Item 1A. Risk Factors
ITEM
1A. RISK FACTORS
You
should carefully consider the risk factors discussed in Item 1A, “Risk Factors,” in the Company’s Annual Report
on Form 10-K/A for the fiscal year ended June 30, 2022, which could materially affect the Company’s business, financial
condition or future results.
The
information set forth in this Quarterly Report on Form 10-Q, including without limitation, the risk factors presented below, updates
and should be read in conjunction with, the risk factors and information disclosed in the Company’s Annual Report on Form
10-K/A for the fiscal year ended June 30, 2022.
The
Company may not realize all or any of the anticipated benefits expected as a result of the Transaction.
The
listing of the Common Shares on Nasdaq may not provide the anticipated benefits of broader access to capital and financing alternatives
or otherwise enhance NioCorp’s public profile. If the Company is not successful in realizing these anticipated benefits,
including the anticipated benefits of listing the Common Shares on the Nasdaq and the anticipated acceleration of financing efforts
to advance, complete construction and commence operation of the Elk Creek Project, such consequences may adversely affect the
Company’s results of operations, cash flows, financial position and the price of our Common Shares.
We
may not recognize the full value of the Yorkville Equity Facility Financing Agreement and may not receive any proceeds from the
exercise of the Financing Warrants, the NioCorp Assumed Warrants and our other outstanding Warrants, and the potential adverse
effect on the prevailing market prices for our Common Shares as a result of sales, or the perception of future sales, of Common
Shares could adversely affect our ability to raise additional capital.
Although
we have entered into the Yorkville Equity Facility Financing Agreement, we may not recognize the full value thereof. Specifically,
our ability to sell Common Shares to Yorkville pursuant to the Yorkville Equity Facility Financing Agreement is subject to certain
restrictions and limitations, which may prevent us from selling the full Commitment Amount prior to the expiration of the Commitment
Period. Our ability to recognize the full value of the Yorkville Equity Facility Financing Agreement may be further impeded by
the potential negative pressure on the market price of our Common Shares as a result of sales, or the perception of future sales,
of Common Shares by us or by other security holders. As a result, there can be no assurance that we will receive all or even a
significant portion of the proceeds that we expect to receive in connection with the Yorkville Equity Facility Financing Agreement.
In
addition, upon exercise, we will receive the cash exercise price of the Financing Warrants, the NioCorp Assumed Warrants and our
other outstanding Warrants (assuming, with respect to the Financing Warrants and the NioCorp Assumed Warrants, that they are not
exercised on a cashless basis). We believe the likelihood that holders of the Financing Warrants, the NioCorp Assumed Warrants
or other outstanding Warrants will exercise their Financing Warrants, NioCorp Assumed Warrants or other outstanding Warrants,
and therefore, the amount of cash proceeds that we would receive, is, among other things, dependent upon the market price of our
Common Shares. For so long as the market price for our Common Shares is less than the applicable exercise price of the Financing
Warrants, NioCorp Assumed Warrants or other outstanding Warrants, we believe such holders will be unlikely to exercise their Financing
Warrants, NioCorp Assumed Warrants or other outstanding Warrants. The potential adverse effect on the prevailing market price
of our Common Shares as a result of sales of Common Shares by us or by other security holders, or the perception that such sales
may occur, could keep the market price for our Common Shares below the applicable exercise price of the Financing Warrants, the
NioCorp Assumed Warrants or other outstanding Warrants. Accordingly, the holders of the Financing Warrants, the NioCorp Assumed
Warrants or other outstanding Warrants may not exercise their Financing Warrants, NioCorp Assumed Warrants or other outstanding
Warrants before they expire, and we may not receive any proceeds from the exercise of the Financing Warrants, the NioCorp Assumed
Warrants or other outstanding Warrants.
We
incurred significant debt in connection with the Transactions, including upon issuance of the Convertible Debentures, and we require
significant additional capital to operate our business. For example, notwithstanding whether we are able to recognize the full
value of the Yorkville Equity Facility Financing Agreement or receive the cash exercise price of the Financing Warrants, the NioCorp
Assumed Warrants or other outstanding Warrants, we are obligated to repay or issue Common Shares upon settlement of the full $16.0
million aggregate principal amount of the Convertible Debentures. Such significant additional debt could adversely affect our
business, which may prevent us from fulfilling our obligations with respect to our existing debt or obtaining future financing.
Further, the Yorkville Convertible Debt Financing Agreement restricts us from pursuing certain variable rate financing transactions,
which could impair our ability to obtain additional financing on terms that are favorable, or at all. In addition, if the market
price of the Common Shares were to drop as a result of sales, or the perception of future sales, of Common Shares by us or by
other security holders, this might impede our ability to raise additional capital. Our inability to obtain
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additional
financing on terms that are favorable, or at all, could have a material adverse effect on our financial condition, results of
operations and prospects.
NioCorp
may be a “passive foreign investment company” for the current taxable year and for one or more future taxable years,
which may result in materially adverse U.S. federal income tax consequences for U.S. investors.
If
NioCorp is a passive foreign investment company (“PFIC”) for any taxable year, or portion thereof, that is included
in the holding period of a U.S. Holder (as defined in “Certain United States Federal Income Tax Considerations” included
in Exhibit 99.1 to the Company’s Current Report on Form 8-K to which this “Risks Related to Our Common Shares”
is filed as an exhibit) of Common Shares, such U.S. Holder may be subject to certain adverse U.S. federal income tax consequences
and additional reporting requirements. NioCorp believes it was classified as a PFIC during its taxable years ended June 30, 2022
and June 30, 2021 and, based on the current composition of its income and assets, as well as current business plans and financial
expectations, may be treated as a PFIC for the taxable year in which the Transactions occurred or in future taxable years. Any
conclusion regarding PFIC status is a factual determination that must be made annually at the close of each taxable year and,
thus, is subject to change. In addition, even if NioCorp concluded it did not qualify as a PFIC, it is possible that the U.S.
Internal Revenue Service (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 will not be treated as a PFIC for any taxable year. Each holder of
Common Shares should consult its own tax advisors regarding the PFIC rules and the U.S. federal income tax consequences of the
acquisition, ownership, and disposition of such securities. See “Certain United States Federal Income Tax Considerations”
included in Exhibit 99.1 to the Company’s Current Report on Form 8-K to which this “Risks Related to Our Common Shares”
is filed as an exhibit for further details regarding this issue.
The
Transactions could result in NioCorp becoming subject to materially adverse U.S. federal income tax consequences.
Section
7874 and related sections of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), provide for certain
adverse tax consequences when the stock of a U.S. corporation is acquired by a non-U.S. corporation in certain transactions in
which former shareholders of the U.S. corporation come to own 60% or more of the stock of the non-U.S. corporation (by vote or
value, and applying certain specific counting and ownership rules). These adverse tax consequences include (i) potential additional
required gain recognition by the U.S. corporation, (ii) treatment of certain payments to the non-U.S. corporation that reduce
gross income as “base erosion payments,” (iii) an excise tax on certain options and stock-based compensation of the
U.S. corporation, (iv) disallowance of “qualified dividend” treatment for distributions by the non-U.S. corporation,
and (v) if former shareholders of the U.S. corporation come to own 80% or more of the stock of the non-U.S. corporation, treatment
of the non-U.S. corporation as a U.S. corporation subject to U.S. federal income tax on its worldwide income (in addition to any
tax imposed by non-U.S. jurisdictions). If the Transactions result in the application of any of these, or any other, adverse tax
consequences, NioCorp could incur significant additional tax costs. While NioCorp currently does not believe the Transactions
will cause such adverse tax consequences as a result of Section 7874 and related sections of the Code, this determination is subject
to significant legal and factual uncertainty. NioCorp has not sought and will not seek any rulings from the IRS as to the tax
treatment of any of the Transactions. Further, there can be no assurance that your tax advisor, the IRS, or a court, will agree
with the position that NioCorp is not subject to these adverse tax consequences.
The Company recently identified additional
material weaknesses in its internal control over financial reporting. If not remediated, the Company’s failure to establish
and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material
misstatements in its financial statements and a failure to meet its reporting and financial obligations, each of which could have
a material adverse effect on the Company’s financial condition and the trading price of the Common Shares.
Our management has identified additional
material weaknesses in its internal control over financial reporting relating to its control over the design and maintenance of
an effective control environment and risk assessment process, and its monitoring controls over the timely remediation of identified
internal control weaknesses.. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
As discussed in Item Part I, Item 4, “Controls and Procedures,” of this Quarterly Report on
Form 10-Q, the Company’s management has assessed the effectiveness of its disclosure controls and procedures and concluded
that they were not effective as of March 31, 2023.
The Company is committed to remediating
its material weaknesses as promptly as possible. Management is in the process of implementing its remediation plan. However, there
can be no assurance as to when the material weaknesses will be remediated or that additional material weaknesses will not arise
in the future. If the Company is unable to maintain effective internal control over financial reporting, its ability to record,
process and report financial information timely and accurately could be adversely affected, which could subject the Company to
litigation or investigations, require management resources, increase costs, negatively affect investor confidence and adversely
impact the trading price of the Common Shares.
We may face litigation and other risks as a result of
the material weaknesses in our internal control over financial reporting.
We identified material weaknesses in our
internal control over financial reporting that exist as of March 31, 2023. As a result of such material weaknesses, 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, March 31, 2022, September 30, 2022, and December 31, 2022, and other matters raised or that
may in the future be raised by the SEC or the Canadian securities regulators, we face potential for litigation or other disputes,
which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising
from the material weaknesses in our internal control over financial reporting and the preparation of our financial statements.
As of the date of this Quarterly Report on Form 10-Q, we have no knowledge of any such litigation or dispute. However, we can provide
no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or
not, could adversely affect our business, financial condition and results of operations.
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