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.
Failure
to consummate the Transaction could negatively impact the price of our Common Shares and have a material adverse effect on our
results of operations, cash flows and financial position.
The
consummation of the Transaction is 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 assumed
from GXII, (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, (vii) that, at 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.
Many
of the conditions to completion of the Transaction pursuant to the Business Combination Agreement are not within NioCorp’s
or GXII’s control, and we cannot predict with any certainty when these conditions will be satisfied, if at all. Although
NioCorp and GXII are working to complete the Transaction, satisfying the conditions to and completion of the Transaction may take
longer, and could cost more, than we expect. For example, the requirements for obtaining the required stock exchange clearances
and approvals could delay the completion of the Transaction for a period of time or prevent it from occurring. Any delay in completing
the Transaction within the expected timeframe may adversely affect the benefits that we expect to achieve from the Transaction.
If any of these conditions are not satisfied or waived, it is possible that the Business Combination Agreement may be terminated
and the Transaction may not be completed.
If
the Transaction is not completed for any reason, including as a result of NioCorp’s shareholders or GXII’s stockholders
failing to approve the applicable proposals or the Business Combination Agreement is otherwise terminated, our ongoing business
may be materially adversely affected and, without realizing any of the benefits of having completed the Transaction, we would
be subject to a number of risks, including the following:
●
we
may experience negative reactions from the financial markets, including negative impacts on the price of our Common Shares;
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●
we
will still be required to pay certain significant costs relating to the Transaction, such as legal, accounting, financial
advisor and printing fees;
●
we
may be required to pay a termination fee and reimburse GXII for certain of its expenses under the terms of the Business Combination
Agreement;
●
the
Business Combination Agreement places certain restrictions on the conduct of the our business until the earlier of the termination
of the Business Combination Agreement and the closing date of the Transaction, which restrictions may have delayed or prevented
the us from undertaking business opportunities that, absent the Business Combination Agreement, may have been pursued;
●
matters
relating to the Transaction require substantial commitments of time and resources by management, which could have resulted
in the distraction of management from ongoing business operations and pursuing other opportunities that could have been beneficial
to us; and
●
litigation
related to any failure to complete the Transaction or related to any enforcement proceeding commenced against us to perform
our obligations under the Business Combination Agreement.
If
the Transaction is not completed, any of the risks described above may materialize and they may have a material adverse effect
on our results of operations, cash flows, financial position and the price of our Common Shares.
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.
The
success of the Transaction, if consummated, will depend, in part, on the combined company’s ability to realize the anticipated
benefits expected from the Transaction. In particular, a significant number of GXII shareholders may exercise their redemption
rights in connection with the closing of the Transaction. In addition, the Business Combination Agreement does not make the consummation
of the Transaction conditional on the entry into definitive documentation and consummation of the financing transactions contemplated
by the LOIs with Yorkville, and there is no assurance that such financing transactions will be consummated. As a result, even
if the minimum cash and net tangible asset conditions to closing set forth in the Business Combination Agreement are satisfied
and the Transaction is consummated, after giving effect to (i) payments made to GXII stockholders who properly exercise their
redemption rights and (ii) payments for potential taxes and certain expenses incurred by NioCorp and GXII in connection with the
Transaction, to the extent not otherwise paid prior to the closing, the combined company may have less net cash proceeds available
for general corporate purposes than anticipated. In addition, 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 combined
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 combined company’s results of operations, cash flows,
financial position and the price of our Common Shares.
The
Yorkville Financings are subject to satisfaction or waiver of several conditions.
Completion
of the Yorkville Financings are subject to the satisfaction of a number of conditions precedent, certain of which are outside
of NioCorp’s control, including, but not limited to, the approval by our shareholders of the issuance of the Common Shares
in connection with the Yorkville Equity Facility Financing, approval by our shareholders of the issuance of Common Shares in
connection with the Yorkville Convertible Debt Financing, and other customary conditions. A substantial delay in obtaining satisfactory
approvals and/or the imposition of unfavorable terms or conditions in the approvals to be obtained could result in the termination
of the Yorkville Equity Facility Financing Agreement or the Yorkville Convertible Debt Financing Agreement. There can be no certainty,
nor can NioCorp provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied.
If the Yorkville Equity Facility Financing or the Yorkville Convertible Debt Financing are not completed: (i) certain costs related
to the Yorkville Equity Facility Financing Agreement and the Yorkville Convertible Debt Facility Agreement, such as legal, accounting
and financial advisory fees, must be paid by NioCorp even if the Yorkville Financings are not completed; (ii) NioCorp may not
be successful in finding another financing opportunity that is of equal or greater
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benefit to NioCorp; and (iii) the time and
attention of NioCorp’s management will have been diverted away from the conduct of NioCorp’s business.
We
may not be able to consummate the Yorkville Financings in a timely manner or at all, which could have a material adverse effect
on the Company. Even if the Yorkville Financings are consummated, we face significant related risks, and we may not recognize
the full value of the Yorkville Financings.
Completion
of the Yorkville Financings is subject to the satisfaction of a number of conditions precedent, certain of which are outside of
NioCorp’s control, including, but not limited to, the approval by our shareholders of the issuances of the Common Shares
in connection with the Yorkville Equity Facility Financing and upon the conversion of the Convertible Debentures and the exercise
of the Financing Warrants. A failure in obtaining necessary approvals and/or a failure to satisfy other conditions precedent could
result in the termination of the Yorkville Equity Facility Financing Agreement and the Yorkville Convertible Debt Financing Agreement.
There can be no certainty, nor can NioCorp provide any assurance, that these conditions will be satisfied or, if satisfied, when
they will be satisfied. If the Yorkville Equity Facility Financing or the Yorkville Convertible Debt Financing are not completed:
(i) certain costs related to the Yorkville Equity Facility Financing Agreement and the Yorkville Convertible Debt Facility Agreement,
such as legal, accounting and financial advisory fees, must be paid by NioCorp even if the Yorkville Financings are not completed;
(ii) NioCorp may not be successful in finding another financing opportunity that is of equal or greater benefit to NioCorp; (iii)
the time and attention of NioCorp’s management will have been diverted away from the conduct of NioCorp’s business;
and (iv) we may not be able to complete the proposed Transactions, each of which could have a material adverse effect on the Company.
Even
if the Yorkville Financings are consummated, we may not recognize or the full value of the Yorkville Financings. Specifically,
our ability to sell 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.
As a result, there can be no assurance that NioCorp will receive all or even a significant portion of the proceeds that it expects
to receive in connection with the Yorkville Equity Facility Financing. Further, holders of the Financing Warrants will have the
ability to exercise them on a cashless basis. Accordingly, we may not receive any proceeds from the exercise of the Financing
Warrants.
If
the Yorkville Financings are consummated, we will incur significant additional debt upon the issuance of the Convertible Debentures.
Notwithstanding whether we are able to recognize the full value of the Yorkville Financings, we will become obligated to repay
or issue Common Shares upon settlement of the full $16.0 million aggregate principal amount of Convertible Debentures that we
have agreed to issue pursuant to the Yorkville Convertible Debt Financing Agreement. 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. Our inability to obtain 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.
Last,
if the Yorkville Financings are consummated, a significant number of Common Shares would become potentially issuable under the
Yorkville Equity Facility Financing Agreement and upon the conversion of the Convertible Debentures and the exercise of the Financing
Warrants. Additionally, the lower the market or trading price of our Common Shares in the future, the greater the number of Common
Shares potentially issuable under the Yorkville Equity Facility Financing Agreement and upon the conversion of the Convertible
Debentures and the exercise of the Financing Warrants, would become. Factors both within and beyond our control could cause the
market or trading price of our Common Shares to decline, even significantly, in the future. As a result, existing shareholders
will have their positions significantly diluted by the potential increase in additional outstanding Common Shares due to the issuance
of Common Shares under the Yorkville Equity Facility Financing Agreement and upon the conversion of the Convertible Debentures
and the exercise of the Financing Warrants. If the Yorkville Financings are completed, and subject to the terms of the Yorkville
Equity Facility Financing Agreement and the Yorkville Convertible Debt Financing Agreement, as applicable, the potential issuances
of Common Shares thereunder, the sale of Common Shares in the public market from time to time, and any disclosures to be made
by us relating thereto, could depress the market price for the Common Shares.
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New
Risk Factors in this Form 10-Q/A
The Company recently determined additional material weaknesses
in its internal control over financial reporting existed as of December 31, 2022. 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 determined that additional material weaknesses
in its internal control over financial reporting existed as of December 31, 2022. Specifically, these additional material weaknesses
relate to management’s control over the design and maintenance of an effective control environment 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 December 31, 2022.
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 Restatement and the material weaknesses in our internal control over financial
reporting.
We previously identified a material weakness in our internal control over financial reporting that resulted
in 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. Subsequent to the filing of the Original Form 10-Q,
we identified an additional error, requiring the restatement of the Company’s condensed consolidated financial statements
as of and for the three months ended September 30, 2022 and the three and six months ended December 31, 2022, which was partially
caused by the same material weakness in internal control over financial reporting. In addition, subsequent to the filing of the
Original Form 10-Q, management concluded that two additional material weaknesses in internal control over financial reporting existed
as of December 31, 2022. As a result of such material weaknesses, the Restatement 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 Restatement
and the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. As
of the date of this Form 10-Q/A, 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.