WESTWATER RESOURCES, INC. - Quarter Report: 2023 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

Or

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-33404

WESTWATER RESOURCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112

(Address of Principal Executive Offices, Including Zip Code)

(303) 531-0516

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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WESTWATER RESOURCES, INC.

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DEFINITIONS

When used in this Form 10-Q, the following terms have the meaning indicated.

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USE OF NAMES

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” “WWR,” “Westwater,” “Westwater Resources,” or the “Company” refer to Westwater Resources, Inc. and its subsidiaries.

CURRENCY

The accounts of the Company are maintained in U.S. dollars. All dollar amounts referenced in this Quarterly Report on Form 10-Q and the consolidated financial statements are stated in U.S. dollars.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(expressed in thousands of dollars, except share amounts)

(unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(expressed in thousands of dollars, except share and per share amounts)

(unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(expressed in thousands of dollars)

(unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(expressed in thousands of dollars, except share amounts)

(unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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WESTWATER RESOURCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements (the “Interim Financial Statements”) for Westwater Resources, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying Interim Financial Statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. The Interim Financial Statements are unaudited. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2023.

Reclassification

Certain amounts of non-cash lease expense within the Operating Activities section of the Condensed Consolidated Statement of Cash Flows as of September 30, 2022 have been reclassified to conform to the September 30, 2023 presentation. These reclassifications did not result in any changes in the net cash used in operating activities, net loss or changes in stockholders’ equity for the three and nine months ended September 30, 2023.

Significant Accounting Policies

Significant accounting policies are detailed in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which is effective for interim and annual periods beginning after December 15,2022. ASU 2016-13 changed how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies are required to estimate lifetime expected credit losses and recognize an allowance against the related instruments. For available for sale debt securities, companies are required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. This update results in earlier recognition of losses and impairments. The adoption of ASU 2016-13 did not result in a material impact to our Interim Financial Statements.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to ASC 326, Financial Instruments – Credit Losses,” which is effective for interim and annual periods beginning after December 15, 2022, and clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases are accounted for in accordance with ASC 842, Leases. The adoption of ASU 2018-19 did not result in a material impact to our Interim Financial Statements.

In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement – Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation – Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 – General Revision of Regulation S-X: Income or Loss Applicable to Common Stock.”  These updates were immediately effective and did not have a material impact on our Interim Financial Statements.

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2. LIQUIDITY AND GOING CONCERN

The Interim Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or may be unable to meet its obligations as they become due within one year after the date that these Interim Financial Statements were issued.

Management considered the following events and conditions in its going concern analysis. The Company last recorded revenues from operations in 2009. Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations. During the quarter ended September 30, 2023, and through the date that these Interim Financial Statements were issued, the Company continued construction activities related to the Kellyton Graphite Plant. However, while the Company has continued certain construction activities related to Phase I of the Kellyton Graphite Plant, those activities have been reduced from anticipated levels until the requisite additional funding needed to complete Phase I of the Kellyton Graphite Plant is in place. The Company’s construction-related contracts include termination provisions at the Company’s election that do not obligate the Company to make payments beyond what is incurred by the third-party service provider through the date of such termination.  In its going concern analysis, the Company considered construction activity and related costs through the date that the Interim Financial Statements were issued, and the Company’s planned non-discretionary expenditures for one year past the issue date of these Interim Financial Statements, which, in the aggregate, exceed the cash on hand as of the date of these Interim Financial Statements, excluding external funding opportunities and the Company’s current equity facilities.    

On September 30, 2023, the Company’s cash balance was approximately $11.7 million. During the nine months ended September 30, 2023, the Company sold 4.6 million shares of common stock for net proceeds of $4.1 million pursuant to the ATM Offering Agreement and 2020 Lincoln Park PA (see Note 4).

The Company has historically relied, and expects to continue to rely, on debt and equity financing to fund its operations and business plan until operations commence at the Kellyton Graphite Plant. Along with evaluating the continued use of the ATM Offering Agreement and the 2020 Lincoln Park PA, the Company is considering other forms of project financing to fund the construction of the Kellyton Graphite Plant. The alternative sources of project financing could include, but are not limited to, project debt, convertible debt, or pursuing a partnership or joint venture. If funds are not available to fund the construction of Phase I of the Kellyton Graphite Plant under the Company’s financing facilities or through alternative financing sources, the Company may be required to further reduce or severely curtail operations, change its planned business development strategies related to the Coosa Graphite Deposit and Phase I of the Kellyton Graphite Plant, alter the construction and commissioning timeline of Phase I of the Kellyton Graphite Plant, or put the construction of Phase I on hold until additional funding is obtained.  If the Company is required to abandon construction and development or alter its intended long-term plans related to the Kellyton Graphite Plant, the Company could be required to evaluate the recoverability of its long-lived assets.    

While the Company has utilized its equity facilities to advance its business plan and has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available in amounts sufficient to meet the needs of, or on terms acceptable to, the Company. Recent declines in the equity and debt capital markets, high interest rates, inflation, generally uncertain economic conditions and unstable geopolitical conditions could significantly impact the Company’s ability to access the necessary funding to advance its business plan.  Further, on March 13, 2023, the Company filed a prospectus supplement to its existing shelf registration statement on Form S-3 (the “Registration Statement”) and as a result, the Company’s access to the available capacity under the Registration Statement, is now subject to General Instruction I.B.6 of Form S-3, which limits the amount that the Company may sell under the Registration Statement. As of September 30, 2023, after giving effect to these limitations and the current public float of our common stock, and after giving effect to the terms of the ATM Offering Agreement, we currently may offer and sell shares of our common stock having an aggregate offering price of up to approximately $17.3 million under the ATM Offering Agreement, which amount is in addition to the shares of common stock that we have sold to date in accordance with the ATM Offering Agreement under the Registration Statement and prospectus supplements thereto. If our public float increases such that we may sell additional amounts under the ATM Offering Agreement and the Registration Statement, we will file another prospectus supplement prior to making additional sales.

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When considering the above events and conditions in the aggregate, the Company believes such events and conditions raise substantial doubt about its ability to continue as a going concern within one year after the date that these Interim Financial Statements were issued.

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3. PROPERTY, PLANT AND EQUIPMENT

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Construction in Progress

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Construction in progress represents assets that are not ready for service or are in the construction stage. Assets are depreciated based on the estimated useful life of the asset once it is placed in service.

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Impairment of Property, Plant and Equipment

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The Company reviews and evaluates its long-lived assets for impairment on an annual basis or more frequently when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. For the nine months ended September 30, 2023, no events or changes in circumstance are believed to have impacted recoverability of the Company’s long-lived assets. Accordingly, it was determined that no interim impairment was necessary.  As discussed in Note 2, if the Company is required to abandon construction and development or alter its intended long-term plans related to the Kellyton Graphite Plant, the Company could be required to evaluate the recoverability of its long-lived assets.

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4. COMMON STOCK

Common Stock Issued, Net of Issuance Costs

December 2020 Purchase Agreement with Lincoln Park Capital Fund, LLC

On December 4, 2020, the Company entered into the 2020 Lincoln Park PA with Lincoln Park to place up to either $100.0 million or 16.0 million shares in the aggregate of the Company’s common stock on an ongoing basis over a term of 36 months. The Company controls the timing and amount of any sales to Lincoln Park, and Lincoln Park is obligated to make purchases in accordance with the 2020 Lincoln Park PA. Any common stock that is sold to Lincoln Park will occur at a purchase price that is based on an agreed upon fixed discount to the Company’s prevailing market prices at the time of each sale and with no upper limits on the price Lincoln Park may pay to purchase common stock. The Lincoln Park PA may be terminated by the Company at any time, in its sole discretion, without any additional cost or penalty.

The 2020 Lincoln Park PA specifically provides that the Company may not issue or sell any shares of its common stock under the agreement if such issuance or sale would breach any applicable rules of the NYSE American Stock Exchange (“NYSE American”). In particular, NYSE American General Rule 713(a) provides that the Company may not issue or sell more than 19.99% of the number of shares of the Company’s common stock that were outstanding immediately

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prior to the execution of the 2020 Lincoln Park PA unless (i) shareholder approval is obtained or (ii) the average price of all applicable sales of common stock to Lincoln Park under the 2020 Lincoln Park PA, equals or exceeds $6.15. The Company held its 2021 Annual Shareholders Meeting on May 21, 2021 and obtained shareholder approval for the issuance of more than 19.99% of the shares of the Company’s common stock outstanding under the 2020 Lincoln Park PA.

Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the 2020 Lincoln Park PA if it would result in Lincoln Park beneficially owning more than 9.99% of the Company’s common stock at any one point in time.

Since inception and through September 30, 2023, the Company has sold 7.1 million shares of common stock to Lincoln Park pursuant to the 2020 Lincoln Park PA.

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During the three months ended September 30, 2023, the Company did not sell any shares of common stock pursuant to the 2020 Lincoln Park PA.  During the nine months ended September 30, 2023, the Company sold 0.9 million shares of common stock for net proceeds of $0.8 million pursuant to the 2020 Lincoln Park PA.  During the three and nine months ended September 30, 2022, the Company did not sell any shares of common stock pursuant to the 2020 Lincoln Park PA.

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Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co.

On April 14, 2017, the Company entered into the ATM Offering Agreement with Cantor acting as the sales agent. Under the ATM Offering Agreement, the Company may from time to time sell shares of its common stock in “at-the-market” offerings. The Company pays Cantor a commission of up to 2.5% of the gross proceeds from the sale of any shares pursuant to the ATM Offering Agreement.

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During the three and nine months ended September 30, 2023, the Company sold 1.4 million and 3.7 million shares of common stock for net proceeds of $1.2 million and $3.3 million, respectively, pursuant to the ATM Offering Agreement.  The Company sold 0.8 million and 12.6 million shares of common stock for net proceeds of $1.1 million and $25.6 million, respectively, pursuant to the ATM Offering Agreement for the three and nine months ended September 30, 2022.  

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Sales made under the ATM Offering Agreement are made pursuant to the prospectus supplement filed March 13, 2023 which amends and supplements the prospectus supplement filed pursuant to Rule 424(b)(5), which registered for sale up to a total of $50.0 million of the Company’s common stock, which was filed on August 20, 2021 as a takedown off the Company’s Registration Statement, which was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on July 8, 2021.  The Company is subject to General Instruction I.B.6 of Form S-3, which limits the amount that we may sell under the Registration Statement. After giving effect to these limitations and the current public float of our common stock, and after giving effect to the terms of the ATM Offering Agreement, we currently may offer and sell shares of our common stock having an aggregate offering price of up to approximately $17.3 million under the ATM Offering Agreement, which amount is in addition to the shares of common stock that we have sold to date in accordance with the ATM Offering Agreement under the Registration Statement and prospectus supplements thereto. If our public float increases such that we may sell additional amounts under the ATM Offering Agreement and the Registration Statement, we will file another prospectus supplement prior to making additional sales.

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As of September 30, 2023, the Company has received total gross proceeds of $32.6 million under the ATM Offering Agreement.  Of the total gross proceeds received, $1.9 million has been received while the Company has been subject to General Instruction I.B.6 of Form S-3 discussed above.

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5. STOCK-BASED COMPENSATION

Stock-based compensation awards consist of stock options, restricted stock units and bonus shares issued under the Company’s equity incentive plans, which include the 2013 Omnibus Incentive Plan (the “2013 Plan”), and the Employment Inducement Incentive Award Plan (the “Inducement Plan”).

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On May 10, 2023, the Company’s stockholders approved an amendment to the 2013 Plan to increase the authorized number of shares of common stock available and reserved for issuance under the 2013 Plan by 1,500,000 shares.

Under the 2013 Plan, the Company may grant awards of stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to eligible persons. Equity awards under the 2013 Plan are granted from time to time at the discretion of the Compensation Committee of the Board (the “Committee”), with vesting periods and other terms as determined by the Committee with a maximum term of 10 years. The 2013 Plan is administered by the Committee, which can delegate the administration to the Board, other committees or to such other officers and employees of the Company as designated by the Committee and permitted by the 2013 Plan. As of September 30, 2023, 602,629 shares were available for future issuances under the 2013 Plan.  

The Inducement Plan provides for the grant of equity-based awards, including restricted stock units, restricted stock, performance shares and performance units. Under the Inducement Plan, the Company may grant equity awards for the sole purpose of recruiting and hiring new employees.  As of September 30, 2023, 114,429 shares were available for future issuances under the Inducement Plan.

The Company has elected to account for forfeitures as they occur rather than estimating forfeitures.  Expense associated with an award that is forfeited prior to vesting will be reversed accordingly.  For the three and nine months ended September 30, 2023 the Company recorded stock-based compensation expense of $0.4 million and $0.5 million, respectively, compared to $0.3 million and $0.7 million, respectively, for the same periods in 2022.  Stock compensation expense is recorded in general and administrative expenses.

Stock Options

Stock options are valued using the Black-Scholes option pricing model on the date of grant. The Company accounts for forfeitures upon occurrence.

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The following table summarize stock options outstanding and changes for the nine months ended September 30, 2023:

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All options outstanding for the nine months ended September 30, 2023, were issued under the 2013 Plan.  The weighted average remaining term for stock options outstanding as of September 30, 2023, is approximately 8.0 years.

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As of September 30, 2023, the Company had less than $0.1 million of unrecognized compensation costs related to non-vested stock options that will be recognized over a period of approximately nine months.

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Restricted Stock Units

Time-based and performance-based RSUs are valued using the closing share price of the Company’s common stock on the date of grant. The final number of shares issued under performance-based RSUs is generally based on the Company’s prior year performance as determined by the Committee at each vesting date, and the valuation of such awards assumes full satisfaction of all performance criteria.  The Company accounts for forfeitures upon occurrence.

The following table summarizes RSU activity for the nine months ended September 30, 2023 and 2022:

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As of September 30, 2023, the Company had $0.9 million of unrecognized compensation costs related to non-vested restricted stock units that will be recognized over a period of approximately 2.25 years.

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6. OTHER INCOME (EXPENSE), NET

For the three and nine months ended September 30, 2023, the Company had the following components within other income (expense), net.

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7. EARNINGS PER SHARE

Basic and diluted loss per common share have been calculated based on the weighted-average shares outstanding during the period. Additionally, 2,182,057 potentially dilutive shares, comprised of unvested RSUs and outstanding stock options at the end of the period, were excluded from the calculation of earnings per share because the effect on the basic income per share would be anti-dilutive, as the Company had a net loss for the three and nine months ended September 30, 2023.

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8. COMMITMENTS AND CONTINGENCIES

Future operations on the Company’s properties are subject to federal and state regulations for the protection of the environment, including air and water quality. The Company evaluates the status of current environmental laws and their potential impact on current operating costs and accrual for future costs. The Company believes its operations are materially compliant with current, applicable environmental regulations.

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At any given time, the Company may enter into negotiations to settle outstanding legal proceedings and any resulting accruals will be estimated based on the relevant facts and circumstances applicable at that time. We do not expect that such settlements will, individually or in the aggregate, have a material effect on our financial position, results of operations or cash flows.

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On December 13, 2018, Westwater filed a Request for Arbitration against the Republic of Turkey before the International Centre for the Settlement of Investment Disputes (“ICSID”), pursuant to the Treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragement and Protection of Investments (the “Treaty”), seeking damages and other relief. The Request for Arbitration was filed as a result of the Republic of Turkey’s unlawful actions against the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary Adur Madencilik Limited Sirketi (“Adur”). Specifically, in June 2018, the Turkish government cancelled all of Adur’s exploration and operating licenses with retroactive effect, rendering Westwater’s investment in Adur effectively worthless. On March 3, 2023, the arbitral tribunal issued its final award in the proceeding. The tribunal agreed with Westwater that Westwater’s investment in Turkey was protected by the Treaty, and that Turkey’s cancellation of the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Adur amounted to an expropriation of Westwater’s investment in violation of Turkey’s obligations under the Treaty. The tribunal disagreed with Westwater’s projections of what its investment was worth and how much the investment would have returned if Turkey had not cancelled the licenses. The tribunal’s award requires Turkey to pay Westwater approximately $1.3 million in damages, approximately $3.7 million to reimburse Westwater for its fees, expenses and costs of the arbitration, and interest in an amount yet to be determined.

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In Westwater’s arbitration proceeding against the Republic of Turkey, subsequent to the issuance of the tribunal’s decision on March 3, 2023, Westwater filed a Notice of Rectification on April 14, 2023. Turkey filed its response on May 19, 2023; Westwater filed its reply on June 2, 2023; and Turkey filed its rejoinder on June 14, 2023. The Notice of Rectification sought to correct an error in the tribunal’s calculation of the amount of the award. On July 27, 2023, the tribunal issued its decision, denied Westwater’s request for rectification, and awarded Turkey approximately $54 thousand for its costs.

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As of September 30, 2023, Westwater has not recognized the tribunal’s award in its consolidated financial statements. Recognition of the tribunal’s award in Westwater’s consolidated financial statements occurs when and if collection is probable.

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9. LEASES

The Company’s lease portfolio consists of an operating lease for the corporate office (the “office lease”) and other small operating and finance leases for office equipment in the Alabama office.  In May 2023, the office lease was extended for an additional three years, effective August 2023.  The Company accounted for the lease extension as a lease modification.  The office lease includes an option to extend the lease term for an additional three years, however, the renewal option and any option to terminate is not reasonably certain as of September 30, 2023. Under our office lease, a component of our payment is to cover our proportion of the building’s operating expenses.  Because these amounts are related to common area maintenance of the leased space, they are considered a non-lease component and are not included in the measurement of the right-of-use asset and related lease liability, but rather expensed in the period incurred.  The remaining lease terms for the office equipment leases ranges from 2.6 to 3.8 years.

The Company is party to several leases that have terms that are less than a year in length. These include leases for land used in exploration activities, office equipment, machinery, office space, storage and other. The Company has elected the short-term lease exemption allowed under the new leasing standards, whereby leases with initial terms of one year or less are not capitalized and instead expensed on a straight-line basis over the lease term. In addition, the Company holds several leases related to mineral exploration and production to which it has not applied the new leasing standard. Leases to explore or use minerals and similar nonregenerative resources are specifically excluded by ASC 842, “Leases.”

The right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities were

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recognized at the commencement date of the lease based on the present value of lease payments over the lease term using discount rates that range from 3.00% to 12.00%.  These rates are either implicit within the lease contract or reflected at the Company’s estimated incremental borrowing rate at the lease commencement dates.

For equipment leases that contain a variable lease component, the variable payment is typically based upon the amount of use of the leased equipment.  For our office lease, the variable lease payment is based on the Company’s estimated portion of the total operating expenses of the building.

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The components of lease cost are as follows:

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Supplemental cash flow information related to the Company’s leases are as follows:

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Weighted-average remaining lease term and discount rate for the Company’s operating lease are as follows:

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Maturities of lease liabilities for the Company’s leases is as follows:

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As of September 30, 2023, the Company has $0.4 million in right-of-use assets and $0.4 million in related lease liabilities ($0.1 million of which is current). The most significant operating lease is for the Company’s corporate office in

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Centennial, Colorado, with $0.4 million remaining in undiscounted cash payments through the end of the lease term in 2026.

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As of September 30, 2023, the Company has entered into certain leases that have not yet commenced.  Each of the leases relate to equipment to be used at the Kellyton Graphite Plant and will commence in the last quarter of 2023 with lease terms of 5 years.  The net present value of such leases is $1.1 million.

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10. INVENTORY

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Inventory consisted of raw material of natural flake graphite concentrate provided by a third-party vendor totaling $4.6 million as of September 30, 2023.  The full amount of inventory is within the “Other long-term assets” line item on the Condensed Consolidated Balance Sheets.  The Company values the natural flake graphite concentrate at the lower of cost or net realizable value.  Net realizable value represents the estimated future sales price of the product based on current and long-term graphite prices, less the estimated costs to complete production and bring the product to sale. Write-downs of the natural flake graphite concentration to net realizable value are reported as a component of costs applicable to sales. The current portion of inventory is determined based on the expected amounts to be processed within the next 12 months and utilize the short-term metal price assumption in estimating net realizable value. Inventory not expected to be processed within the next 12 months is classified as non-current within other long-term assets and we utilize the long-term metal price assumption in estimating net realizable value. Costs are removed from raw materials using an average cost basis.  For the three and nine months ended September 30, 2023, there were no write downs of the Company’s inventory.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of the consolidated financial results and financial condition of Westwater for the three and nine months ended September 30, 2023 has been prepared based on information available to us as of November 14, 2023. This discussion should be read in conjunction with the unaudited Interim Financial Statements and Notes thereto included herewith and the audited Consolidated Financial Statements of Westwater for the period ended December 31, 2022 and the related notes thereto included in our Annual Report, which were prepared in accordance with U.S. GAAP. This management’s discussion and analysis contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth elsewhere in this report. See “Cautionary Note Regarding Forward-Looking Statements” herein.

INTRODUCTION

Westwater Resources, Inc., originally incorporated in 1977, is an energy technology company focused on developing battery-grade natural graphite materials since its acquisition of Alabama Graphite in April 2018. Alabama Graphite holds mineral rights to explore and potentially mine the Coosa Graphite Deposit. During the first three quarters of 2023, AGP continued construction activities related to Phase I of the Kellyton Graphite Plant. The Coosa Graphite Deposit is located near Rockford, Alabama.

RECENT DEVELOPMENTS

33% Increase in Phase I Planned Production

During the third quarter of 2023, Westwater completed a debottlenecking study with its third-party engineering firm resulting in a 33% increase in anticipated coated spherical purified graphite (“CSPG”) production for Phase I of the Kellyton Graphite Plant.  As a result of this study, Westwater now expects CSPG production of 10,000 mt per year for Phase I of the Kellyton Graphite Plant.  The Company is reiterating its prior estimate of total costs of Phase I construction to be approximately $271 million.

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Customer Engagement Update

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As previously announced, Westwater has a JDA with SK On, a leading electric vehicle battery manufacturer.  SK On has provided testing feedback to the Company regarding samples produced by Westwater under the JDA.  If a supply agreement is executed between the parties, the Company anticipates it would then supply a mass production sample to SK On as part of its formal qualification process.

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Additionally, Westwater has signed general terms and conditions for a supply agreement with a North American automobile manufacturing company and is negotiating a possible offtake agreement with this company for potentially up to all of Westwater’s Phase I and Phase II production capacity.

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Westwater continues to engage with other potential customers who have tested samples of CSPG produced by the Company. Feedback from certain potential customers indicates that Westwater’s material meets their initial specifications. Westwater is continuing to provide additional samples to these potential customers and current counterparty interest indicates that Westwater's Phase I and Phase II production capacity may be subject to commercial contracts in 2023 or 2024.  

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Kellyton Graphite Plant – Construction Update

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During the third quarter of 2023, the Company continued construction activities related to Phase I of its Kellyton Graphite Plant, including the receipt of additional long-lead equipment components, completing the construction of five of six primary plant buildings, and installation of overhead cranes ahead of equipment installation. Westwater has constructed and is currently operating its research and development laboratory (“R&D Lab”). The R&D Lab allows Westwater to continue product development and optimization under the JDA with SK On and other potential customers, and to perform additional quality control tests.  It also affords greater flexibility to optimize future samples in accordance with customer specifications. Further, in August, Westwater began installing micronizers, shaping mills, and steel in its shaping building.  

Since inception of the project, and inclusive of liabilities as of September 30, 2023, the Company has incurred cost of approximately $116.7 million related to construction activities for Phase I of the Kellyton Graphite Plant.  While the Company has continued construction activities related to Phase I of the Kellyton Graphite Plant during the third quarter, Westwater has reduced the level of construction activity from anticipated levels, including adjusting the timing of future work, until receipt of the requisite additional funding needed to complete construction of Phase I of the Kellyton Graphite Plant.  Reducing the level of construction activity until financing is secured is expected to impact the overall schedule to complete Phase I of the Kellyton Graphite Plant.  The Company expects to provide an update on construction timing once, and if, the requisite funding is secured.

Construction Financing Update

Westwater continues its efforts to partake in a financing transaction to fund the balance of the estimated capital requirements for construction of Phase I of the Kellyton Graphite Plant. Westwater is currently engaged in discussions with entities related to the financing of the Kellyton Graphite Plant. Concerns in the market regarding the availability of critical minerals for battery products and the need for domestically sourced critical minerals, particularly in light of current geopolitical conditions, has led to interest in the Kellyton Graphite Plant by these potential financing sources. Management believes that the execution of a commercial agreement to sell some portion of its anticipated CSPG production may be a condition precedent to securing the requisite financing needed to complete construction of Phase I of the Kellyton Graphite Plant.  Even with the execution of a commercial agreement to sell some portion of the Company’s anticipated CSPG production, no assurance can be given that additional financing will be available, or in amounts sufficient to meet its needs, or on terms acceptable to the Company.

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Coosa Graphite Deposit

Through its wholly owned subsidiary, Alabama Graphite, Westwater holds mineral rights across 41,965 acres of the Alabama graphite belt in Coosa County, Alabama. During the third quarter, Westwater continued preparing the preliminary economic assessment (“PEA”) for the Coosa Graphite Deposit.  The PEA will expand on the Technical Report

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Summary (“TRS”) that was prepared as an initial assessment in accordance with S-K 1300 and filed with the SEC on Form 8-K on December 6, 2022. The PEA will include an economic assessment based on the TRS and an initial mine plan. Westwater expects to complete and disclose the results of the PEA in the fourth quarter of 2023.  

Upon completion of the PEA, Westwater anticipates commencing a strategic financing review process for the Coosa Deposit.  This strategic financing review process will seek to identify financial investment sources and partners for the Coosa Deposit, and may include review of strategic investment partners or other strategic transactions.

Graphite and Vanadium as Critical Materials

Presently, the United States is almost 100% dependent on imports for battery-grade graphite, which is currently the primary anode material in the lithium-ion batteries that power electric vehicles, smartphones, and laptops, and store power generated from intermittent renewable energy sources. Westwater intends to process natural flake graphite into battery-grade graphite for all types of batteries including lithium-ion batteries.

On March 31, 2022, President Biden invoked the Defense Production Act to encourage the domestic production of critical materials, including graphite, for advanced batteries for electric vehicles and clean energy storage.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act (“IRA”).  This legislation includes an investment of $369 billion in climate programs.  The IRA provides a 10% tax credit for the costs of producing certain critical minerals, including graphite and vanadium.  This credit is eligible for direct pay and is also transferable to unrelated taxpayers.  In addition, a key provision of the IRA that could indirectly benefit the Company is the Clean Vehicle credit.  The IRA eliminates the previous limitation on the number of electric vehicles a manufacturer can sell before the Clean Vehicle credit is phased out or eliminated.  Further, the IRA sets a minimum domestic content threshold for the percentage of the value of applicable critical minerals contained in the battery of the electric vehicles. Because Westwater intends to produce battery grade graphite for lithium-ion batteries to be used in electric vehicles in the United States, management believes the domestic content requirement could provide indirect future benefit to the Company.

On April 12, 2023, the U.S. Environmental Protection Agency (the “EPA”) announced new proposed federal vehicle emissions standards that will accelerate the ongoing transition to a clean vehicle future. The proposed standards align with commitments made by automakers and U.S. states as they plan to accelerate adoption of clean vehicle technologies in the light- and medium-duty fleets in the next 10 to 15 years. Under the proposed light-duty vehicle standards, the EPA will require increasingly stringent greenhouse gas standards, which by model year 2032 would result in an industry-wide average target of 82 grams of carbon dioxide created per mile traveled. This represents a 56% decrease from the model year 2026 standard set in 2021. For medium-duty vehicles, the EPA is proposing a target of 275 grams of carbon dioxide created per mile traveled by model year 2032, which would represent a 44% reduction compared to the model year 2026 standard. Car and truck companies are moving to include electric vehicles as an integral and growing part of current and future product lines, leading to an increasing variety of clean vehicles for consumers.

In October 2023, The People’s Republic of China announced a new set of export restrictions on certain graphite products. Beginning on December 1, 2023, Chinese exporters will be required to apply for permits to ship two types of graphite material, including “high-purity, high-hardness and high-intensity synthetic graphite material and natural flake graphite and its products.”  Nearly 100% of today’s battery-grade, natural graphite materials involve processing in China.  These new export restrictions are expected to increase prices of Chinese graphite materials and could disrupt global production of electric vehicle batteries.  

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Westwater has developed graphite-purification technology and advanced product-development processes designed to meet the demands of potential customers for battery-grade graphite materials. Westwater is developing methodologies and constructing facilities intended to produce high purity, battery-grade graphite products at its Kellyton Graphite Plant. These products are being designed to serve all major battery sectors. In addition, we believe the processes we intend to use are environmentally sustainable and permittable in the United States, where a robust regulatory environment complements our core values to reliably deliver safe, well-made products to our customers.

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Westwater has supported, and will continue to support, the efforts by the relevant United States governmental agencies, the State of Alabama and local municipalities to ensure that they remain aware of the importance of natural battery-grade graphite, its importance to the nation’s security, and how the Kellyton Graphite Plant and the Coosa Graphite Deposit fit into the critical minerals-equation.

Equity Financings

Capital Raises during three and nine months ended September 30, 2023

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During the three and nine months ended September 30, 2023 the Company sold 1.4 million and 3.7 million shares of common stock for net proceeds of $1.2 million and $3.3 million, respectively, pursuant to the ATM Offering Agreement.  During the three months ended September 30, 2023, the Company did not sell any shares of common stock pursuant to the 2020 Lincoln Park PA.  During the nine months ended September 30, 2023, the Company sold 0.9 million shares of common stock for net proceeds of $0.8 million pursuant to the 2020 Lincoln Park PA resulting in a cash balance of approximately $11.7 million at September 30, 2023.  

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See Note 4 to the Interim Financial Statements for additional information.

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RESULTS OF OPERATIONS

Summary

Our net loss for the three months ended September 30, 2023, was $3.5 million, or $0.07 per share, as compared with a net loss of $3.5 million, or $0.07 per share for the same period in 2022.  The Company’s net loss position remained flat despite higher costs related to product development; offset by less foreign exchange loss during the period.

Our net loss for the nine months ended September 30, 2023, was $9.5 million, or $0.19 per share, as compared with a net loss of $9.4 million, or $0.21 per share for the same period in 2022.  The $0.1 million increase in our net loss from the prior year period was due primarily to higher product development costs during the period; partially offset by lower costs for exploration activities, higher interest income earned on our cash balance, and less foreign exchange loss during the period.

Product Development Expenses

Product development expenses for the three and nine months ended September 30, 2023, were $1.0 million and $2.7 million, respectively, an increase of $0.7 million and $1.8 million compared to the same periods in 2022, respectively. Higher product development costs for the three and nine months ended September 30, 2023, compared to the same periods in 2022, are due primarily to additional sample production of battery-grade natural graphite products for evaluation by potential customers and work being performed under the JDA.  As the Company works with SK On under the JDA and engages with other potential customers, additional samples are required to be prepared, and in some cases, in larger quantities for evaluation and testing by potential customers.

Exploration Expenses

Exploration expenses for the three months ended September 30, 2023 remained flat compared to the same quarter in 2022.  For the nine months ended September 30, 2023, costs decreased by $0.4 million compared to the same period in 2022, due to the Company completing its initial drilling program related to the Coosa Graphite Deposit in April 2022.  

General and Administrative Expenses

General and administrative expense for the three and nine months ended September 30, 2023, were $2.5 million and $7.6 million, respectively, a decrease of $0.1 million and an increase of $0.1 million compared to the same periods in 2022, respectively.  For the three months ended September 30, 2023, the decrease in costs primarily related to a reduction in personnel and associated overhead costs.  For the nine months ended September 30, 2023, the increase in costs includes approximately $0.3 million for severance charges related to the departure of the Company’s former Chief Executive

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Officer in January 2023; partially offset by approximately $0.2 million of stock award forfeitures related to his departure in January 2023.  

Arbitration Costs

During the three months ended September 30, 2023 and 2022, the Company did not incur any arbitration costs. During the nine months ended September 30, 2023, the Company did not incur any arbitration costs compared to $0.1 million in the same period in 2022.  

On December 13, 2018, Westwater filed a Request for Arbitration against the Republic of Turkey before the International Centre for the Settlement of Investment Disputes (“ICSID”), pursuant to the Treaty between the United States of America and the Republic of Turkey concerning, the Reciprocal Encouragement and Protection of Investments (the “Treaty”), seeking damages and other relief. The Request for Arbitration was filed as a result of the Republic of Turkey’s unlawful actions against the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Westwater’s Turkish subsidiary Adur Madencilik Limited Sirketi (“Adur”). Specifically, in June 2018, the Turkish government cancelled all of Adur’s exploration and operating licenses with retroactive effect, rendering Westwater’s investment in Adur effectively worthless. On March 3, 2023, the arbitral tribunal issued its final award in the proceeding. The tribunal agreed with Westwater that Westwater’s investment in Turkey was protected by the Treaty, and that Turkey’s cancellation of the Company’s licenses for the Temrezli and Sefaatli uranium projects owned by Adur amounted to an expropriation of  Westwater’s investment in violation of Turkey’s obligations under the Treaty. The tribunal disagreed with Westwater’s projections of what its investment was worth and how much the investment would have returned if Turkey had not cancelled the licenses. The tribunal’s award requires Turkey to pay Westwater a total of approximately $1.3 million in damages, approximately $3.7 million to reimburse Westwater for its fees, expenses and costs of the arbitration, and interest in an amount yet to be determined.

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In Westwater’s arbitration proceeding against the Republic of Turkey, subsequent to the issuance of the tribunal’s decision on March 3, 2023, Westwater filed a Notice of Rectification on April 14, 2023. Turkey filed its response on May 19, 2023; Westwater filed its reply on June 2, 2023; and Turkey filed its rejoinder on June 14, 2023. The Notice of Rectification sought to correct an error in the tribunal’s calculation of the amount of the award. On July 27, 2023, the tribunal issued its decision, denied Westwater’s request for rectification, and awarded Turkey approximately $54 thousand for its costs.

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As of September 30, 2023, Westwater has not recognized the tribunal’s award in its consolidated financial statements. Recognition of the tribunal’s award in Westwater’s consolidated financial statements occurs when and if collection is probable.

Other Income (Expense)

Other income (expense) for the three and nine months ended September 30, 2023, increased by $0.5 million and $1.3 million, respectively, compared to the same periods in 2022, due to less foreign exchange loss for the three and nine months ended September 30, 2023, as well as higher interest income on our cash accounts for the nine month period ended September 30, 2023.

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FINANCIAL POSITION

Operating Activities

Net cash used in operating activities of $12.2 million for the nine months ended September 30, 2023, represents an increase of $3.6 million compared to the same period in 2022. The increase in cash used in operating activities was due to an increase in other long-term assets of $2.9 million primarily related to purchases of raw material inventory and higher product development expenses of $1.8 million. These increases were partially offset by other income (expense) of $1.3 million resulting from higher interest income earned on the Company’s cash balance and less foreign exchange loss during the period.

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Investing Activities

Net cash used in investing activities increased by $23.3 million for the nine months ended September 30, 2023, as compared to the same period in 2022. The increase was a result of higher capital expenditures related to the construction of Phase I of the Kellyton Graphite Plant, which began construction related activities in December 2021. The capital expenditures in the first nine months of 2023 included the receipt of additional long-lead equipment components, completing the construction of five primary plant buildings and installation of overhead cranes ahead of equipment installation.  The Company also continued engineering related to the Phase I optimization and construction of the R&D Lab, which is currently in operation. Further, in August, Westwater began installing micronizers, shaping mills, and steel in its shaping building. During the same period in 2022, activity included earthwork and site grading, which was completed in July 2022, progress payments related to long-lead equipment items, work on underground utilities and foundations, and detailed design engineering and project management activities.

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Financing Activities

Net cash provided by financing activities was $4.0 million for the nine months ended September 30, 2023, comprised of sales of common stock through the Company’s ATM Offering Agreement and 2020 Lincoln Park PA. Net cash provided by financing activities for the same period in 2022 was $25.6 million. The $21.6 million decrease was primarily due to lower sales activity under the ATM Offering Agreement during the first nine months of 2023 compared to the same period in 2022.

LIQUIDITY AND CAPITAL RESOURCES

Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations. During the nine months ended September 30, 2023, the Company continued construction activities related to the Kellyton Graphite Plant. However, while the Company has continued certain construction activities related to Phase I of the Kellyton Graphite Plant, those activities have been reduced from anticipated levels until the requisite additional funding needed to complete Phase I of the Kellyton Graphite Plant is in place to best allocate our use of cash. The Company’s construction related contracts include termination provisions at the Company’s election that do not obligate the Company to make payments beyond what is incurred by the third-party service provider through the date of such termination. In its going concern analysis, the Company considered construction activity and related costs through the date that the Interim Financial Statements were issued, and the Company’s planned non-discretionary expenditures for one year past the issue date of these Interim Financial Statements, which, in the aggregate, exceed the cash on hand as of the date of these Interim Financial Statements, excluding external funding opportunities and the Company’s current equity facilities.

On September 30, 2023, the Company’s cash balance was approximately $11.7 million. During the nine months ended September 30, 2023, the Company sold 4.6 million shares of common stock for net proceeds of $4.1 million pursuant to the ATM Offering Agreement and 2020 Lincoln Park PA.  As of September 30, 2023, the Company may offer and sell shares of its common stock having an aggregate offering price of up to approximately $17.3 million under the ATM Offering Agreement and has 8.8 million shares of common stock available for future sales pursuant to the 2020 Lincoln Park PA.

The Company has historically relied and expects to continue to rely, on debt and equity financing to fund its operations and business plan until operations commence at the Kellyton Graphite Plant. Along with evaluating the continued use of the ATM Offering Agreement and the 2020 Lincoln Park PA, the Company is considering other forms of project financing to fund the construction of the Kellyton Graphite Plant, including both Phase I and Phase II.  The alternative sources of project financing could include, but are not limited to, project debt, convertible debt, or pursuing a partnership or joint venture. If funds are not available to fund the construction of Phase I of the Kellyton Graphite Plant under the  Company’s financing facilities or through alternative financing sources, the Company may be required to reduce or severely curtail operations, change its planned business development strategies related to the Coosa Graphite Deposit and Phase I of the Kellyton Graphite Plant, alter the construction and commissioning timeline of Phase I of the Kellyton Graphite Plant, or put the construction of Phase I on hold until additional funding is obtained. If the Company is required to abandon construction and development or alter its intended long-term plans related the Kellyton Graphite Plant, the Company could be required to evaluate the recoverability of its long-lived assets.

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While the Company has utilized its equity facilities to advance its business plan and has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available in amounts sufficient to meet its needs, or on terms acceptable to the Company. Recent declines in the equity and debt capital markets, rising interest rates, inflation and generally uncertain economic conditions could significantly impact the Company’s ability to access the necessary funding to advance its business plan. Further, on March 13, 2023, the Company filed a prospectus supplement to the Registration Statement and as a result, the Company’s access to the available capacity under the Registration Statement is now subject to General Instructions I.B.6 of Form S-3, which limits the amounts that the Company may sell under the Registration Statement. As of September 30, 2023, after giving effect to these limitations and the current public float of our common stock, and after giving effect to the terms of the ATM Offering Agreement, we currently may offer and sell shares of our common stock having an aggregate offering price of up to approximately $17.3 million under the ATM Offering Agreement, which amount is in addition to the shares of common stock that we have sold to date in accordance with the ATM Offering Agreement under the Registration Statement and prospectus supplements thereto.  If our public float increases such that we may sell additional amounts under the ATM Offering Agreement and the Registration Statement, we will file another prospectus supplement prior to making additional sales.

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OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

With the exception of historical matters, the matters discussed in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements regarding the adequacy of funding, liquidity, access to capital, financing activities, the timing or occurrence of any future drilling or production from the Company’s properties, economic conditions, the strategic goals of the business, arbitration matters, costs of Phase I of the Kellyton Graphite Plant and estimated construction and commissioning timeline and completion date, the outcome of the feasibility study and start date for the mining of the Coosa Graphite Deposit, and the Company’s anticipated cash burn rate and capital requirements. Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” “target” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, among others:

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In addition, other factors are described in our Annual Report, and the other reports we file with the SEC. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth herein, contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any forward-looking statements made herein, except as required by law.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information in our Quarterly Reports.

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