UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1-SA
SEMIANNUAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period ended: June 30, 2023
Energy Exploration Technologies, Inc.
(Exact name of issuer as specified in its charter)
| Puerto Rico | 66-0912748 | |
| (State or other jurisdiction | (IRS Employer | |
| of incorporation or organization) | Identification No.) | |
| 1624 Headway Circle, Suite 100, | ||
| Austin TX, | 78754 | |
| (Full mailing address of principal executive offices) | (Zip code) | |
512-222-6677
(Issuer’s telephone number, including area code)
Item 1. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Semiannual Report contains forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Such forward-looking statements include statements regarding, among others, (a) our growth strategies, (b) our future financing plans, and (c) our anticipated needs for working capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words, including but not limited to, ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘approximate,’’ ‘‘estimate,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘budget,’’ ‘‘could,’’ ‘‘forecast,’’ ‘‘might,’’ ‘‘predict,’’ ‘‘shall’’ or ‘‘project,’’ or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found in this Semiannual Report.
These financial statements should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2022, contained in the Company’s 1-K Annual Report, filed with the Securities and Exchange Commission on May 1, 2023 and with the unaudited financial statements and related notes for the six months ended June 30, 2022, contained in the Company’s Semiannual Report pursuant to Regulation A Form 1-SA, filed with the Securities and Exchange Commission on September 28, 2022. The Offering was qualified by the Securities and Exchange Commission on July 6, 2022.
Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements as a result of various factors, including, without limitation, changes in local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions.
We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact, as guarantees, or assurances of future performance. All forward-looking statements speak only as of the date of this Semiannual Report. We undertake no obligation to update any forward-looking statements or other information contained herein.
Overview
Energy Exploration Technologies, Inc., a Puerto Rico corporation (the ‘‘Company’’, ‘‘EnergyX’’, ‘‘we’’, ‘‘us’’ or ‘‘our’’), is currently a pre-revenue company formed on December 18, 2018 under the laws of the Department of State of the Commonwealth of Puerto Rico, and is headquartered in San Juan, Puerto Rico with offices and laboratory facilities in Austin, Texas. The Company was formed as a renewable energy technology company focused on developing technologies in energy storage and the critical materials that are needed for batteries, such as lithium. We have a mission to become a worldwide leader in the global transition to sustainable energy by accelerating and enabling affordability for the broader use of lithium-based energy storage in everyday life.
As of June 30, 2023, Teague Egan, our Chief Executive Officer, owned either directly or through a wholly owned entity, Egan Global Management, LLC, approximately 70% of our outstanding Common Stock and Preferred Stock and 50% of the Company’s Common Stock on a fully diluted basis. Accordingly, our Chief Executive Officer has significant influence over the Company, and any action requiring the approval of the holders of our Common Stock and approval of significant corporate transactions.
Our Business
We are a renewable energy technology company focused on developing technologies in energy storage and the critical materials that are needed for battery production such as lithium. We hope to fundamentally change the way humanity is powering our world and storing clean energy with breakthrough direct lithium extraction technologies and more effective energy storage solutions.
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We are developing technologies that allow for more efficient production of lithium, which is one of the main materials in rechargeable batteries used in electric vehicles, as well as the creation of next generation battery components, and lithium-based batteries that are cheaper, longer-lasting, and more energy efficient than current formulations. Our objectives are to make lithium production more efficient, cost effective, and environmentally friendlier than existing conventional methods of production. We are also conducting research focusing specifically on solid-state and quasi solid-state battery architectures with pure metallic lithium electrodes, as well as non-flammable liquid electrolytes. The Company’s goal is to become a premier, low-cost lithium technology provider for the growing lithium battery and electric vehicle industries.
We have developed a Direct Lithium Extraction (‘‘DLE’’) technology called LiTAS™ (Lithium-Ion Transport and Separation) to process lithium enriched brines found in certain salt flats across the world. Approximately 50-60% of the world’s lithium production today is sourced from brine resources coming from South America according to Benchmark Mineral Intelligence, a leading data intelligence firm for the minerals and battery supply chain. The northern portion of Chile, the northern portion of Argentina, and the southern part of Bolivia is known as the ‘‘Lithium Triangle’’ as it is projected to hold over 50% of the world’s known lithium deposits. The remaining production of lithium comes from hard rock or clay mining that is mainly completed in Australia, portions of China and other various locations around the world.
We are working on solid-state and quasi solid-state lithium-based battery technology program called SoLiS™ (Solid Lithium Separator) using elements of our core LiTAS™ nanotechnology. Lithium transport through EnergyX proprietary mixed matrix membranes translate to possible application as a solid-state separator inside the battery. Solid state batteries are a transformational extension and optimization of lithium-ion batteries. The fundamental reason solid state is ideal is because it maximizes the energy density of the battery, while lowering the weight, and making it safer.
We believe our technology may have additional applications within the energy storage, mineral extraction or processing of critical minerals being used for battery production. We continue to explore and research other applications as they become aware to us.
Results of Operations for the Six Months Ended June 30, 2023 and June 30, 2022
Customer Testing Income
The Company is a pre-commercial, development stage, energy technology company focused on energy storage and extraction of critical minerals used in battery manufacturing. We have no commercial operations at this point and have not generated material revenues from licensing our technology or selling any products. Customer testing income includes immaterial revenue from testing customer brines. The Company began tracking Customer Testing Income separately from Other Income or Expenses during the second quarter of 2023 to better track business activity.
Salaries and Consulting
The increase in salaries and consulting fees to $3,752,477 for the six months ended June 30, 2023 as compared to $2,577,780 for the six months ended June 30, 2022 is reflective of our continued efforts to grow our business, advance the technology and establish pilot and demonstration plants for deployment in the field.
Professional Services
The Company has hired a number of professional service organizations to assist and support its business operations. The Company spent $157,656 on professional services fees for the six months ended June 30, 2023 as compared to $188,259 for the six months ended June 30, 2022. This need for professional services has remained steady to support our business growth.
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Research and Development Expenses
Research and development (R&D) expenses consist primarily of expenses related to technological development and advancement in respect of our LiTAS™ and SoLiS™ technologies. Specifically, these costs include, among others, laboratory costs, rent and equipment usage, specialty chemical purchases used in development work and other various research items supporting LiTAS™ and SoLiS™ testing and deployment efforts. The Company spent $853,338 on research and development for the six months ended June 30, 2023 as compared to $1,074,457 for the six months ended June 30, 2022. The decrease in research and development expenses is a result of the Company reaching certain research and development milestones and now allocating resources towards piloting, demonstration, and commercialization of the technology. R&D personnel are included in ‘‘Salaries and Consulting’’ expenses instead of this account.
General and Administrative Expenses
General and administrative expenses consist primarily of legal and patent fees, professional service fees, facility and office expenses, sales and marketing expenses, fundraising expenses, and personnel- related expenses, such as meals, travel and other related expenses, but excluding stock-based compensation and salaries. The Company spent $1,362,962 for six months ended June 30, 2023 on general and administrative expenses as compared to $822,890 for the six months ended June 30, 2022. This increase in general and administrative expenses is primarily a result of increase in rent and facilities expenses due to growing operations of the Company, and general increase in office and general and administrative e xpenses with a larger employee base and ongoing costs related to the Company’s fundraising activities .
Interest Expenses
The Company spent $4,983 for the six months ended June 30, 2023 on interest expenses as compared to $106,024 for the six months ended June 30, 2022. This decrease in interest expenses is due to conversion of our Convertible Notes in December 2022 as part of our Series B Preferred Stock offering. Interest associated with the Convertible Notes was converted into Series B Preferred Stock.
Stock Based Compensation
Stock based compensation increased to $369,441 for the six months ended June 30, 2023 from $231,921 for the six months ended June 30, 2022 due to the continued issuance of stock option awards to consultants and employees as well as the increase in the price of the common stock that ultimately is reflected in the Black-Scholes option pricing methodology that determine the amounts charged for stock-based compensation.
Depreciation Expense
Depreciation expense increased to $115,975 for the six months ended June 30, 2023 from $94,962 for the six months ended June 30, 2022 due primarily to ongoing purchases of laboratory, warehouse, and pilot machinery and equipment, among others.
Other Income or Expenses
Other income or expenses consist primarily of dividends from cash accounts, offset by losses from asset write-downs and disposals, and other general and administrative costs. Other income was $347,258 during the six months ended June 30, 2023 and $4,420 during the six months ended June 30, 2022. The increase was primarily due to higher dividends on a higher cash balance in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.
Net Loss
Our net loss was $6,234,824 for the six months ended June 30, 2023 compared to $5,091,873 for the six months ended June 30, 2022. This increase in net loss is reflective of the rapid growth of our Company and accompanying investment by management, including increased employee count, technology development, construction and deployment of pilot plants and other related costs and expenses.
Liquidity and Capital Resources
Since our inception in 2018, we have devoted most of our cash resources to employees, consultants, professional services and research and development activities to develop and grow our business. We have financed our operations to date primarily with the use of proceeds from the capital received from the founder, a Series A Preferred Stock private placement, a Regulation CF offering, a Regulation A+ offering, convertible promissory notes, and a Series B Preferred Stock private placement.
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To date, we have only generated revenue through customer testing fees, but have not generated any revenue from technology licensing or service fees or product sales, and we do not anticipate generating any revenue from the sale of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. During the period from December 2018 (inception) through June 30, 2023, we have incurred cumulative net losses of approximately $25 million. Our future expenditures and capital requirements will depend on numerous factors, including, among others, the progress of our research and development efforts, deployment of pilot plants with key customers, and our ability to scale up to commercial operations.
As of June 30, 2023, we have raised capital by exempt offerings of common stock, preferred stock and convertible notes of approximately $39 million, net of offering costs and commissions.
From February 2021 to September 2021, the Company offered its securities through a registered funding portal Netcapital in a side-by-side offering of Common Stock, under registration exemptions Section 4(a)(6) and Regulation D, Rule 506(c), raising an aggregate $4,465,844.
On April 1, 2021, the Company completed a Regulation D, Rule 506(b) exempt equity financing issuing 3,407,142 shares of Preferred Series A stock for total proceeds of $5,565,000 before fees and commissions.
During the second half of 2021, the Company received funding of approximately $2.8 million from the issuance of convertible notes.
During the first quarter of 2022, the Company raised approximately $250,000 through the issuance of convertible notes. In September 2022 the Company raised an additional $2 million through the issuance of convertible promissory notes to its founder and a board member, making the total raised through convertible promissory notes to this date approximately $4.8 million.
On September 30, 2022, the Company held its first closing under its Regulation A+ offering, which was filed with the SEC through a Form 1-A Offering Circular and qualified on July 6, 2022, and received approximately $6.9 million through the sale of Common Stock, net of offering costs and commissions.
During December 2022, the Company raised $15 million through the sale of Series B Preferred Stock in connection with the Series B Preferred Stock Offering. In connection with the closing of such Series B Offering, all of the Company’s existing promissory convertible notes, both principal and interest of 7% per annum, were converted into 1,496,610 shares of Series B Preferred Stock, calculated as of December 15, 2022, including a 15% discount to the per-share-price of the Series B Preferred Stock.
The Company did not raise any capital during the first quarter of 2023. As of June 30, 2023, two investors signed Joinder Agreements to the Series B Offering and the Company subsequently raised an additional approximately $16.5 million through the sale of Series B Preferred Stock.
An immaterial amount of employee or contractor stock options were exercised during the second quarter of 2023 as recorded on the Statement of Changes in Stockholders’ Equity.
These funds have provided us the ability to build pilot and demonstration plants that we plan to deploy to facilities or test beds at or near our customers, as well as advance our work and plans on the demonstration and commercial facilities. We continuously monitor our use of funds relative to executing on our business strategy with a focus on spending capital that will further our ability to recognize revenue in the future. We balance our use of funds based on our ability to raise additional capital resources through various exempt offerings as well as this Offering Statement.
We believe that we currently have sufficient capital to finance our operations at least through the end of Q2 2024. However, in order to continue the growth of our business and expansion of the Company, we may need to obtain additional financing. Further, we expect that, after such period, we will be required to raise additional capital to fund our operations and to further advance the commercialization of LiTAS™ in South America and the US. There is no assurance that such financing will be available when needed, or that ultimately, we will achieve profitable operations and positive cash flow.
Credit Facilities
During 2021 and 2022, the Company issued various convertible promissory notes to support its business operations, aggregating to a total of $4.8 million by the end of 2022. In December 2022, all convertible promissory notes outstanding were converted as part of our Series B Preferred Stock Offering. Management may decide to continue to issue convertible debt instruments to fund its operations if such capital is available in the market at reasonable rates. The Company has not entered into any credit facility with a bank or financial institution at this time.
Capital Expenditures
The Company spent $1,455,540 of cash on purchase of fixed assets during the six months ended June 30, 2023 and $626,417 of ca sh on purchase of fixed assets during the six months ended June 30, 2022. This increase is a result of higher spending on capital equipment as we scale our
laboratory equipment, office and IT equipment, and equipment for anticipated pilot and demonstration plant deployments. The Company expects that it will continue acquiring capital equipment to expand its operations and development plans.
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Contractual Obligations, Commitments, and Contingencies
The Company terminated its Sponsored Research Agreement with the University of Texas during the second quarter of 2022, thereby eliminating its monetary obligations to the University under such agreement. In July 2022, the Company terminated its patent licensing agreement with the University, as the Company did not utilize the licensed patents as part of its business, and relinquished all payment obligations, including fixed fees and royalties, due under the patent licensing agreement.
On June 1, 2021, the Company entered into a lease agreement for office and lab space in Austin, TX. On October 7, 2021, the Company extended the lease agreement on the same terms with a lease termination date of May 31, 2022. The Company further extended lease obligations in February 2022 and in January 2023. During February 2023, the Company extended and expanded its lease for an additional 3 years.
On July 16, 2021, the Company entered into a lease agreement for warehouse space in Austin, TX. The lease commenced on August 1, 2021 and continues for 37 months. The monetary obligations remaining on the two leases described in this paragraph are immaterial to the Company, given the Company’s current financial standing.
On October 11, 2022, the Company entered into a lease for its new office and laboratory space in Austin TX. The new facilities span approximately 36,000 square feet and the Company plans to remodel the facility. The lease agreement has an initial term of seven years and the Company is obligated to pay aggregate rent of approximately $5.8 million over the seven years. The lease will begin upon the earlier of the Company moving into the space or the majority of the remodeling work being completed and a granted certificate of occupancy, which is estimated for the second half of 2024.
In June 2023, the Company entered into a lease agreement for a second warehouse with office space in Austin, TX. The lease co mmenced on July 1, 2023 and continues through June 30, 2024.
Off-Balance Sheet Arrangements
A commercial bank issued an irrevocable standby letter of credit on behalf of the Company for $500,000. The irrevocable standby letter of credit represents funds due and owing to the commercial bank as a result of the Company’s default under one or more of the terms of the one of the lease agreements by and between the Company and its landlord. This letter of credit expires on October 16, 2023, but such letter of credit shall be automatically extended for an additional period of one year, without amendment, from the expiration date. In no event shall this letter of credit be automatically extended beyond June 30, 2030. No amounts have been drawn under the standby letters of credit.
Plan of Operations
As noted above, our current plan of operations requires us to raise significant additional capital. If we are successful in raising the maximum amount allowed through the Regulation A+ offering, we believe that the Company will have sufficient cash resources to fund its plan of operations at least through the end of 2024. If we are unable to do so, we may have to delay and possibly cease some operations.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement aspects of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of our business, we are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives. In the future we may be exposed to foreign currency exchange rates in Chile and Argentina.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. We are not aware of any matters which result in a loss contingency.
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Relaxed Ongoing Reporting Requirements
Regulation A+ provides that a filer can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same adoption period for new or revised accounting standards as public companies.
Upon the completion of the Regulation A+, Tier 2 Offering, we may elect to become a public reporting company under the Securities Exchange Act of 1934, as amended (the Exchange Act). If we elect to do so, we will be required to publicly report on an ongoing basis as an ‘‘emerging growth company’’ (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. As defined in the JOBS Act, an emerging growth company is defined as a company with less than $1 billion in revenue during its last fiscal year. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies.
For so long as we remain an ‘‘emerging growth company,’’ we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not ‘‘emerging growth companies,’’ including but not limited to:
| • | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; |
| • | taking advantage of extensions of time to comply with certain new or revised financial accounting standards; |
| • | being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and |
| • | being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
If we are required to publicly report under the Exchange Act as an ‘‘emerging growth company’’, we expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an ‘‘emerging growth company’’ for up to 5 years, though if the market value of our Common Stock that is held by non-affiliates exceeds $750 million, we would cease to be an ‘‘emerging growth company.’’
We have commenced reporting under the Regulation A+ reporting requirements. If we elect not to become a public reporting company under the Exchange Act, we will be required to continue to publicly report on an ongoing basis under the reporting rules set forth in Regulation A+ for Tier 2 issuers. The ongoing reporting requirements under Regulation A+ are more relaxed than for ‘‘emerging growth companies’’ under the Exchange Act. The differences include, but are not limited to, being required to file only annual and semi-annual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer’s fiscal year, and semi-annual reports are due within 90 calendar days after the end of the first six months of the issuer’s fiscal year.
Trend Information
Because we are still in the startup phase and have only recently commenced our research and product development, we are unable to identify any recent trends in revenue or expenses. Thus, except as set forth below, we are unable to identify any known trends, uncertainties, demands, commitments or events involving our business that are reasonably likely to have a material effect on our revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause the reported financial information in this Semiannual Report to not necessarily be indicative of future operating results or financial condition.
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Unpredictable events, such as the COVID outbreak, and associated business disruptions including delayed piloting trials and laboratory resources could harm our financial condition, affect our operations, increase our costs and expenses, and impact our ability to raise capital. Our operations could be subject to unpredictable events, such as snowstorms, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics or pandemics such as the COVID outbreak, and other natural or manmade disasters or business interruptions, for which we may not be insured. We do not carry insurance for all categories of risk that our business may encounter. The occurrence of any of these business disruptions could seriously harm our operations and financial condition. The ultimate impact on us and any delays in our research and development is unknown, but our operations and financial condition could suffer in the event of any of these types of unpredictable events. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our business, results of operations, financial condition and cash flows.
Item 2. Other Information
None.
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Item 3. Financial Statements
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Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (unaudited) | F-2 | |||
| F-3 | ||||
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| F-5 | ||||
Notes to Condensed Consolidated Financial Statements (unaudited) | F-6 | |||
F-1
ENERGY EXPLORATION TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
| JUNE 30, 2023 | DECEMBER 31, 2022 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 12,945,745 | $ | 20,527,649 | ||||
Property, Plant & Equipment | 3,261,356 | 1,921,789 | ||||||
Operating Lease Right of Use Asset | 79,798 | 111,673 | ||||||
Financing Lease Right of Use Asset | 70,663 | 77,287 | ||||||
Prepaid Expenses & Deposits | 1,491,213 | 501,775 | ||||||
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Total Assets | $ | 17,848,775 | $ | 23,140,173 | ||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 1,294,154 | $ | 609,041 | ||||
Accrued and other liabilities | 96,687 | 164,913 | ||||||
Short Term Operating Lease Liability | 72,564 | 68,280 | ||||||
Short Term Financing Lease Liability | 23,471 | 22,893 | ||||||
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Total Current Liabilities | 1,486,876 | 865,127 | ||||||
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Convertible Promissory Notes—Long Term | — | — | ||||||
Long Term Lease Liabilities: | ||||||||
Operating Lease Liability | 6,337 | 43,467 | ||||||
Financing Lease Liability | 12,182 | 24,064 | ||||||
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Total Liabilities | 1,505,395 | 932,658 | ||||||
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Stockholders’ Equity: | ||||||||
Founders-1 preferred stock at $0.01 par value, 21,000,000 shares authorized, issued and outstanding on June 30, 2023 and December 31, 2022 | 210,000 | 210,000 | ||||||
Preferred stock- Series A at $0.01 par value, 10,630,464 issued and outstanding on June 30, 2023 and December 31, 2022 | 106,305 | 106,305 | ||||||
Preferred stock- Series B at $0.01 par value, 13,996,591 shares authorized; 5,246,610 shares issued and outstanding on June 30, 2023 and December 31, 2022 | 52,466 | 52,466 | ||||||
Common Stock at $0.01 par value, 138,048,205 shares authorized, 46,750,295 and 46,675,295 shares issued and outstanding on June 30, 2023 and December 31, 2022, respectively | 467,503 | 466,753 | ||||||
Warrants | 75,000 | 75,000 | ||||||
Additional Paid in Capital | 40,111,196 | 39,741,257 | ||||||
Accumulated Deficit | (24,679,090 | ) | (18,444,266 | ) | ||||
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Total Stockholders’ Equity | 16,343,380 | 22,207,515 | ||||||
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Total Liabilities and Stockholders’ Equity | $ | 17,848,775 | $ | 23,140,173 | ||||
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F-2
ENERGY EXPLORATION TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| (UNAUDITED) | ||||||||
Total Revenue | ||||||||
Customer Testing Income | $ | 34,750 | — | |||||
Total Expenses | ||||||||
Salaries and Consulting | 3,752,477 | 2,577,780 | ||||||
Professional Services | 157,656 | 188,259 | ||||||
Research and Development | 853,338 | 1,074,457 | ||||||
General and Administrative | 1,362,962 | 822,890 | ||||||
Interest Expense | 4,983 | 106,024 | ||||||
Stock Based Compensation | 369,441 | 231,921 | ||||||
Depreciation Expense | 115,975 | 94,962 | ||||||
Other Expenses / (Income) | (347,258 | ) | (4,420 | ) | ||||
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Total Expenses | 6,269,574 | 5,091,873 | ||||||
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NET LOSS | $ | 6,234,824 | $ | 5,091,873 | ||||
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F-3
ENERGY EXPLORATION TECHNOLOGIES, INC.
UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
| Preferred Stock | Common Stock | Warrants | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||
Balance at December 31, 2022 | $ | 368,771 | $ | 466,753 | $ | 75,000 | $ | 39,741,257 | $ | (18,444,266 | ) | $ | 22,207,515 | |||||||||||
Issuance of common and preferred stock, net | — | 750 | — | 369,939 | — | 370,689 | ||||||||||||||||||
Warrants | — | — | — | — | — | — | ||||||||||||||||||
Net loss | — | — | — | — | (6,234,824 | ) | (6,234,824 | ) | ||||||||||||||||
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Balance at June 30, 2023 | $ | 368,771 | $ | 467,503 | $ | 75,000 | $ | 40,111,196 | $ | (24,679,090 | ) | $ | 16,343,380 | |||||||||||
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| Preferred Stock | Common Stock | Warrants | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||
Balance at December 31, 2021 | $ | 19,963 | $ | 5,933 | $ | 75,000 | $ | 13,121,915 | $ | (7,896,513 | ) | $ | 5,326,298 | |||||||||||
Issuance of common and preferred stock, net | — | — | — | 231,921 | — | 231,921 | ||||||||||||||||||
Warrants | — | — | — | — | — | — | ||||||||||||||||||
Net loss | — | — | — | — | (5,091,873 | ) | (5,091,873 | ) | ||||||||||||||||
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Balance at June 30, 2022 | $ | 19,963 | $ | 5,933 | $ | 75,000 | $ | 13,353,836 | $ | (12,988,386 | ) | $ | 466,346 | |||||||||||
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F-4
ENERGY EXPLORATION TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| (UNAUDITED) | (UNAUDITED) | |||||||
Cash Flows from Operating Activities | ||||||||
Net Loss | $ | (6,234,824 | ) | $ | (5,091,873 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Flows Used in Operating Activities | ||||||||
Stock Based Compensation | 369,441 | 231,921 | ||||||
ROU Asset Amortization | 38,499 | 36,023 | ||||||
Warrants | — | — | ||||||
Depreciation | 115,975 | 94,962 | ||||||
Changes in Assets & Liabilities that Increase/Decrease Cash | ||||||||
Accounts Payable | 685,113 | 74,842 | ||||||
Accrued and Other Liabilities | (112,376 | ) | 41,718 | |||||
Prepaid Expenses and Other Assets | (989,438 | ) | 128,503 | |||||
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Net Cash Flows Used in Operating Activities | (6,127,610 | ) | (4,483,904 | ) | ||||
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Cash Flows from Investing Activities | ||||||||
Purchase of Fixed Assets | (1,455,540 | ) | (626,417 | ) | ||||
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Cash Flows from Financing Activities | ||||||||
Proceeds from Convertible Notes | — | 251,000 | ||||||
Repayment of Convertible Notes | — | — | ||||||
Sale of Common Stock, net | 1,246 | — | ||||||
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Net Increase/(Decrease) in Cash | (7,581,904 | ) | (4,859,321 | ) | ||||
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Cash at Beginning of Period | 20,527,649 | 6,772,894 | ||||||
Cash at End of Period | $ | 12,945,745 | $ | 1,913,573 | ||||
F-5
ENERGY EXPLORATION TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
NATURE OF BUSINESS
Energy Exploration Technologies, Inc. (the “Company” or “EnergyX”) is a domestic corporation organized under the laws of the Commonwealth of Puerto Rico on December 18, 2018. The Company is a renewable energy technology company focused on developing technologies in energy storage and the critical materials, such as lithium, that are needed for battery production. We hope to fundamentally change the way humanity is powering our world and storing and using clean energy with breakthrough direct lithium extraction and refinery technologies and more effective energy storage solutions.
We are developing technologies that allow for more efficient and increased production of lithium from existing or otherwise unviable resources. Lithium is one of the most important and necessary materials in rechargeable batteries used in electric vehicles and other battery powered applications, yet it is the most supply constrained. Our objectives are to make lithium production more efficient and cost effective, as well as more environmentally friendly than existing conventional methods of production.
We are also conducting research focusing specifically on solid-state and quasi solid-state lithium-based batteries. EnergyX is developing these next generation lithium-based batteries to be longer-lasting, more energy efficient, and safer than current generation of batteries because of lithium metal anode, high nickel cathodes, and solid state electrolytes and advanced separators. These new battery architectures with safer liquid electrolytes and solid state electrolytes combined with pure metallic lithium electrodes will achieve the Company’s goal to become the premier, low-cost lithium technology provider for the growing lithium, battery material, and integrated lithium supply chain supplier for the electric vehicle industries.
Our lithium extraction technology, labeled LiTAS™ (Lithium-Ion Transport and Separation), is a form of direct lithium extraction (“DLE”) and refining, which allows operators to process lithium enriched brines found in salt flats across the world for the purpose of harvesting lithium. The LiTAS™ initiative is a fully integrated, end-to-end DLE technology platform that can treat a majority of the lithium containing brines worldwide.
Our next generation battery program, labeled SoLiS™ (Solid-State Lithium Separator), refers to the development and production of lithium metal based, next generation, solid-state and quasi solid-state batteries. Solid-state batteries are a transformational extension and optimization of lithium-ion batteries. The fundamental reason solid-state is ideal is because it maximizes the energy density of the battery, while lowering weight and making it safer.
We believe our technology may have additional applications within the energy storage sector for extraction or processing of critical minerals being used for battery production. We continue to explore and research other applications, and adapt our LiTAS™ and SoLiS™ programs as new information and data become available.
During the six months ended June 30, 2023, the Company established a wholly-owned entity to operate in Chile.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally accepted accounting principles in the United States of America, and, as such, include amounts based on judgments, estimates and assumptions made by management that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Following is a description of the more significant accounting policies followed by the Company:
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. There was $12,945,745 and $20,527,649 in cash equivalents as of June 30, 2023 and December 31, 2022, respectively.
Prepaid Expenses
Expenditures made to secure the use of assets or the receipts of services at a future date are charged to the prepaid account and are amortized based on the term and usage of the related asset or service.
F-6
Property, Plant, and Equipment
Property, plant, and equipment is recorded at cost. Expenditures for construction activities, and improvements are capitalized, while expenditures for operations and maintenance, and general and administrative activities are charged to expense as incurred.
The Company depreciates property, plant, and equipment using the straight-line depreciation method (see note below on Property, Plant, and Equipment for further details). Upon retirement or other disposition of property, plant and equipment, the cost and related accumulated depreciation are removed from the balance sheet, and any resulting gains or losses are recorded in the statements of operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable, the carrying amount of the asset group is compared to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Leases
The Company follows ASU 2016-02, Leases (Topic 842) to determine if an arrangement is a lease at inception. Lease right-of-use (ROU) assets represent the Company’s right to an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet in accordance with the short-term lease exception included within Topic 842. When the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The lease ROU asset also includes any base lease payments made in advance and excludes non-lease components. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.
Accounts Payable and Accrued and Other Liabilities
Accounts payable balance represents all invoices the Company has received, while accrued and other current liabilities consist of payroll related accruals, short-term lease obligations, deferred revenue, and estimated accruals when work has been performed, but an invoice has not been issued.
Expense and Other Income Recognition
Expenses are recognized when incurred. Other income is recognized when earned.
Research and Development
Research and Development costs are charged to expenses as incurred. The Company is engaged in research and development of novel lithium extraction technologies with wide applications in ionic separations and selective ion transfer. Initial focus includes lithium separation and transport membranes, as well as solvent extraction, ion adsorption, and lithium brine to lithium hydroxide and lithium metal direct conversion processes. The Company has developed such LiTAS™ technologies that exhibit selectivity between lithium and other problematic impurities. Using proprietary lithium separation technologies in existing production processes, EnergyX can dramatically improve the lithium recovery rate of current extraction methods from brines.
F-7
Bench scale and laboratory pilot scale equipment and supplies have been purchased to aid the development of the company’s lithium processing and battery technologies. Larger pilot scale units have also been manufactured, one of which was deployed in field in 2022 and the Company plans to deploy additional pilot and demonstration plants in South America and the US moving forward. General laboratory and analytical equipment and supplies purchased includes analysis equipment for testing solution and samples. This equipment has been expensed as part of research and development expenses of $853,338 during the six months ended June 30, 2023 as compared to $1,074,457 during the six months ended June 30, 2022.
Income Taxes
Income taxes are accounted for using an asset-liability method. Deferred income taxes and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing asset and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established for deferred tax assets that, based on management’s evaluation, are not expected to be realized.
Tax benefits of uncertain tax positions are recorded only where the position is “more likely than not” to be sustained based on their technical merits. The amount recognized is the amount that represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability is recognized for any benefit claimed or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) in such excess. The Company has no uncertain tax position as of June 30, 2023 and 2022.
Fair Value Measurements
The carrying amounts of the Company’s financial instruments including Cash and Cash Equivalents approximate fair value due to the short-term nature of those instruments.
The Company determines the fair value based upon the exit price that would be received to sell an asset or paid to transfer as liability in an orderly transaction between market participants, as determined by either the principal market or most advantageous market. Inputs used in the valuation techniques to derive fair value are classified based on a three-level hierarchy. These levels are:
Level 1—Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2—Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3—Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
As of June 30, 2023, the carrying amount of the Company’s financial instruments were determined using Level 1 inputs.
Stock-Based Compensation
The Company follows the provisions of ASC 718-20, Stock Compensation, Awards Classified as Equity, requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements. Compensation expense for options granted to employees, directors and certain service providers (“grantees”) is determined based on estimated fair value of the options at the time of grant using the Black-Scholes option pricing model, which considers, as of the grant date, the estimated fair market value of the underlying shares, expected volatility, expected dividend yield and the risk-free interest rate over the expected life of the option. The grant date fair value of Restricted Share Awards (RSAs) is based on the estimated value of the restricted share on the date of grant. The compensation cost for all share-based awards is recognized as an expense over the grantee’s requisite service period (generally the vesting period of the equity award), except for costs related to persons directly involved in the development and/or construction of the projects which are capitalized into Construction in progress during the capitalization period. Shares are issued from authorized shares in settlement of options exercised. RSAs are included in common shares issued and outstanding from the date of issuance. Forfeitures are accounted for as they occur.
F-8
PREPAID EXPENSES
Prepaid expenses at June 30, 2023 and December 31, 2022, consisted of the following:
| 2023 | 2022 | |||||||
Insurance | $ | 22,106 | $ | 34,964 | ||||
Security deposits and prepaid final month rents | 112,041 | 81,414 | ||||||
Registrations and subscriptions | 85,783 | 49,003 | ||||||
Vendor agreement | 1,271,283 | 73,153 | ||||||
Regulation A+ Funding Holdbacks | — | 263,241 | ||||||
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| $ | 1,491,213 | $ | 501,775 | |||||
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CONVERTIBLE PROMISSORY NOTES
During 2021 and 2022, the Company issued various convertible promissory notes to support its business operations, aggregating to a total of approximately $4.8 million by the end of 2022. During December 2022, the Company raised $15 million through the sale of Series B Preferred Stock in connection with the Series B Preferred Stock Offering. In connection with the closing of such Series B Offering, all of the Company’s existing promissory convertible notes, both principal and interest of 7% per annum, were converted into 1,496,610 shares of Series B Preferred Stock, representing a 15% discount to the per -share-price of the Series B Preferred Stock. As of December 31, 2022, the Company had no outstanding convertible promissory notes.
EQUITY INCENTIVE PLANS
The Company agrees to issue common stocks in the Company on the terms and conditions of award agreements to be entered into between employees, consultants, advisors, and directors and the Company (an “Award Agreement”) issued pursuant to equity incentive plans that have been adopted by the Company. The Award Agreement(s) shall be subject to the terms and conditions of such equity incentive plans.
The original 2019 Equity Incentive Plan taking into consideration all stock splits of the Corporation was authorized to grant of up to 15,000,000 awards of incentive stock options, non-qualified stock options and restricted stock. The original 2021 Equity Incentive Plan taking into consideration all stock splits of the Corporation was authorized to grant of up to 8,000,000 awards of incentive stock options, non-qualified stock options and restricted stock.
On April 30, 2022, all unused 1,999,482 awards from the 2019 Equity Incentive Plan poured out into the 2021 Equity Incentive Plan for a total 9,999,482. On December 21, 2022, the 2021 Equity Incentive Plan was increased in size according to the Fourth Amended & Restated Certificate of Incorporation by 17,421,340, totaling 27,420,822, unanimously approved by the Company’s Board of Directors.
Pursuant to the 2021 Equity Incentive Plan, taking into consideration all stock splits, as of June 30, 2023, the Corporation was authorized to grant outstanding awards of up to 17,716,562 incentive stock options, non-qualified stock options, and restricted stock.
As of June 30, 2023 and December 31, 2022, the Company had outstanding non-qualified stock options and restricted stock awards, as follows:
| 2023 | 2022 | |||||||
Non-qualified stock options | 19,215,334 | 15,661,225 | ||||||
Restricted stock awards | 3,414,444 | 3,414,444 | ||||||
Option pool outstanding | 17,716,562 | 21,345,671 | ||||||
Options Exercised | 75,000 | — | ||||||
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Total Authorized Options and Restricted Stock Awards | 40,421,340 | 40,421,340 | ||||||
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Some options issued to employees or contractors may have vesting dates prior to grant dates, which may impact recorded options outstanding for prior periods.
F-9
Restricted Stock
During the year ended December 31, 2019, shares of restricted common stock were issued under the Plan to employees and non-employees, with vesting periods of up to 48 months.
STOCKHOLDERS’ DEFICIT
On December 21, 2022, the Company’s Board of Directors approved the Fourth Amended and Restated Certificate of Incorporation. In accordance with the Company’s Fourth Amended and Restated Certificate of Incorporation, the Company is authorized to issue 183,675,260 shares, consisting of two classes of stock to be designated “Common Stock” and “Preferred Stock”, respectively. The Corporation is authorized to issue 138,048,205 shares of Common Stock, $0.01 par value per share, and 45,627,055 shares of Preferred Stock, $0.01 par value per share, 21,000,000 shares of which are designated “Founders 1 Preferred Stock,” 10,630,464 shares of which are designated “Series A Preferred Stock” and 13,996,591 shares of which are designated “Series B Preferred Stock.”
The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation or pursuant to the General Corporations Act. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 3682(b)(2) of the General Corporations Act.
In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the holders of shares of Preferred Stock (including Founders-1 Preferred Stock, Series A Preferred Stock and Series B Preferred Stock) then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, and in the event of a deemed liquidation event (as defined below), the holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the consideration payable to stockholders in such deemed liquidation event or out of the Available Proceeds (as defined below), as applicable, before any payment shall be made to the holders of Common Stock or any other class ranking junior in right of payment to the Founders Stock by reason of their ownership thereof. Such distributions shall be made as follows: (a) with respect to the Series B Preferred Stock, an amount per share equal to the sum of (i) one and one-half times (1.5x) the original issue price of the Series B Preferred Stock ($4.00 per share), (ii) any unpaid accruing dividends, and (iii) any dividends (other than accruing dividends) declared but unpaid thereon, (b) with respect to the Series A Preferred Stock, the greater of (i) an amount per share equal to the original issue price of Series A Preferred Stock (ranging from $0.48 to $0.82 per share), plus the sum of (A) any unpaid according dividends thereon, and (B) any dividends (other than accruing dividends) declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event and (c) with respect to the Founders 1 Preferred Stock, an amount per share equal to the greater of (i) original issue price of the Founders 1 Preferred Stock ($0.025 per share), or (ii) such amount per share as would have been payable had all shares of Founders 1 Preferred Stock been converted into Common Stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. If upon any such liquidation, dissolution or winding up of the Company or deemed liquidation event, the assets of the Company available for distribution to its stockholders are insufficient to pay the holders of shares of Preferred Stock the full amount to which they are entitled as set forth hereunder, the holders of shares of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
F-10
COMMITMENTS
The Company was previously obligated under its technology development and research agreement with the University of Texas that was effective on September 1, 2020. This agreement and any accompanying obligation were terminated on May 6, 2022 under mutually agreed terms.
On June 1, 2021, the Company entered into a lease agreement for office and lab space in Austin, TX. On October 7, 2021, the Company extended the office lease agreement on the same terms with a lease termination date of May 31, 2022. The company further extended office lease obligations in February 2022 and in January 2023. During February 2023, the Company extended and expanded its lease for an additional 3 years.
On July 16, 2021, the Company entered into a lease agreement for warehouse space in Austin, TX. The lease commenced on August 1, 2021 and continues for 37 months. The monetary obligations remaining on the two leases described in this paragraph are immaterial to the Company, given the Company’s current financial standing.
On October 11, 2022, the Company entered into a lease for its new office and laboratory space in Austin TX. The new facilities span approximately 36,000 square feet and will be remodeled by the Company. The lease agreement has an initial term of seven years and the Company is obligated to pay aggregate rent of approximately $5.8 million over the seven years. The lease will begin upon the earlier of the Company moving into the space or the majority of the remodeling work being completed and a granted certificate of occupancy, which is estimated for the second half of 2024.
INCOME TAXES
The Company operates under the provisions of a Tax Exemption Agreement from the Commonwealth of Puerto Rico pursuant to the terms of Act No. 60, as amended from Act No. 20-2012. The tax exemption grant is in accordance with the applicable terms of the Act covering the performance of the eligible service activities for markets outside of Puerto Rico. Under the provisions of the Tax Exemption, the Company was granted a partial tax exemption from certain Puerto Rico taxes, including income taxes, personal and real property taxes, municipal taxes, among others applicable to Export Service Income (“ESI”), as defined in the grant, and eligible property. The exemption period is twenty (20) years. All income generated from the ESI activity of the Company shall be taxed at a 4% flat rate for income taxes. Municipal license taxes will be 60% exempt during the term of the grant. Municipal and State taxes on real and personal property will be 100% exempt for the first five (5) years starting on the effective date of the grant. Once the five (5) term of total exemption expires, the real and personal property will be exempt 90% for the remaining period of the grant.
Non eligible services under the provisions of a Tax Exemption Agreement, the Company is subject to income taxes in Puerto Rico, at statutory rates which range from 18.5% to 37.5% depending on the level of taxable income.
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Temporary differences given rise to the deferred tax asset at December 31, 2022 and 2021, consist of:
| 2022 | 2021 | |||||||
Tax Losses Carryforward | $ | 727,979 | $ | 297,141 | ||||
Less: Valuation Allowance | (727,979 | ) | (297,141 | ) | ||||
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| $ | — | $ | — | |||||
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A valuation allowance is recorded if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets may not be realized. On December 31, 2022, the Company recorded a valuation allowance for the entire deferred tax asset due to the uncertainty surrounding the timing of realizing certain tax benefits in future income tax returns.
F-11
At December 31, 2022, the Company had $18,199,468 in net operating losses that may be offset against future taxable income and may expire as follow:
| Year Ending December 31, | Amount | |||
2029 | $ | 739,157 | ||
2030 | 1,761,197 | |||
2031 | 5,151,359 | |||
2032 | 10,547,755 | |||
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| $ | 18,199,468 | |||
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The authoritative guidance on accounting for uncertainty in income taxes prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken on income tax returns. Under the authoritative accounting guidance, income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more likely than not to be sustained based solely on its technical merits in order to be recognized, and 2) the benefit is measured as the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between the benefit recognized in accordance with this model and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. No adjustment was required as part of this accounting guidance.
The Company files income tax returns under the Internal Revenue Code of the Commonwealth of Puerto Rico and under the provisions of Act No. 60. The Company remains subject to income tax examinations for its Puerto Rico income taxes generally for the last four years.
RISK CONCENTRATION
Financial instruments that potentially expose the Company to certain concentrations of credit risk include cash in bank accounts. The Company maintains accounts at high quality financial institutions. While the Company attempts to limit any financial exposure its deposits balances may, at time, exceed the amount insured by the Federal Deposit Insurance Corporation (“FDIC”). All deposit accounts are insured up to $250,000 per depositor, per insured bank. The Company has not experienced any losses on such accounts.
Our business, results of operations and financial condition may be adversely affected if a public health epidemic interferes with the ability of us, our employees, workers, contractors, suppliers, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business.
The Company’s success depends upon the continued services of our executive officers and other key personnel who have critical industry experience and relationships. Significant competition for talented individuals could affect both Company’s ability to retain key personnel and hire new ones. The loss of the services of any officers or key personnel could hinder or delay the implementation of the business model, research and development efforts, or ability to sell products and services.
EQUITY TRANSACTIONS
As of June 30, 2023, we have raised capital by exempt offerings of common stock, preferred stock and convertible notes of approximately $39 million, net of offering costs and commissions.
From February 2021 to September 2021, the Company offered its securities through a registered funding portal Netcapital in a side-by-side offering of Common Stock, under registration exemptions Section 4(a)(6) and Regulation D, Rule 506(c), raising an aggregate $4,465,844.
On April 1, 2021, the Company completed a Regulation D, Rule 506(b) exempt equity financing issuing 3,407,142 shares of Preferred Series A stock for total proceeds of $5,565,000 before fees and commissions.
During the second half of 2021, the Company received funding of approximately $2.8 million from the issuance of convertible notes.
During the first quarter of 2022, the Company raised approximately $250,000 through the issuance of convertible notes. On September 7, 2022 the Company raised an additional $2.0 million through the issuance of convertible promissory notes to its founder and a board member, making the total raised through convertible promissory notes to this date approximately $4.8 million.
On April 9, 2022, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with GEM Global Yield LLC SCS and GEM Yield Bahamas Ltd (collectively, “GEM”). Pursuant to the Share Purchase Agreement, upon a public offering (whether by an initial public offering, a reverse merger, acquisition/merger by/with a special purpose acquisition company or other similar go-public event), the Company is granted the option of selling shares of its Common Stock to GEM at a slight discount to the then-current publicly traded price in exchange for cash, up to an aggregate purchase price of $450 million. The Share Purchase Agreement contains several constraints, such as a limitation on the amount of shares that the Company can sell to GEM in a single sale transaction and certain controls relating to the time period between each sale of shares to GEM. In addition to and concurrently with the Share Purchase Agreement, the Company has also agreed to grant a warrant to GEM, granting GEM the right to purchase 1.5% of all outstanding shares of Common Stock of the Company (excluding options and grant awards) upon a public offering at the public offering price per share. This Share Purchase Agreement shall only go into effect if the Company undertakes a public offering, as defined therein, and no shares have currently been sold to GEM.
On September 30, 2022, the Company held its first closing under its Regulation A+ offering, which was filed with the SEC through a Form 1-A Offering Circular and qualified on July 6, 2022, and received approximately $6.9 million through the sale of Common Stock, net of offering costs and commissions.
F-12
During December 2022, the Company raised $15 million through the sale of Series B Preferred Stock in connection with the Series B Offering. In connection with the closing of such Series B Offering, all of the Company’s existing promissory convertible notes, both principal and interest of 7% per annum, were converted into 1,496,610 representing a 15% discount to the per-share-price of the Series B Preferred Stock.
The Company did not raise any capital during the first quarter of 2023. An immaterial amount of employee or contractor stock options were exercised during the second quarter of 2023 as recorded on the Statement of Changes in Stockholders’ Equity.
F-13
PROPERTY, PLANT AND EQUIPMENT
Assets are depreciated using the straight-line depreciation method applied to groups of assets with varying useful lives.
Property, plant and equipment as of June 30, 2023 and December 31, 2022, consisted of the following:
| Estimated Useful Life (Years) | ||||||||||||
| 2023 | 2022 | |||||||||||
Assets Under Construction | $ | 313,770 | $ | 488,035 | ||||||||
Computer Equipment | 3 | 24,169 | 15,904 | |||||||||
Software Licenses | 3 | 8,925 | 8,925 | |||||||||
Leasehold Improvements | 1–3 | 715,392 | 73,430 | |||||||||
Furniture & Fixtures | 3 | 38,262 | 38,262 | |||||||||
Lab & Warehouse Equipment | 3–10 | 1,978,498 | 1,339,261 | |||||||||
Pilot Containers | 10 | 557,078 | 216,735 | |||||||||
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Total Property, Plant & Equipment | 3,636,094 | 2,180,552 | ||||||||||
Less Accumulated Depreciation | (374,738 | ) | (258,763 | ) | ||||||||
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Property, Plant & Equipment, net | $ | 3,261,356 | $ | 1,921,789 | ||||||||
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LEASES
On June 1, 2021, the Company entered into a lease agreement for office and lab space in Austin, TX (‘‘Headway Lease’’). On October 7, 2021, the Company extended the lease agreement on the same terms with a lease termination date of May 31, 2022. The company further extended lease obligations in February 2022 and in January 2023. During February 2023, the Company extended and expanded its lease for an additional 3 years.
On July 16, 2021, the Company entered into a lease agreement for warehouse space in Austin, TX. The lease commenced on August 1, 2021 and continues for 37 months. The monetary obligations remaining on the two leases described in this paragraph are immaterial to the Company, given the Company’s current financial standing.
On October 11, 2022, the Company entered into a lease for its new office and laboratory space in Austin TX. The new facilities span approximately 36,000 square feet and will be remodeled by the Company. The lease agreement has an initial term of seven years and the Company is obligated to pay aggregate rent of approximately $5.8 million over the seven years. The lease will begin upon the earlier of the Company moving into the space or the majority of the remodeling work being completed and a granted certificate of occupancy, which is estimated for the second half of 2024.
The Company recorded rent expense on the Headway Lease for February through June 2023; in July 2023, management recorded the lease as an ROU asset and an ROU liability in accordance with ASC 842. The catch-up entry for this lease will be recorded in July 2023.
The Company accounts for its leases in accordance with ASC 842. The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the Company the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the Company has the right to control the use of the identified asset and to obtain substantially all of the economic benefits from using the underlying asset.
Right-of-use assets represent the Company’s right to control the use of an explicitly or implicitly identified fixed asset for a period of time and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The lease liabilities are measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments include how the Company determined the incremental borrowing rate (‘‘IBR’’) it uses to present value the unpaid lease payments, the lease term and lease payments.
F-14
ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its IBR. In some instances, the Company’s leases do not provide an implicit rate; therefore, management uses its IBR based on the information available at commencement date in determining the present value of lease payments.
The lease term for the Company’s lease includes the noncancelable period of the lease plus the renewal options the Company is certain to exercise. Lease payments included in the measurement of the lease asset or liabilities comprised of fixed payments. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The following is a maturity analysis of the annual undiscounted cash flows of the operating and finance lease liabilities as of June 30, 2023:
| Operating Minimum Lease Payment | Finance Minimum Lease Payment | |||||||
Years Ending December 31, 2023 | 38,008 | 12,361 | ||||||
2024 | 44,631 | 24,721 | ||||||
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Total undiscounted cash flows | 82,639 | 37,082 | ||||||
Less imputed interest | 3,738 | 1,429 | ||||||
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Net present value of lease liability | $ | 78,901 | $ | 35,653 | ||||
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The components of lease cost as of June 30, 2023, are as follows:
Operating lease cost | $ | 35,801 | ||
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Finance lease cost: | ||||
Amortization of assets | $ | 6,625 | ||
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Interest on lease liabilities | $ | 1,057 | ||
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Supplemental balance sheet information at June 30, 2023 related to the leases are as follows:
Operating lease:
| Amount | ||||
Assets—operating lease right of use asset | $ | 79,798 | ||
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Liabilities—operating lease liability | $ | 78,901 | ||
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Finance lease:
| Amount | ||||
Assets—finance lease right of use asset | $ | 70,663 | ||
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Liabilities—finance lease liability | $ | 35,653 | ||
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F-15
OFF BALANCE SHEET ARRANGEMENTS
A commercial bank issued an irrevocable standby letter of credit on behalf of the Company for $500,000. The irrevocable standby letter of credit represents funds due and owing to the commercial bank as a result of the Company’s default under one or more of the terms of the Lease Agreement by and between the Company and its Landlord. This letter of credit expires on October 16, 2023, but such letter of credit shall be automatically extended for an additional period of one year, without amendment, from the expiration date. In no event shall this letter of credit be automatically extended beyond June 30, 2030. No amounts have been drawn under the standby letters of credit.
PRESENTATION OF FINANCIAL STATEMENTS
During the second quarter of 2023, Management evaluated accounting systems, policies and presentation of our financial statements to gain more visibility into and enable better tracking of costs and business activity. As part of our evaluation, we recategorized some items across several income statement accounts. As such, our net loss $5,091,873 for the six months ended June 30, 2022 shown in the financial statements below remains the same as the net loss shown for the same period in the Company’s Semiannual Report Pursuant to Regulation A+ Form 1-SA, filed with the Securities and Exchange Commission on September 28, 2022; however, the categorization of some expenses across various income statement accounts has changed.
SUBSEQUENT EVENTS
In July 2023, EnergyX received approximately $8.5 million investment from Elohim-SW Energy Fund. In August 2023, EnergyX received an $8.0 million investment from IMM Battery Fund III. Both of these investments were made on the same terms as the Company’s Series B Preferred Stock investment from December 2022.
The Company is in the process of establishing a wholly-owned entity to operate in Argentina.
Some options issued to employees or contractors may have vesting dates prior to grant dates, which may impact recorded stock based compensation and options outstanding for prior periods.
F-16
Item 4. Exhibits
| ++ | Previously filed |
| ^ | Filed as an exhibit to the Energy Exploration Technologies, Inc. Regulation A Offering Statement on Form 1-A filed with the Securities and Exchange Commission (File No. 024-11823) on March 10, 2022 and incorporated herein by reference. |
| # | Filed as an exhibit to the Energy Exploration Technologies, Inc. Regulation A Offering Statement on Form 1-A/A filed with the Securities and Exchange Commission (File No. 024-11823) on March 23, 2022 and incorporated herein by reference. |
| † | Filed as an exhibit to the Energy Exploration Technologies, Inc. Regulation A Offering Statement on Form 1-A/A filed with the Securities and Exchange Commission (File No. 024-11823) on June 8, 2022 and incorporated herein by reference. |
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENERGY EXPLORATION TECHNOLOGIES, INC. | ||||||
| Date: September 27, 2023 | By: | /s/ Teague Egan | ||||
| Name: Teague Egan | ||||||
| Title: Chief Executive Officer | ||||||
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| /s/ Teague Egan | Date: September 27, 2023 | |
| Name: Teague Egan | ||
| Title: Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| /s/ Mayank Sharma | Date: September 27, 2023 | |
| Name: Mayank Sharma | ||
| Title: Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| /s/ Geraldine Berkowitz | Date: September 27, 2023 | |
| Name: Geraldine Berkowitz | ||
| Title: Treasurer | ||
