Nano Nuclear Energy Inc.: Form 10-Q for the period ended Jun 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations of the unaudited financial statements and related notes included elsewhere in this Report. Data as of and for the year ended September 30, 2023 has been derived from our audited consolidated financial statements. Data as of and for the three and nine months ended June 30, 2024 and 2023 has been derived from our unaudited consolidated financial statements appearing in this Report. This following discussion contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” in this Report.

All references to “we,” “us,” “our” and the “Company” refer to NANO Nuclear Energy Inc., a Nevada corporation and its consolidated subsidiaries unless the context requires otherwise.

Overview

We are an early-stage nuclear energy company developing smaller, cheaper, and safer advanced portable clean energy solutions, utilizing proprietary reactor designs, intellectual property and research methods, to develop technology and products that work towards a sustainable future. Led by a world class scientific and management team, we envision a business with comprehensive engagement within almost every sector of the nuclear power industry, from sourcing raw nuclear material, to fuel processing and fuel fabrication, and finally the deployment of our cutting edge microreactors. Our dedication extends further, to also develop into areas such as fuel transportation and nuclear service support and consulting services.

Currently, we are in the pre-revenue stage and are principally focused on four business lines as part of our development strategy, including our micro nuclear reactor business, our nuclear fuel fabrication business, our nuclear fuel transportation business, and our nuclear consultation services business.

Our mission is to become a commercially focused, diversified and vertically integrated technology-driven nuclear energy company that will capture market share in the very large and growing nuclear energy sector. To implement our plans, since our founding in 2022, our management has secured certain connections within key U.S. government agencies, including the DOE, the Idaho National Laboratory (“INL”) and Oak Ridge National Laboratory (“ORNL”), each of which are a part of the DOE’s national nuclear laboratory system. Our company also maintains important collaborations with leading researchers from the Cambridge Nuclear Energy Centre and The University of California, Berkeley.

In light of approximately $30 million in net proceeds we generated from our May 2024 initial public offering and our July 2024 underwritten follow-on offering, over the next twelve months, we will continue to progress our development of two advanced nuclear microreactors, ZEUS and ODIN, acquire land and begin design work for fuel fabrication facilities, and further develop our high capacity HALEU fuel transportation basket design (to which we have an exclusive patent license) to accommodate other fuel forms, with estimated expenditures to be approximately $9 million. This allocation comprises approximately $4 million dedicated to the research and development of products and technology, with a specific focus on the refinement of microreactor technology and the fuel fabrication process. The remaining $5 million is earmarked for miscellaneous costs essential to propelling the progress of our microreactors, encompassing the support of current personnel engaged in executive, finance, accounting, and other administrative functions.

We estimate that our microreactor demonstration work and prototype will be conducted and built between 2024 and 2027, and our microreactor licensing application will be made and processed between 2026 and 2031. We anticipate that our microreactors will be launched around 2031, unless the Advance Act succeeds to reduce the licensing time. Notwithstanding the foregoing, there is no assurance that we can meet successfully above-mentioned timelines. We also plan on providing nuclear service support and consultation services for the expanding and resurgent nuclear energy industry, both domestically and internationally. If we are unable to acquire such a business by the end of 2024, we will then focus on building our own internal nuclear consultation business in coordination with certain outside academic institutions, which we anticipate would require approximately an additional $1 million over the next twelve months to recruit additional staff and build corresponding infrastructure to be capable of providing these services.

Notwithstanding the foregoing, the outlined expenditures and the anticipated timelines for execution of our plans discussed above and throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations are estimations only. These are inherently subject to change due to certain factors, including adjustments in the microreactor development plan and uncertainties associated with the governmental licensing approval process. Given that these elements may exceed our initial expectations or lie beyond our control, we cannot guarantee the accuracy of the actual expenditures and timelines.

As of the date of this Report, we have not generated any revenues. We have incurred accumulated net losses of $14,942,045 since inception through June 30, 2024.

Factors and Trends Affecting Our Business and Results of Operations

Our Ability to Develop Our Microreactors

In 2022, we began designing our two next-generation advanced nuclear microreactors, ZEUS and ODIN. ZEUS, is a solid core battery reactor, and ODIN, is a low-pressure salt coolant reactor. We aim to complete the design and concept evaluation for these reactors in under a two-year timeframe, progress through demonstration and physical test work, and initiate the licensing, certification, and development processes required to build a licensed prototype. Our goal is to commercially launch one of these microreactors in the early 2030s. The success of this endeavor will be dependent on our ability to effectively utilize our relationship with the national laboratories and DOE to advance our microreactor designs through demonstration work and take advantage of the large capabilities offered by the existing national nuclear sites. We have conducted and completed a design audit on the ODIN reactor to provide assistance with design considerations. Additionally, the design audit for the ZEUS reactor was conducted and completed by INL in February 2024. The report was finalized and issued by INL, summarizing their findings for Nano to facilitate the development of the reactor. The technical reactor audit provides an external and neutral perspective to assist the advancement of the concepts and to validate the microreactors’ direction and technology.

Design and Construction of Fuel Fabrication Facility

We have identified a land package that is suitable for the design, construction and commissioning of our own commercial nuclear High-Assay Low-Enriched Uranium (“HALEU”) fuel fabrication facility to supply fabricated fuel to the next generation of advanced nuclear reactor companies, to our own reactors currently under development, to the U.S. nuclear industry, the U.S. national laboratories, and to supply the DOE’s nuclear fuel needs if necessary. We hope to site our fuel fabrication facility near a national nuclear laboratory around 2028. We anticipate procuring unfabricated HALEU from a domestic U.S. company and we have signed a memorandum of understanding with Centrus Energy Corp. (NYSE American: LEU) (“Centrus”) to begin HALEU fuel sourcing discussions.

Development of Fuel Transportation Business

We intend to produce a regulatorily licensed, high-capacity HALEU transportation product, capable of moving commercial quantities of HALEU fuel around North America. We hope to have our fuel transportation business in operation by 2027. We received an exclusive license for a high capacity HALEU fuel transportation basket design in April 2024, which was designed around a licensed third-party basket and cask technology. This license grants us, as the licensee, exclusive rights for use and development of the technology. In addition, the licensor is not permitted to license the technology to any other parties within the specified scope. This technology enables us to transport fuel enriched by Centrus (the only company licensed to enrich to 19.75% U235 in the U.S), deconvert HALEU fuel, and fabricate HALEU fuel. We are seeking to form the first transportation company capable of supplying all emerging SMR and microreactor companies with the fuel they require at their manufacturing facilities to construct their reactors. We also expect to service the national nuclear laboratories and DOE programs which require HALEU by providing the fuel for their programs. Mobile reactors requiring HALEU for remote military bases are also anticipated, with potential military contacts. Our fuel transportation business will build on the work already completed and authorized by the INL and ORNL to create a high-capacity HALEU transportation package, with 18 inner canisters, combined with a basket design and a borated aluminum flux trap. We have also received private funding and support from the former executives of the largest shipping company in the world. These executives are aware of our transportation plans and have agreed to assist us in developing a HALEU transportation company to create the first vertically integrated HALEU commercial quantity delivery service in North America.

Our Business Services and Consulting Business

We have identified an opportunity for more immediate revenue for our company by acquiring more expertise to advance our businesses and deploying those personnel as part of a consulting and services business. We have already identified several nuclear business services and consultancy providers, which have been assessed as potentially suitable for acquisition by our company. We have concentrated on identifying small teams with expert personnel, with good portfolios of work and existing contracts, and good expansion potential, which would provide us with immediate revenue post-acquisition. We believe we are in a competitively advantageous position to expand these acquired businesses with the highly qualified teams it has built over the previous years. This expansion potential can be further complimented by the education programs we are assembling with the Cambridge Nuclear Energy Centre, part of the University of Cambridge, which will involve the sponsorship of MSc and PhD Nuclear programs to produce the next generation of qualified nuclear energy personnel. Part of our education sponsorship programs will involve providing work to the qualifying individuals after they have completed their programs, allowing for further expansion of the nuclear services we are able to offer clients. In furtherance of this effort, in early August 2024 we announced that we have joined the University of Cambridge Nuclear Industry Club to further our collaboration with Cambridge and our efforts to foster and recruit the next generation of nuclear researchers and engineers. With an expanded team we plan to retain with a portion of the proceeds from our 2024 public offerings, we will market our expertise and deploy consultants to both government and private industry nuclear projects. Consultants will be hired out for either hourly rates, or for contractual periods and weekly or monthly rates depending on the project type and scope. The acquisitions and their subsequent expansions will also provide in-house expertise, at greatly reduced costs, which we can utilize for our own research and development, streamlining our company while expanding our technical and human capital capacity.

By the end of 2024, we expect to start providing nuclear service support and consultation services for the nuclear energy industry, both domestically and internationally. This timeline is based on our plan to acquire a nuclear business services and consultancy provider. We have had preliminary discussions with some potential targets but are not presently a party to any definitive understandings or agreements. If we are unable to acquire such a business by the end of 2024, we will then focus on building our own internal nuclear consultation business in coordination with certain outside academic institutions, which we anticipate would require approximately $1 million over twelve months to recruit additional staff and build corresponding infrastructure to be capable of providing these services. No assurances can be given that we will be able to successfully establish and grow our own consultation business, and our failure to do so would adversely affect our nearer term revenue prospects.

Regulatory Approvals

The regulatory licensing process for our microreactor prototypes is expected to be completed by 2030 or 2031, with manufacturing facilities being constructed during the licensing phase so we are ready to deploy microreactors across the country upon licensing approval. Initial NRC contact will involve early communication from us of the estimated company timelines, so that the regulator can secure the required number of personnel to successfully examine the microreactors. Our ability to successfully license and certify our microreactors will subsequently be dependent on working through the licensing process with the NRC and satisfying their examinations that the reactor is safe to deploy to customers, provided the agreed protocols are adhered to. Our ability to successfully design and construct our own commercial nuclear HALEU fuel fabrication facility will be dependent on obtaining the necessary regulatory approvals from the NRC to permit the commercial deployment of the microreactors. The U.S. Nuclear Regulatory Commission (“NRC”) inspects the site construction at new fuel cycle facilities and only approves the facility’s capability to possess nuclear material after ensuring that the facility’s safety controls are robust and able to safely handle these materials. Fuel cycle facilities must comply with the regulatory requirements established by the NRC. The facility will need to acquire an NRC license containing site-specific requirements that the facility is required to comply with. Each license is unique and is specific to the nuclear material and hazards present at the fuel cycle facility. To obtain a license will involve a lot of communication between the NRC and our company. NRC safety oversight includes three important components: NRC inspection, the routine assessment of each licensee’s performance, and enforcement in the case that the regulatory requirements are not met. Our company and INL have identified the potential site and will work with the NRC through the process established under the National Environmental Policy Act of 1970, which will begin when a federal agency develops a proposal to take a major federal action. We have engaged with the DOE and contacted the NRC to advance our fuel fabrication facility construction intentions. We began scoping studies and cost estimation work for our fuel fabrication facility in late 2023, with site identification and design team building beginning in 2024, coinciding with engaging experienced licensing and regulatory experts to plan the licensing strategy for developing the facilities. Initial site preparation and construction work is estimated to begin in 2025, with completion of construction and commissioning of a facility occurring nearer 2030.

Technology Acquisitions and Collaborations

During 2024, we have made announcements regarding our acquisition of a complementary nuclear pump technology (the ALIP technology) as well as non-binding memoranda of understanding with third party collaborators to explore the use of our microreactors in remote artificial intelligence datacenters and the use of artificial intelligence in modernizing the nuclear regulatory and licensing process. We expect that a material aspect of our business will involve continuing to develop, identify or seek to collaborate on, or acquire novel and beneficial technology for our company. Our inability to growth our company through such acquisition or collaborations could have a material adverse effect on our business.

Results of Operations

We are an early-stage company, and our historical results may not be indicative of our future results. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations.

Comparison of the Three Months Ended June 30, 2024, and the Three Months Ended June 30, 2023

Revenue

We have not generated any revenue from our inception through June 30, 2024.

Expenses

Research and Development Expense

Our research and development (“R&D”) expenses represent costs incurred for designing and engineering products, including the costs of developing design tools. All research and development costs related to product development are expensed as incurred.

R&D expenses increased by $1,356,668, or 205%, to $2,019,812 for the three months ended June 30, 2024, compared to $663,144 for the comparative period ended June 30, 2023, primarily due to our acquisition of the ALIP technology which was expensed during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. R&D expenses primarily reflect the internal and external personnel costs corresponding to the design and analysis of our microreactors as well as the costs to acquire technology and other assets from third parties. During the three months ended June 30, 2024 and 2023, $nil and $210,113, respectively, of our R&D expenses corresponded to equity-based compensation.

General and Administrative Expense

Our general and administrative (“G&A”) expenses consist of compensation costs for personnel in executive, finance, accounting, and other administrative functions. G&A expenses also include legal fees, professional fees paid for accounting, auditing, consulting services, advertising costs, and insurance costs.

G&A expenses increased by $263,048, or 13%, to $2,301,307 for the three months ended June 30, 2024, compared to $2,038,259 for the comparative period ended June 30, 2023, primarily due to additional office and staff costs to support our R&D activities during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. During the three months ended June 30, 2024, G&A expenses primarily consisted of $0.7 million in personnel costs. During the period ended June 30, 2023, G&A primarily consisted of $1.6 million in personnel costs. During the three months ended June 30, 2024 and 2023, $nil and $1,234,417, respectively, of our G&A expenses corresponded to equity-based compensation.

Revaluation of contingent consideration

Revaluation of contingent consideration corresponds to equity based contingent consideration corresponding to the ALIP technology we acquired which is revalued at the end of each financial quarter based on the closing stock price of our common shares.

The revaluation of contingent consideration was $385,500 for the three months ended June 30, 2024, compared to $nil for the comparative period ended June 30, 2023, as a result of our acquisition of the ALIP technology on June 21, 2024.

Other Income

During the three months ended June 30, 2024 and 2023, the Company earned interest income of $38,372 and $1,753, respectively, on its cash held at a financial institution.

Comparison of the Nine Months Ended June 30, 2024, and the Nine Months Ended June 30, 2023

Revenue

We have not generated any revenue from our inception through June 30, 2024.

Expenses

Research and Development Expense

Our R&D expenses represent costs incurred for designing and engineering products, including the costs of developing design tools. All research and development costs related to product development are expensed as incurred.

R&D expenses increased by $1,646,617, or 139%, to $2,830,367 for the nine months ended June 30, 2024, compared to $1,183,750 for the comparative period ended June 30, 2023, primarily due to our acquisition of the ALIP technology which was expensed during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. R&D expenses primarily reflect the internal and external personnel costs corresponding to the design and analysis of our microreactors as well as the costs to acquire technology and other assets from third parties. During the nine months ended June 30, 2024 and 2023, $0 and $420,563, respectively, of our R&D expenses corresponded to equity-based compensation.

General and Administrative Expense

Our G&A expenses consist of compensation costs for personnel in executive, finance, accounting, and other administrative functions. G&A expenses also include legal fees, professional fees paid for accounting, auditing, consulting services, advertising costs, and insurance costs.

G&A expenses increased by $831,280, or 22%, to $4,553,512 for the nine months ended June 30, 2024, compared to $3,722,232 for the comparative period ended June 30, 2023, primarily due to additional office and staff costs to support our R&D activities during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023. During the nine months ended June 30, 2024, G&A expenses primarily consisted of $1.7 million in personnel costs. During the period ended June 30, 2023, G&A primarily consisted of $2.4 million in personnel costs. During the nine months ended June 30, 2024 and 2023, $152,457 and $1,693,451, respectively, of our G&A expenses corresponded to equity-based compensation.

Revaluation of contingent consideration

Revaluation of contingent consideration corresponds to equity based contingent consideration corresponding to the ALIP technology we acquired which is revalued at the end of each financial quarter based on the closing stock price of our common shares.

The revaluation of contingent consideration was $385,500 for the nine months ended June 30, 2024, compared to $nil for the comparative period ended June 30, 2023, as a result of our acquisition of the ALIP technology on June 21, 2024.

Other Income

During the nine months ended June 30, 2024 and 2023, the company earned interest income of $109,559 and $1,753, respectively, on its cash held at a financial institution.

Liquidity and Capital Resources

We believe that our existing cash will fund our current operating and R&D plans through at least the next twelve months from the date of this Quarterly Report. Although we have negative operating cash outflows of $5,953,795 for the nine months ended June 30, 2024, and $2,691,775 for the nine months ended June 30, 2023, we had approximately $13.8 million in cash as of June 30, 2024 (compared to approximately $7.0 million as of September 30, 2023) and working capital of approximately $12.5 million as of June 30, 2024 (compared to approximately $6.9 million as of September 30, 2023). In addition, we received net proceeds of approximately $18.6 million from our Follow-on Offering and Follow-on Over-allotment Option in July 2024.

However, the future development of our business towards ultimate commercialization of our products will require significant amounts of cash resources. Since we do not anticipate generating meaningful revenues for several years, we intend to finance our future cash requirements for capital expenditures, R&D and business development activities and general working capital through public or private equity or debt financings, third-party (including government) funding, or any combination of these approaches. If we raise additional funds through further issuances of equity or equity-linked instruments, our existing stockholders could suffer significant dilution. Moreover, no assurances can be given that we will be able to raise required funding on favorable terms, if at all, and our inability to raise additional funding when needed could have a material adverse effect on our company and results of operations and could cause our business to fail.

Going Concern

As part of issuing our condensed consolidated financial statements, we evaluated whether there were any conditions and events that raise substantial doubt about our ability to continue as a going concern over the twelve months after the date the condensed consolidated financial statements are issued. Since inception, we have incurred significant operating losses, and have an accumulated deficit of approximately $14.9 million and negative operating cash flow during fiscal 2024 and fiscal 2023. Management expects that operating losses and negative cash flows may increase from the 2023 levels because of additional costs and expenses related to our R&D activities. Our continued solvency is dependent upon our ability to obtain additional working capital to complete our reactor development, to successfully market our reactors and to achieve commerciality for our reactors.

To date, we have not generated any revenue. We do not expect to generate any revenue unless and until we are able to commercialize our reactors. We will require additional capital to develop our reactors and to fund operations for the foreseeable future. We expect our costs to increase in connection with advancement of our reactors toward commercialization. While we believe that our existing cash may be sufficient to support the development of our reactors in the near-term, certain costs are not reasonably estimable at this time and we may require additional funding.

Management is of the opinion that sufficient working capital is available to meet our company’s liabilities and commitments as they come due for the next twelve months after the date the condensed consolidated financial statements are issued to conform to the going concern uncertainty period. In order to achieve our company’s long-term strategy, our company expects to raise additional capital or secure other sources of financing to support its growth.

Summary Statement of Cash Flows for the Nine Months Ended June 30, 2024, and the Nine Months Ended June 30, 2023

The following table sets forth the primary sources and uses of cash for the periods presented below:

Cash Flows used in Operating Activities

Net cash used by operating activities for the nine months ended June 30, 2024 was $5,953,795, which consisted of our net loss of $7,659,820, net of non-cash items of $992,850, and net of changes in working capital accounts. Net cash used by operating activities for nine months ended June 30, 2023 was $2,691,775, which consisted of our net loss of $4,904,229, net of non-cash items of $2,114,014, and net of changes in working capital accounts. Our cash used in operating activities increased by $3,262,020 during the nine months ended June 30, 2024, due to an increase in net loss and changes in working capital accounts. The significant increase in cash used in operating activities during the nine months ended June 30, 2024, when compared to the nine months ended June 30, 2023, was primarily due to increased R&D activities and additional office and staff costs to support our R&D activities during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

Cash Flows provided by Financing Activities

Net cash provided by financing activities for the nine months ended June 30, 2024 was $12,790,532 , which consisted of $14,253,937 in cash received from the issuance of shares of common stock less $1,408,405 in offering costs and less a $55,000 payment of deferred offering costs. Net cash provided by financing activities for the nine months ended June 30, 2023 was $8,690,369, which consisted of $8,765,369 in cash received from the issuance of shares of common stock less a $75,000 payment of deferred offering costs.

Commitments

We are a party to one short-term operating lease for office space under a cancelable operating lease that terminates at the end of August 2024 and one long-term operating lease for our corporate headquarters. We have one lease commitment corresponding to our corporate headquarters as of June 30, 2024. We did not have any lease commitments as of September 30, 2023. Our corporate headquarters is located at 10 Times Square, 30th Floor, New York, New York 10018, covering approximately 7,800 square feet. We lease this space for $33,605 per month whereby the monthly lease rent will increase by 2.5% on an annual basis. The lease has a term ending on July 31, 2031.

Off-Balance Sheet Arrangements

As of June 30, 2024, and September 30, 2023, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period ended June 30, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the evaluation date, our disclosure controls and procedures were effective as of June 30, 2024. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2024, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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