NIOCORP DEVELOPMENTS LTD 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements as of, and for the three and six months ended December 31, 2022, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors, including, but not limited to, those set forth elsewhere in this Quarterly Report on Form 10-Q. See “Note Regarding Forward-Looking Statements” below. All currency amounts are stated in thousands of U.S. dollars unless noted otherwise. As used in this report, unless the context otherwise indicates, references to “we,” “our,” the “Company,” “NioCorp,” and “us” refer to NioCorp Developments Ltd. and its subsidiaries, collectively. Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and “forward-looking information” within the meaning of applicable Canadian securities legislation (collectively, “forward-looking statements”). Such forward-looking statements concern our anticipated results and developments in the operations of the Company in future periods, planned exploration activities, the adequacy of the Company’s financial resources, and other events or conditions that may occur in the future. Forward-looking statements have been based upon our current business and operating plans, as approved by the Company’s Board of Directors, and may include statements regarding our cash and other funding requirements and timing and sources thereof; results of feasibility studies; the accuracy of mineral resource and reserve estimates and assumptions on which they are based; the results of economic assessments and exploration activities; and current market conditions and project development plans, and the Transaction (as defined below). The material assumptions used to develop the forward-looking statements and forward-looking information included in this Quarterly Report on Form 10-Q include: our expectations of mineral prices; our forecasts and expected cash flows; our projected capital and operating costs; accuracy of mineral resource estimates and resource modeling and feasibility study results; expectations regarding mining and metallurgical recoveries; timing and reliability of sampling and assay data; anticipated political and social conditions; expected national and local government policies, including legal reforms; successful advancement of the Company’s required permitting processes; and the ability to successfully raise additional capital; NioCorp and GX Acquisition Corp. II, a Delaware corporation (“GXII”), being able to receive all required regulatory, third-party and shareholder approvals for the proposed Transaction; the amount of redemptions by GXII public stockholders; the consummation of the convertible debenture transaction and the standby equity purchase facility contemplated by the definitive agreements with YA II PN, Ltd., an investment fund managed by Yorkville Advisors Global, LP (together with YA II PN, Ltd., “Yorkville”); and other current estimates and assumptions regarding the proposed Transaction and its benefits. Forward-looking statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible,” and similar expressions, or statements that events, conditions, or results “will,” “may,” “could,” or “should” (or the negative and grammatical variations of any of these terms) occur or be achieved. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect,” “is expected,” “anticipates” or “does not anticipate,” “plans,” “estimates,” or “intends,” or stating that certain actions, events, or results “may,” “could,” “would,” “might,” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Such forward-looking statements reflect the Company’s current views with respect to future events and are subject to certain known and unknown risks, uncertainties, and assumptions. Many factors could cause actual results, performance, or achievements to be materially different from any future results, performance, or 21 achievements that may be expressed or implied by such forward-looking statements, including, among others, risks related to the following: Risks Related to Our Business: ● risks related to our ability to operate as a going concern; ● risks related to our requirement of significant additional capital; ● risks related to our limited operating history; ● risks related to our history of losses; ● risks related to the restatement of our consolidated financial statements as of and for the fiscal years ended June 30, 2022 and 2021 and the interim periods ended September 30, 2021, December 31, 2021, and March 31, 2022 (collectively, the “Affected Periods”) and the impact of such restatement on our future financial statements and other financial measures; ● risks related to the material weakness in our internal control over financial reporting, our efforts to remediate such material weakness and the timing of remediation; ● risks related to cost increases for our exploration and, if warranted, development projects; ● risks related to a disruption in, or failure of, our information technology systems, including those related to cybersecurity; ● risks related to equipment and supply shortages; ● risks related to current and future offtake agreements, joint ventures, and partnerships; ● risks related to our ability to attract qualified management; ● risks related to the effects of the COVID-19 pandemic or other global health crises on our business plans, financial condition, and liquidity; and ● risks related to the ability to enforce judgment against certain of our directors. Risks Related to Mining and Exploration: ● risks related to estimates of mineral resources and reserves; ● risks related to mineral exploration and production activities; ● risks related to our lack of mineral production from our properties; ● risks related to the results of our metallurgical testing; ● risks related to the price volatility of commodities; ● risks related to the establishment of a reserve and resource for Rare Earth Elements (“REEs” or “Rare Earths”) and the development of a viable recovery process for REEs; ● risks related to the estimation of mineral resources and mineral reserves; ● risks related to changes in mineral resource and reserve estimates; ● risks related to competition in the mining industry; ● risks related to the management of the water balance at the Elk Creek Niobium/Scandium/Titanium development stage property (the “Elk Creek Project”) located in southeastern Nebraska; ● risks related to claims on the title to our properties; ● risks related to potential future litigation; and ● risks related to our lack of insurance covering all our operations. Risks Related to Government Regulations: ● risks related to our ability to obtain or renew permits and licenses for production; ● risks related to government and environmental regulations that may increase our costs of doing business or restrict our operations; ● risks related to changes in federal and/or state laws that may significantly affect the mining industry; ● risks related to the impacts of climate change, as well as actions taken or required by governments related to strengthening resilience in the face of potential impacts from climate change; and ● risks related to land reclamation requirements. 22 Risks Related to Our Debt: ● risks related to covenants contained in agreements with our secured creditors that may affect our assets; and ● risks related to the extent to which our level of indebtedness may impair our ability to obtain additional financing. Risks Related to Our Common Shares: ● risks related to qualifying as a “passive foreign investment company” under the U.S. Internal Revenue Code of 1986, as amended (the “Code”); and ● risks related to our Common Shares, including price volatility, lack of dividend payments, dilution, and penny stock rules. Risks Related to the Proposed Transaction ● risks related to the amount of any redemptions by GXII public stockholders being greater than expected, which may reduce the cash in trust available to NioCorp upon the consummation of the Transaction; ● risks related to the occurrence of any event, change or other circumstances that could give rise to the termination of the Business Combination Agreement (as defined below) and/or payment of the termination fees; ● risks related to the outcome of any legal proceedings that may be instituted against NioCorp or GXII following announcement of the Business Combination Agreement and the Transaction; ● risks related to the inability to complete the Transaction due to, among other things, the failure to obtain NioCorp shareholder approval or GXII stockholder approval or the failure to consummate the Yorkville Financings; ● risks related to the inability to complete the Yorkville Financings due to, among other things, the failure to obtain shareholder approval or regulatory approval; ● the risk that the announcement and consummation of the Transaction disrupts NioCorp’s current plans; ● risks relating to the ability to recognize the anticipated benefits of the Transaction; ● risks relating to unexpected costs related to the Transaction; and ● the risks that the consummation of the Transaction is substantially delayed or does not occur, including prior to the date on which GXII is required to liquidate under the terms of its charter documents. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties, and other factors, including without limitation those discussed under the heading “Risk Factors” of our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2022, as well as other factors described elsewhere in this report and the Company’s other reports filed with the Securities and Exchange Commission (“SEC”). The Company’s forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the beliefs, expectations, and opinions of management as of the date of this report. The Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations, or opinions should change, except as required by law. For the reasons set forth above, investors should not attribute undue certainty to, or place undue reliance on, forward-looking statements. Qualified Person All technical and scientific information that forms the basis for the Elk Creek Project disclosure included in this Quarterly Report on Form 10-Q has been reviewed and approved by Scott Honan, M.Sc., SME-RM, NioCorp’s Chief Operating Officer. Mr. Honan is a “Qualified Person” as such term is defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects and subpart 1300 of Regulation S-K. 23 Company Overview NioCorp is developing the Elk Creek Project, located in southeast Nebraska. The Elk Creek Project is an advanced Niobium (“Nb”), Scandium (“Sc”) and Titanium (“Ti”) development stage property. The Company is evaluating the potential to produce several Rare Earth byproducts from the Elk Creek Project. Niobium is used to produce various superalloys that are extensively used in high performance aircraft and jet turbines. It also is used in High-Strength, Low-Alloy (“HSLA”) steel, a stronger steel used in automobiles, bridges, structural systems, buildings, pipelines, and other applications that generally increases strength and/or reduces weight, which can result in environmental benefits, including reduced fuel consumption and material usage and fewer air emissions. Scandium can be combined with aluminum to make high-performance alloys with increased strength and improved corrosion resistance. Scandium also is a critical component of advanced solid oxide fuel cells, an environmentally preferred technology for high-reliability, distributed electricity generation. Titanium is a component of various superalloys and other applications that are used for aerospace applications, weapons systems, protective armor, medical implants, and many others. It also is used in pigments for paper, paint, and plastics. Rare Earths are critical to electrification and decarbonization initiatives and can be used to manufacture the strongest permanent magnets commercially available. Our primary business strategy is to advance our Elk Creek Project to commercial production. We are focused on obtaining additional funds to carry out our near-term planned work programs associated with securing the project financing necessary to complete mine development and construction of the Elk Creek Project. Recent Corporate Events Proposed Transaction On September 25, 2022, the Company, GXII, and Merger Sub, entered into the Business Combination Agreement. Pursuant to the Business Combination Agreement, as the result of a series of transactions, GXII will become a subsidiary of the Company (as successor by merger to the Company’s subsidiary, ECRC), with the pre-combination public shareholders of GXII receiving Common Shares based on the Exchange Ratio of 11.1829212 Common Shares for each GXII Class A common share held and not redeemed, and the GXII founders receiving shares in GXII (as successor by merger to ECRC) based on the Exchange Ratio. Pursuant to the Business Combination Agreement, after the Transaction Closing, the GXII founders will have the right to exchange such shares for Common Shares on a one-for-one basis under certain conditions. Pursuant to the Business Combination Agreement, the Company will also assume the obligations under the issued and outstanding GXII warrants, which will be converted into Warrants following the Transaction Closing. The Business Combination Agreement contemplates that the Company will undertake a reverse stock split of the Common Shares at the time of the Transaction Closing in connection with an expected cross-listing to Nasdaq. In addition, pursuant to the Business Combination Agreement, post-closing, the Company’s Board of Directors will include two directors from pre-combination GXII. The transactions contemplated by the Business Combination Agreement and the ancillary agreements thereto are referred to collectively as the “Transaction.” The business combination pursuant to the Business Combination Agreement will be accounted for as a recapitalization in accordance with U.S. GAAP. Under this method of accounting, GXII will be treated as the “acquired” company for financial reporting purposes. Accordingly, the transaction is treated as the equivalent of NioCorp issuing Common Shares for the net assets of GXII, accompanied by a recapitalization. The net assets of GXII will be stated at historical cost, with no goodwill or other intangible assets recorded. The proposed Transaction is expected to close in the first calendar quarter of 2023, subject to the satisfaction or waiver of certain customary closing conditions contained in the Business Combination Agreement, including, among other things, (i) obtaining required approvals of the Transaction and related matters by the respective shareholders of NioCorp and GXII, (ii) the effectiveness of the registration statement on Form S-4 that the Company originally filed on November 7, 2022, and amended on December 22, 2022, January 17, 2023, January 31, 2023, and February 6, 2023, and was declared effective by the SEC on February 8, 2023, (iii) receipt of approval for listing on Nasdaq of the Common Shares to be issued in connection with the Transaction, (iv) receipt of approval for listing on Nasdaq of the Warrants to be issued in exchange for the GXII warrants that NioCorp has agreed to assume, (v) receipt of approval from the TSX with respect to the issuance and listing of the Common Shares issuable in connection with the Transaction, (vi) that NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have at least $5.000001 million of net tangible assets upon the consummation of the Transaction, after giving effect to any redemptions by GXII public stockholders and after payment of underwriters’ fees or commissions, 24 (vii) that, at the Transaction Closing, NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have received cash in an amount equal to or greater than $15.0 million, subject to certain adjustments, and (viii) the absence of any injunctions enjoining or prohibiting the consummation of the Business Combination Agreement. The proposed additional financings contemplated by the LOIs will also be subject to the approval of the TSX and the Company’s shareholders. In addition, in connection with the entry into the Business Combination Agreement, the Company announced the signing of non-binding letters of intent for two separate financing packages with Yorkville. As discussed below, on January 26, 2023, the Company entered into definitive agreements with respect to these financings. Final proceeds will depend upon redemption rates of current GXII shareholders at the consummation of the proposed Transaction. In connection with the Transaction Closing, a significant number of GXII shareholders may exercise their redemption rights. See Part II, Item 1A, “Risk Factors—If the Transaction is consummated, the Combined Company may not realize all or any of the anticipated benefits expected as a result of the Transaction.” Yorkville Financings As further discussed in Note 15 to the unaudited interim condensed consolidated financial statements as of, and for the three and six months ended December 31, 2022, included elsewhere in the Quarterly Report on Form 10-Q, on January 26, 2023, NioCorp entered into definitive agreements with respect to two previously announced financings with Yorkville. The financings contemplated by the definitive agreements include (i) up to $16.0 million aggregate principal amount of unsecured convertible debentures of NioCorp (the “Convertible Debentures”) convertible into Common Shares and Common Share purchase warrants (the “Financing Warrants”) entitling the holders thereof to purchase additional Common Shares (the “Yorkville Convertible Debt Financing”); and (ii) a standby equity purchase facility pursuant to which NioCorp will have the right, but not the obligation, subject to the conditions set out therein, to sell Common Shares to Yorkville with a maximum aggregate value of up to $65.0 million over a period of up to 36 months (the “Yorkville Equity Facility Financing” and, together with the Yorkville Convertible Debt Financing, the “Yorkville Financings”). The Yorkville Financings are expected to become effective on the date of the Transaction Closing. NioCorp intends to use the proceeds from the Yorkville Financings to advance its efforts to launch construction of the Elk Creek Project and move it to commercial operation, and to satisfy the fees and expenses incurred in connection with the Transaction, if required. Completion of the Yorkville Financings is subject to certain conditions, including the completion of the Transaction Closing, the receipt of the approval of the TSX, and the approval of NioCorp’s shareholders in accordance with the rules of the TSX. Elk Creek Project Update On October 25, 2022, the Company announced that its demonstration-scale processing plant (the “demonstration plant”), operated in Quebec, Canada, by L3 Process Innovation (“L3”), had completed demonstrating its planned process for removing calcium and magnesium from ore obtained from the Elk Creek Project. This positive result is a key milestone in NioCorp’s proposed optimization of its process flow sheet for the Elk Creek Project, which was designed by L3 and NioCorp. Removing carbonate minerals in this fashion is expected to reduce the size of the follow-on planned production steps and make them more efficient. Characterization of the calcium and magnesium carbonate from the completed demonstration plant production runs has demonstrated very low levels of impurities, and an overall 99% purity of the mixed calcium-magnesium carbonate. On January 4, 2023, the Company announced that the demonstration plant has succeeded in obtaining a Rare Earth dissolution rate of 86-95% from ore from the Elk Creek Project site through hydrochloric acid leaching and has achieved a loading rate of Rare Earths as high as 99% in the follow-on solvent extraction recovery step. These relatively high rates, which were expected, point to potentially strong rates of overall recovery of separated Rare Earth oxides, subject to additional demonstration testing over the coming weeks. 25 Additional solvent extraction steps will be deployed to establish the ultimate recovery rates of potential Rare Earth products. The demonstration plant has further established that the Rare Earths recovered in the initial solvent extraction step are accompanied by only two impurities of note: iron and a very small amount of nickel. Given the success of this initial separation step, L3 and NioCorp expect that losses in the additional solvent extraction steps would be low. On February 6, 2023, the Company announced that overall recoveries for praseodymium oxide, neodymium oxide, terbium oxide, and dysprosium oxide are likely to be greater than 92% and meet commercial purity specifications for magnetic rare earth oxides. These results are in line with bench- and pilot-scale testing of L3’s rare earth recovery system, as well as hydrometallurgical performance models that have been run on the rare earth recovery process upon which the demonstration plant is based. NioCorp is currently focused on demonstrating its ability to recover three high-purity Rare Earth products: (1) neodymium-praseodymium (“NdPr”) oxide, which is the principal component of neodymium-iron-boron (“NdFeB”) permanent Rare Earth magnets, (2) Dy oxide, and (3) Tb oxide. Both Dy and Tb oxides are critical to the type of powerful NdFeB magnets used in the traction motors of electric vehicles. The Demonstration Plant is also expected to deliver updated metallurgical recoveries for niobium, scandium and titanium and expects to complete operations in the first calendar quarter of 2023. Other Activities Our long-term financing efforts continued during the quarter ended December 31, 2022, including the proposed Transaction, discussed above. As funds become available through the Company’s fundraising efforts, we expect to undertake the following activities: ● Continuation of the Company’s efforts to secure federal, state, and local permits; ● Continued evaluation of the potential to produce Rare Earth products; ● Negotiation and completion of offtake agreements for the remaining uncommitted production from the project; ● Negotiation and completion of engineering, procurement, and construction agreements; ● Completion of the final detailed engineering for the underground portion of the Elk Creek Project; ● Initiation and completion of the final detailed engineering for surface project facilities; ● Construction of natural gas and electrical infrastructure under existing agreements to serve the Elk Creek Project site; ● Completion of water supply agreements and related infrastructure to deliver fresh water to the project site; ● Initiation of revised mine groundwater investigation and control activities; ● Land clearing operations intended to prepare property owned by ECRC for the commencement of project construction; ● Initiation of efforts to satisfy conditions of Johnson County’s Special Use Permit, including road upgrades and the provision of additional law enforcement during the construction period; ● Initiation of long-lead equipment procurement activities; and ● Completion of the operations of the demonstration plant to address process recommendations contained in the NI 43-101 technical report for the Elk Creek Project filed on SEDAR on May 29, 2019 and to quantify REE metallurgical performance. 26 Financial and Operating Results The Company has no revenues from mining operations. Operating expenses incurred related primarily to performing exploration activities, as well as the activities necessary to support corporate and shareholder duties, and are detailed in the following table. For the Three Months Ended December 31, For the Six Months Ended December 31, 2022 2021 2022 2021 Operating expenses Employee-related costs $ 291 $ 1,232 $ 584 $ 1,551 Professional fees 262 424 426 514 Exploration expenditures 1,317 491 2,605 1,112 Other operating expenses 331 881 668 1,107 Total operating expenses 2,201 3,028 4,283 4,284 Foreign exchange loss (64 ) (61 ) 109 164 Interest expense 82 1,022 382 1,627 Gain on sale of assets (13 ) - (13 ) - Loss on equity securities 2 3 1 5 Income tax benefit - - - - Net loss $ 2,208 $ 3,992 $ 4,762 $ 6,080 Six-month period ended December 31, 2022 compared to the six-month period ended December 31, 2021 Significant items affecting operating expenses are noted below: Employee-related costs decreased in 2022 as compared to 2021, primarily due to the timing of employee stock option grants. These costs decreased in 2022 as compared to 2021 due to stock options to purchase Common Shares (“Options”) issued in 2021, which were fully vested and expensed on the grant date. Exploration expenditures increased in 2022 as compared to 2021, primarily due to the timing of demonstration plant development, start-up, and operational costs incurred in 2022, as well as costs related to the completion and filing of the Technical Report Summary based on the Company’s 2022 Feasibility Study for the Elk Creek Project, which was filed with the SEC on September 6, 2022. Other operating expenses include investor relations, general office expenditures, equity offering and proxy expenditures, board-related expenditures, and other miscellaneous costs. These costs decreased in 2022 as compared to 2021, primarily due to director Options issued in 2021, which were fully vested and expensed on the grant date. This reduction in costs associated with director Options was partially offset by increased financial advisory fees and investor relations fees associated with our ongoing financing efforts. Other significant items impacting the change in the Company’s net loss are noted below : Foreign exchange loss is primarily due to changes in the U.S. dollar against the Canadian dollar and reflects the timing of foreign currency transactions, primarily U.S. dollar-based related party loans, and subsequent changes in exchange rates. The decline in foreign exchange loss during 2022 as compared 2021 is due to a declining U.S. dollar-based debt balance, partially offset by increased foreign exchange rates in 2022. Interest expense decreased in 2022 as compared to 2021 due to the impacts of conversions on the outstanding balance of the convertible security (the “Lind III Convertible Security”) issued to Lind Global Asset Management III, LLC (“Lind”). 27 Three-month period ended December 31, 2022 compared to the three-month period ended December 31, 2021 Overall, the decrease in net loss for the three-month period ended December 31, 2022, as compared to the same period in 2021, is primarily the result of the same factors underlying the six-month changes in expense categories as discussed above. Liquidity and Capital Resources We have no revenue generating operations from which we can internally generate funds. To date, our ongoing operations have been financed by the sale of our equity securities by way of private placements, convertible securities issuances, the exercise of incentive Options and Warrants, and related party loans. As of December 31, 2022, the Company had cash of $0.4 million and a working capital deficit of $6.6 million, compared to cash of $5.3 million and working capital surplus of $0.6 million on June 30, 2022. We expect that the Company will operate at a loss for the foreseeable future. The Company’s current planned cash needs are approximately $13.5 million until June 30, 2023. In addition to outstanding accounts payable and short-term liabilities, our average monthly planned expenditures are approximately $1,165 per month where approximately $405 is for corporate overhead and estimated costs related to securing financing necessary for advancement of the Elk Creek Project. Approximately $760 per month is planned for expenditures relating to the advancement of Elk Creek Project by NioCorp’s wholly owned subsidiary, ECRC. The Company’s ability to continue operations and fund our current work plan is dependent on management’s ability to secure additional financing. The Company anticipates that it does not have sufficient cash to continue to fund basic operations for the next twelve months, and additional funds totaling $13.5 million to $15.5 million are likely to be necessary to continue advancing the project in the areas of financing, permitting, and detailed engineering. Management is actively pursuing such additional sources of debt and equity financing, and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. Elk Creek property lease commitments are $12 until June 30, 2023. To maintain our currently held properties and fund our currently anticipated general and administrative costs and planned exploration and development activities at the Elk Creek Project for the fiscal year ending June 30, 2023, the Company will likely require additional financing during the current fiscal year. Should such financing not be available in that timeframe, we will be required to reduce our activities and will not be able to carry out all our presently planned activities at the Elk Creek Project. On September 25, 2022, the Company, GXII and Merger Sub entered into the Business Combination Agreement. The NioCorp Board of Directors considered a number of factors as generally supporting its decision to enter into the Business Combination Agreement, including, but not limited to, the following material factors: ● Anticipated Acceleration of Financing Efforts . The Transaction has the potential to (1) provide NioCorp with up to $285.0 million in net cash proceeds at the consummation of the Transaction, depending upon the amount of redemptions by GXII public stockholders, and up to an additional $81.0 million over the next three years (as further discussed below), depending on the consummation of other additional financing arrangements that NioCorp and GXII intend to pursue prior to and following the expected closing of the Transaction and (2) significantly accelerate NioCorp’s efforts to obtain the required Elk Creek Project financing by increasing exposure to institutional investors looking to make strategic investments in critical minerals plays that are crucial to the world’s clean energy transition; ● Non-Binding Yorkville Term Sheets. The signing of non-binding LOIs for two separate financing packages with Yorkville. The financings contemplated by the LOIs include $16.0 million in convertible debentures that are expected to be funded at the closing of the Transaction, and subject to certain limitations can be repaid by NioCorp in either cash or Common Shares, and a standby equity purchase facility pursuant to which NioCorp will have the ability to require Yorkville, subject to the conditions set out in the definitive agreements, to purchase up to $65.0 million of Common Shares; 28 ● Anticipated Benefits of Nasdaq Listing . A listing on Nasdaq, which is an established national exchange in the United States, would provide broader access to capital and financing alternatives and would otherwise enhance NioCorp’s public profile; and ● Minimum Cash Condition . The consummation of the Transaction is subject to the satisfaction or waiver of certain closing conditions contained in the Business Combination Agreement, including, among other things, that, at the closing, NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have received cash in an amount equal to or greater than $15.0 million, subject to certain adjustments. The NioCorp Board of Directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Transaction, including, but not limited to, the following: ● Risks of Failure to Complete the Transaction . The risks that: ○ the Transaction may not be completed despite the parties’ efforts, including the possibility that the conditions to the parties’ obligations to complete the Transaction (which include certain conditions that are not within the control of the parties to the Business Combination Agreement) may not be satisfied or that completion of the Transaction may be unduly delayed, and any resulting adverse impacts on NioCorp, its business and the trading price of Common Shares; ○ the circumstances under which the Business Combination Agreement could be terminated and the impact of such termination, including the requirement that NioCorp must pay GXII (1) a Base Termination Fee of $15.0 million if it terminates the Business Combination Agreement in order to enter into an agreement providing for a Superior Proposal (as defined in the Business Combination Agreement), for a change of recommendation of the NioCorp Board, or a material breach of certain of NioCorp’s covenants relating to soliciting acquisition proposals or (2) an Intentional Breach Termination Fee of $25.0 million if GXII terminates the Business Combination Agreement as a result of a willful and material breach by NioCorp or as a result of NioCorp’s failure to consummate the closing of the Transaction within five business days after all the conditions to closing have been satisfied; ○ if GXII is entitled to the Base Termination Fee or the Intentional Breach Termination Fee upon termination of the Business Combination Agreement, NioCorp is also required to pay all documented and reasonable out-of-pocket expenses paid or payable by GXII and its sponsor in connection with the Business Combination Agreement and the Transaction, not to exceed $5.0 million; and ○ the substantial costs to be incurred in connection with the Transaction, including those incurred regardless of whether the Transaction are completed; ● Risks Relating to the Benefits of the Transaction. The risks of: ○ not realizing all the anticipated benefits expected as a result of the Transaction, including the anticipated acceleration of its financing efforts and the benefits of the expected Nasdaq listing, and that general economic and market conditions outside the control of the parties to the Business Combination Agreement could deteriorate, any of which could result in NioCorp being unable to achieve the financing necessary to advance, complete construction and commence operation of the Elk Creek Project; and ○ the substantial costs to be incurred in connection with the Transaction, including those incurred regardless of whether the anticipated benefits of the Transaction are realized; ● Restrictions on the Conduct of Business . The Business Combination Agreement places certain restrictions on the conduct of the NioCorp business prior to the consummation of the Transaction and other alternatives reasonably available to NioCorp if it did not pursue the Transaction, including continuing to pursue alternative financing arrangements. Except for the Yorkville Financings discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “ Recent Corporate Events ,” we currently have no further funding commitments or arrangements for additional financing at this time, other than the potential exercise of Options and Warrants, and there is no assurance that we will be able to obtain any such additional financing on acceptable terms, if at all. The Yorkville Convertible Debt Financing Agreement also contains certain covenants that, among other things, limit NioCorp’s ability to use the proceeds from the Yorkville Convertible Debt Financing to repay related party debt or to enter into any variable rate transaction, including issuances of equity or debt securities that are convertible into Common Shares at variable rates and any equity line of credit, ATM agreement or other continuous offering of Common Shares, other than with Yorkville, subject to certain exceptions. Notwithstanding the restrictions set forth in the Business Combination Agreement and the Yorkville Convertible Debt Financing Agreement, there is 29 significant uncertainty that we would be able to secure any additional financing in the current equity or debt markets. The quantity of funds to be raised and the terms of any proposed equity or debt financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. In addition to the proposed Transaction and Yorkville Financings, and subject to receipt of the consent of GXII as may be required pursuant to the Business Combination Agreement, management may pursue funding sources of both debt and equity financing, including but not limited to the issuance of equity securities in the form of Common Shares, Warrants, subscription receipts, or any combination thereof in units of the Company pursuant to private placements to accredited investors or pursuant to public offerings in the form of underwritten/brokered offerings, registered direct offerings, or other forms of equity financing and public or private issuances of debt securities including secured and unsecured convertible debt instruments or secured debt project financing. Management does not currently know the terms pursuant to which such financings may be completed in the future, but any such financings will be negotiated at arm’s length. Future financings involving the issuance of equity securities or derivatives thereof will likely be completed at a discount to the then-current market price of the Company’s securities and will likely be dilutive to current shareholders. In addition, we could raise funds through the sale of interests in our mineral properties, although current market conditions and the impacts of the COVID-19 pandemic and other recent worldwide events have substantially reduced the number of potential buyers/acquirers of any such interests. However, we cannot provide any assurances that we will be able to be successful in raising such funds. Based on the conditions described within, management has concluded and the audit opinion and notes that accompany our financial statements for the year ended June 30, 2022, disclose that substantial doubt exists as to our ability to continue in business. The financial statements included in this Quarterly Report on Form 10-Q have been prepared under the assumption that we will continue as a going concern. We are a development stage issuer and we have incurred losses since our inception. We may not have sufficient cash to fund normal operations and meet debt obligations for the next twelve months without deferring payment on certain current liabilities and raising additional funds. The COVID-19 pandemic and other recent worldwide events have created general global economic uncertainty as well as uncertainty in capital markets, supply chain disruptions, increased interest rates, and the potential for geographic recessions. During fiscal year 2022 and continuing into fiscal year 2023, these events continued to create uncertainty with respect to overall project funding and timelines. We believe that the going concern uncertainty cannot be alleviated with confidence until the Company has entered into a business climate where funding of its planned ongoing operating activities is secured. Therefore, these factors raise substantial doubt as to our ability to continue as a going concern. We have no exposure to any asset-backed commercial paper. Other than cash held by our subsidiaries for their immediate operating needs in Colorado and Nebraska, all of our cash reserves are on deposit with major U.S. and Canadian chartered banks. We do not believe that the credit, liquidity, or market risks with respect thereto have increased as a result of the current market conditions. However, in order to achieve greater security for the preservation of our capital, we have, of necessity, been required to accept lower rates of interest, which has also lowered our potential interest income. Operating Activities During the six months ended December 31, 2022, the Company’s operating activities consumed $4.1 million of cash (2021: $3.0 million). The cash used in operating activities for the six months ended December 31, 2022, reflects the Company’s funding of losses of $4.8 million, partially offset by the accretion of convertible debt and other non-cash transactions. Overall, operational outflows during the six months ended December 31, 2022, increased from the corresponding period of 2021 due to an increase in exploration-related spending at the Elk Creek Project. Going forward, the Company’s working capital requirements are expected to increase substantially in connection with the development of the Elk Creek Project. Financing Activities Financing outflows were $0.5 million during the six months ended December 31, 2022, as compared to $0.6 million of inflows during the corresponding period in 2021, with 2022 outflows reflecting the timing of vendor payments related to deferred Transaction costs incurred during the period and 2021 inflows primarily reflecting the timing of warrant and option exercises, partially offset by a partial repayment under the related party loan with our President, Chief Executive Officer (“CEO”) and Executive Chairman, Mark Smith. 30 Cash Flow Considerations The Company has historically relied upon debt and equity financings to finance its activities. Subject to the restrictions set forth in the Business Combination Agreement and the Yorkville Convertible Debt Financing Agreement, the Company may pursue additional debt and/or equity financing in the medium term; however, there can be no assurance the Company will be able to obtain any required financing in the future on acceptable terms. The Company has limited financial resources compared to its proposed expenditures, no source of operating income, and no assurance that additional funding will be available to it for current or future projects, although the Company has been successful in the past in financing its activities through the sale of equity securities. The ability of the Company to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions, including the impacts of the COVID-19 pandemic on the timing and availability of funding, and its success in developing the Elk Creek Project. Any quoted market for the Common Shares may be subject to market trends generally, notwithstanding any potential success of the Company in creating revenue, cash flows, or earnings, and any depression of the trading price of the Common Shares could impact its ability to obtain equity financing on acceptable terms. Historically, the Company has used net proceeds from issuances of Common Shares to provide sufficient funds to meet its near-term exploration and development plans and other contractual obligations when due. However, development and construction of the Elk Creek Project will require substantial additional capital resources. This includes near-term funding and, ultimately, funding for Elk Creek Project construction and other costs. See “ Liquidity and Capital Resources ” above for the Company’s discussion of arrangements related to possible future financings. Critical Accounting Estimates There have been no material changes in our critical accounting estimates discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Critical Accounting Estimates and Recent Accounting Pronouncements” as of June 30, 2022, in our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2022. Certain U.S. Federal Income Tax Considerations NioCorp believes that it qualified as a “passive foreign investment company” (“PFIC”) as defined under Section 1297 of the Code, in recent years, including its taxable years ended June 30, 2022 and June 30, 2021. However, based on the current composition of its income and assets, as well as current business plans and financial expectations, NioCorp does not currently expect to be treated as a PFIC for its taxable year or foreseeable future taxable years. However, this conclusion is a factual determination that must be made annually at the close of each taxable year and, thus, is subject to change. In addition, it is possible notwithstanding NioCorp’s conclusion that the IRS could assert, and that a court could sustain, a determination that NioCorp is a PFIC. Accordingly, there can be no assurance that NioCorp (or any of its subsidiaries) will not be treated as a PFIC for any taxable year. Current and prospective U.S. shareholders should consult their tax advisors as to the tax consequences of PFIC classification and the U.S. federal tax treatment of PFICs. Additional information on this matter is included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2022, under the heading “Risks Related to the Common Shares.” 31 Other The Company has one class of shares, being Common Shares. A summary of outstanding shares, Options, Warrants, and convertible debt option as of February 13, 2023, is set out below, on a fully-diluted basis. Common Shares Outstanding (fully diluted) Common Shares 282,466,201 Options 1 9,835,000 Warrants 1 18,016,253 Convertible Debt 2 637,700 1 Each exercisable into one Common Share 2 Represents Common Shares issuable on conversion of aggregate outstanding principal amounts of $0.515 million of convertible debt as of February 13, 2023, assuming a market price per Common Share of $0.92 on that date.