation of our company or any failure of our common stock to be listed on Nasdaq or any other eligible exchange, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event. The Amended and Restated Note Purchase Agreement provides that, until we and the purchasers of the Convertible Notes agree to a final formula for such adjustments in accordance with the Amended and Restated Note Purchase Agreement, the maximum adjusted conversion rate following such a corporate event will be 754.4715 shares of common stock per $1,000 principal amount of Convertible Notes. The formula ultimately agreed upon by us and the purchasers may result in additional dilution to our stockholders if one of the specified corporate events should occur.

The holders of the notes have waived the minimum cash covenant through December 31, 2024, with a reduction in such covenant thereafter from $10 million to $7.5 million.

The Amended and Restated Note Purchase Agreement provides for standard and customary events of default, such as our failing to make timely payments and failing to timely comply with the reporting requirements of the Exchange Act. The Convertible Notes also contain customary affirmative and negative covenants, including limitations on incurring additional indebtedness or the creation of additional liens on our assets. In addition, if we experience a change of control, which as defined in the Amended and Restated Note Purchase Agreement includes the sale of all or substantially all of our assets, or our common stock ceasing to be listed on Nasdaq or any other eligible exchange, then the holders of the convertible notes can require us to repay the outstanding indebtedness in cash.

Our ability to remain in compliance with the covenants under the Convertible Notes depends on, among other things, our operating performance, competitive developments, financial market conditions, and stock exchange listing of our common stock, all of which are significantly affected by financial, business, economic, and other factors, many of which we are not able to control. Accordingly, our cash flow may not be sufficient to allow us to pay principal and interest on the convertible notes or meet our other obligations under the Amended and Restated Note Purchase Agreement. Our level of indebtedness under the Amended and Restated Note Purchase Agreement could have other important consequences, including the following:

- We may need to use a substantial portion of our cash flow from operations to pay interest and principal on the Convertible Notes, which would reduce funds available to us for other purposes such as working capital, capital expenditures, potential acquisitions, and other general corporate purposes;
- We may be unable to refinance our indebtedness under the Amended and Restated Note Purchase Agreement or to obtain additional financing for working capital, capital expenditures, acquisitions, or general corporate purposes;
- We may be unable to comply with covenants in the Convertible Notes, which could result in an event of default that, if not cured or waived, may result in acceleration of the Convertible Notes and any additional Convertible Notes issued under the Amended and Restated Note Purchase Agreement. An event of default would have an adverse effect on our business and prospects and could force us into bankruptcy or liquidation;
- Our ability to pay interest and repay principal in additional notes, if so elected by us, and conversion of the Convertible Notes and any additional Convertible Notes issued under the Amended and Restated Note Purchase Agreement (at the current conversion rate or any adjusted conversion rate) could result in significant dilution to our existing stockholders and cause the market price of our common stock to decline; and
- We may be more vulnerable to an economic downturn or recession and adverse developments in our business.

Filed Apr 29, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-049412. Last ingested by Listed: Oct 26, 2026, 16:06 ET. No prices; not investment advice.