Item 1A. Risk Factors
ITEM
1A. RISK
FACTORS
Our
business activities are subject to significant risks, including those described below. You should carefully consider these risks.
If any of the described risks occurs, our business, financial position, and results of operations could be materially adversely
affected. Such risks are not the only ones we face, and additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business. This report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result
of a number of factors, including the risks described below. See “Forward-Looking Statements” under Item 1., “Business.”
Risks
Related to Our Business
Our
ability to operate as a going concern is in doubt.
The
notes that accompany our consolidated financial statements for the year ended June 30, 2023, disclose that substantial doubt exists as to our
ability to continue as a going concern. The consolidated financial statements included in this Annual Report
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on Form 10-K 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
currently have no historical recurring source of revenue and our ability to continue as a going concern is dependent on our ability
to raise capital to fund our future exploration and working capital requirements or our ability to profitably execute our business
plan. Our plans for the long-term return to and continuation as a going concern include financing our future operations through
sales of our Common Shares and/or debt and the potential profitable exploitation of our Elk Creek Project. Additionally, capital
markets and general economic conditions in the U.S. and Canada may impose significant obstacles to raising the required funds.
As discussed further below, while we have been successful in doing so in the past, there can be no assurance we will be able to
raise funds in the future. These factors raise substantial doubt about our ability to continue as a going concern.
We
will require significant additional capital to fund our business plan.
We
will be required to expend significant funds to develop our existing properties and to identify and acquire additional properties
to diversify our property portfolio. We anticipate that we will be required to make substantial capital expenditures for the development
of our Elk Creek Project.
As
of June 30, 2023, the Company had cash of $2.3 million and working capital of $0.2 million, compared to cash of $5.3 million and
working capital of $0.6 million on June 30, 2022.
As
of June 30, 2023, the Company’s current planned operational needs are approximately $11.8 million through the end of fiscal
2024. From the date of this Annual Report on Form 10-K, the Company anticipates that it does not have sufficient cash to continue
to fund basic operations for the next twelve months. This includes general overhead costs, expected costs relating to securing
financing necessary for the Elk Creek Project, satisfying outstanding accounts payable, and potential retirement of our short-term
debt obligations. Access to additional funds will be utilized to fund basic operations as well as to further advance the Elk Creek
Project through substantive near-term milestones.
Except
for the net funds of $1.5 million received from financing transactions closed in September 2023, the potential funding under the
Yorkville Equity Facility Financing, discussed below under “ Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources – Financing Activities ,” and the potential exercise
of Options and Warrants, we currently have no further funding commitments or arrangements for additional financing at this time,
and there is no assurance that we will be able to obtain any such additional financing on acceptable terms, if at all. In addition,
pursuant to the Exchange Agreement, NioCorp is restricted from issuing equity or equity-linked securities (other than Common Shares)
or any preferred equity or non-voting equity if such issuance would adversely impact the rights of the holders of the shares of
Class B common stock of ECRC, without the consent of the holders of a majority of the shares of Class B common stock of ECRC.
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 Exchange Agreement and the Yorkville Convertible Debt Financing
Agreement, there is significant uncertainty that we would be able to secure any additional financing in the current equity or
debt markets.
We
are actively pursuing additional sources of debt and equity financing, and while we have been successful in doing so in the past,
there can be no assurance we will be able to do so in the future.
Our
ability to obtain necessary funding for these purposes, in turn, depends upon a number of factors, including the status of the
national and worldwide economy and the price of the products we intend to produce. We may not be successful in obtaining the required
financing or, if we can obtain such financing, such financing may not be on terms that are favorable to us.
In
addition, the EXIM Financing discussed below under “ Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources ” is subject to, among other matters, the satisfactory
completion of due diligence, the negotiation and settlement of final terms, and the negotiation of definitive
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documentation. There
can be no assurance that the EXIM Financing will be completed on the terms described herein or at all.
Our
inability to access sufficient capital for our operations could have a material adverse effect on our financial condition, results
of operations, or prospects. Sales of substantial amounts of securities may have a highly dilutive effect on our ownership or
share structure. Sales of a large number of Common Shares in the public markets, or the potential for such sales, could decrease
the trading price of the Common Shares and could impair our ability to raise capital through future sales of Common Shares. We
have not yet commenced commercial production at any of our properties and, as such, have not generated positive cash flows to
date and have no reasonable prospects of doing so unless successful commercial production can be achieved at our Elk Creek Project.
We expect to continue to incur negative investing and operating cash flows until such time as we enter into successful commercial
production. This will require us to deploy our working capital to fund such negative cash flow and to seek additional sources
of financing. There is no assurance that any such financing sources will be available or sufficient to meet our requirements.
There is no assurance that we will be able to continue to raise equity capital or to secure additional debt financing, or that
we will not continue to incur losses.
We
have a limited operating history on which to base an evaluation of our business and prospects.
Since
our inception, we have had no revenue from operations. We have no history of producing products from any of our properties. Our
Elk Creek Project is a development stage property. Advancing our Elk Creek Project from a development stage property to a production
stage property will require significant capital and time, and successful commercial production from the Elk Creek Property will
be subject to permitting and construction of the mine, processing plants, roads, and other related works and infrastructure. As
a result, we are subject to all of the risks associated with developing and establishing new mining operations and business enterprises
including:
● the
timing and cost, which can be considerable, of further exploration, preparing feasibility
studies, permitting, engineering and construction of infrastructure, mining, and processing
facilities;
● the
availability and costs of drilling equipment, exploration personnel, skilled labor, and
mining and processing equipment, if required;
● the
availability and cost of appropriate smelting and/or refining arrangements, if required;
● compliance
with environmental and other governmental approval and permit requirements;
● the
availability of funds to finance exploration, development, permitting, and construction
activities, as warranted;
● potential
opposition from non-governmental organizations, local groups, or local residents that
may delay or prevent development activities;
● potential
increases in exploration, construction, and operating costs due to changes in the cost
of fuel, power, materials, and supplies; and
● potential
shortages of mining, mineral processing, hydrometallurgical, pyrometallurgical, construction,
and other facilities-related supplies.
The
costs, timing, and complexities of exploration, development, engineering, and construction activities may be increased by the
location of our properties and competition from other mineral exploration and mining companies. It is common for exploration companies
to experience unexpected problems and delays during development, if commenced, including engineering, procurement, construction,
commissioning, and ramp-up. Accordingly, our activities may not result in profitable operations and we may not succeed in establishing
operations or profitably producing products at any of our current or future properties, including our Elk Creek Project.
We
have a history of losses and expect to continue to incur losses in the future.
We have incurred losses since inception, have negative cash flow from operating activities, and expect
to continue to incur losses in the future. We incurred the following net losses attributable to the Company during each
of the following periods:
● $40.1
million for the year ended June 30, 2023;
● $10.9
million for the year ended June 30, 2022; and
● $4.8
million for the year ended June 30, 2021.
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We
expect to continue to incur losses unless and until such time as one of our properties enters into commercial production and generates
sufficient revenues to fund continuing operations. We recognize that if we are unable to generate significant revenues from operations
and dispositions of our properties, we will not be able to earn profits or continue operations. At this early stage of our operation,
we also expect to face the risks, uncertainties, expenses, and difficulties frequently encountered by companies at the start-up
stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties
and our failure to do so could have a materially adverse effect on our financial condition.
Increased
costs could affect our financial condition.
We
anticipate that costs at our projects that we may explore or develop will frequently be subject to variation from one year to
the next due to a number of factors, such as changing ore grade, metallurgical performance, and revisions to mine plans, if any,
in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities such
as fuel, steel, aluminum, iron, chemicals, natural gas, fresh water, and electricity, as well as by government actions such as
tariffs. Such commodities are at times subject to volatile price movements, including increases that could make production at
certain operations less profitable or not profitable at all. A material increase in costs at any significant location could have
a significant effect on our profitability.
A
disruption in, or failure of our third-party service providers’ IT systems, including those related to cybersecurity, could
adversely affect our business operations and financial performance.
We
rely on the accuracy, capacity, and security of our third-party service providers’ IT systems for the operations of many
of our business processes and to comply with regulatory, legal, and tax requirements. We are dependent on third parties to provide
important IT services relating to, among other things, operational technology at our facilities, human resources, electronic communications,
and certain finance functions. Despite the security measures that our third-party service providers have implemented, including
those related to cybersecurity, their systems could be breached or damaged by computer viruses, natural or man-made incidents
or disasters, or unauthorized physical or electronic access. Though our third-party service providers have controls in place,
we cannot provide assurance that a cyber-attack will not occur. Furthermore, we may have little or no oversight with respect to
security measures employed by third-party service providers, which may ultimately prove to be ineffective at countering threats.
Failures of our third-party service providers’ IT systems, whether caused maliciously or inadvertently, may result in the
disruption of our business processes, or in the unauthorized release of sensitive, confidential, or otherwise protected information
or result in the corruption of data, which could adversely affect our business operations and financial performance. In addition,
we may be required to incur significant costs to protect against and, if required, remediate the damage caused by such disruptions
or system failures in the future.
A
shortage of equipment and supplies could adversely affect our ability to operate our business.
We
are dependent on various supplies and equipment to carry out our mining exploration and, if warranted, project development operations.
The shortage of such supplies, equipment, and parts could have a material adverse effect on our ability to carry out our operations
and could therefore limit, or increase the cost of, production. Ongoing disruptions to the world’s economy, including issues
related to supply chains, inflation, and increased raw material and labor costs, may delay our ability to secure supplies and
equipment for the Elk Creek Project on a timely basis.
Joint
ventures and other partnerships, including offtake arrangements, may expose us to risks.
We
have entered into three offtake agreements and one letter of intent related to our Elk Creek Project as well as agreements related
to the supply of natural gas and electricity to the project site, and may enter into joint ventures or partnership arrangements,
including additional offtake agreements, with other parties in relation to the exploration, development, and production of certain
of the properties in which we have an interest. Any failure of such other companies to meet their obligations to us or to third
parties, or any disputes with respect to the parties’ respective rights and obligations, or price fluctuations and termination
provisions related to such agreements, could have a material adverse effect on us, the development and production at our properties,
including the Elk Creek Project, the joint ventures, if any, or their properties and therefore could have a material adverse effect
on our results of operations, financial performance, cash flows, and the price of our Common Shares.
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We
may experience difficulty attracting and retaining qualified management to meet the needs of our anticipated growth, and the failure
to manage our growth effectively could have a material adverse effect on our business and financial condition.
We
are dependent on a relatively small number of key employees, including our Chief Executive Officer. The loss of any officer could
have an adverse effect on us. We have no life insurance on any individual, and we may be unable to hire a suitable replacement
for them on favorable terms, should that become necessary.
The
effect on the capital markets and the economy of recent global events, including inflation, volatility in commodity prices, supply
chain uncertainty, and increases in raw material and labor costs, could have an adverse effect on NioCorp’s business plans,
financial condition, and liquidity.
Certain
events have effected, and continue to effect, the global and United States economies, including increased inflation, volatility
in commodity prices, supply chain uncertainty, and increases in raw material and labor costs. In addition, in the U.S., the Federal
Reserve has begun raising interest rates sharply, the continuation of which could lead to a recession with uncertain and potentially
severe impacts upon most operating sectors. We cannot predict how this will affect our business, but the impact may be adverse.
Although
it is not possible to predict the ultimate impact of these factors on NioCorp’s business plans, financial position, or liquidity,
such impacts that may be material include, but are not limited to: (i) delays in the completion of the mine and surface engineering
designs and uncertainty regarding our ability to finalize necessary Engineering, Procurement, and Construction (“EPC”)
agreements as a result of disruptions in the businesses of our engineering consultants and key contractors for the Elk Creek Project,
(ii) reduced availability and increased costs of employees, (iii) a negative impact on our liquidity position, and (iv) increased
costs and less ability to access funds in the capital markets. The full extent to which these factors may continue to impact our
business will depend on future developments, which continue to be highly uncertain and cannot be predicted at this time.
In
addition, we cannot predict the impact that recent global events, including inflation, volatility in commodity prices, supply
chain uncertainty, and increases in raw material and labor costs will have on our customers, suppliers, vendors, and other business
partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us.
It
may be difficult to enforce judgments or bring actions outside the U.S. against us and certain of our directors.
We
are a Canadian corporation and, as a result, it may be difficult or impossible for an investor to do the following:
● enforce
in courts outside the U.S. judgments obtained in U.S. courts based upon the civil liability
provisions of U.S. federal securities laws against these persons and the Company; or
● bring
in courts outside the U.S. an original action to enforce liabilities based upon U.S.
federal securities laws against these persons and the Company.
The
Company may not realize all or any of the anticipated benefits expected as a result of the Transactions.
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.
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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, plus accrued interest. 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 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.
The
Company has identified 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 material weaknesses in its internal control over financial reporting relating to its control over the
consideration of all related relevant accounting guidance for non-routine transactions, 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.
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As
discussed in Item 9A, “Controls and Procedures,” of this Annual Report on Form 10-K, the Company’s management
has assessed the effectiveness of its internal control over financial reporting and its disclosure controls and procedures and
concluded that they were not effective as of June 30, 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 June 30, 2023. As a result of
such material weaknesses 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 Annual Report on Form 10-K, 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.
Risks
Related to Mining and Development
We
face numerous uncertainties in estimating our mineral reserves and resources and inaccuracies in our estimates could result in
lower than expected revenues, higher than expected costs and decreased profitability.
A
mineral is economically recoverable when the price at which we may sell the mineral exceeds the costs and expenses of mining and
selling the mineral. Forecasts of our future performance are based on, among other things, estimates of our mineral reserves.
We base our reserve and resource information on engineering, economic and geological data assembled and analyzed by qualified
persons, which include various engineers and geologists on our staff and of third parties. Our estimates are also subject to SEC
regulations regarding classification of reserves and resources, including S-K 1300. Our reserve and resource estimates as to both
quantity and quality are updated from time to time to reflect additional information received. There are numerous uncertainties
inherent in estimating quantities and qualities of mineral reserves and resources, including many factors beyond our control.
Estimates
of mineral reserves and resources necessarily depend upon a number of variable factors and assumptions, any one of which may,
if incorrect, result in an estimate that varies considerably from actual results. These factors and assumptions include, but are
not limited to:
● geologic
and mining conditions, which may not be fully identified by available exploration data
and may differ from our experience;
● demand
for the minerals that we plan to produce;
● current
and future market prices for minerals and contractual arrangements;
● current
and future operating costs and capital expenditures may exceed estimates, notwithstanding
that, under S-K 1300, operating cost and capital expenditure estimates in feasibility
studies must have an accuracy level of at least ±15% and a contingency range not
exceeding 10%;
● additional capital expenditures related to the modification of the proposed surface plant related to the potential addition
of rare earth elements;
● severance
and excise taxes, royalties and development and reclamation costs;
● future
mining technology improvements;
● the
effects of regulation by governmental agencies;
● the
ability to obtain, maintain and renew all required permits;
● employee
health and safety; and
● historical
production from the area compared with production from other producing areas.
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The
conversion of reported mineral resources to mineral reserves should not be assumed, and the reclassification of reported mineral
resources from lower to higher levels of geological confidence should not be assumed. As such, actual mineral tonnage recovered
from identified reserves, and revenues and expenditures with respect to our reserves, may vary materially from estimates. Thus,
these estimates may not accurately reflect our actual reserves. Any material inaccuracy in our estimates related to our reserves
could result in lower than expected revenues, higher than expected costs, or decreased profitability, which could materially and
adversely affect our business, results of operations, financial position, and cash flows.
The
nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses.
Exploration
for and the production of minerals is highly speculative and involves much greater risk than many other businesses. Most exploration
programs do not result in the discovery of mineralization, and any mineralization discovered may not be of sufficient quantity
or quality to be profitably mined. Our operations are, and any future development or mining operations we may conduct will be,
subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties, such as,
but not limited to:
● economically
insufficient mineralized material;
● fluctuation
in production costs that make production uneconomical;
● labor
disputes;
● unanticipated
variations in grade and other geologic problems;
● environmental
hazards;
● water
conditions;
● difficult
surface or underground conditions;
● industrial
accidents;
● metallurgical,
pyrometallurgical, and other processing problems;
● mechanical
and equipment performance problems;
● failure
of dams, stockpiles, wastewater transportation systems, or impoundments;
● unusual
or unexpected rock formations; and
● personal
injury, fire, flooding, cave-ins, and landslides.
Any
of these risks can materially and adversely affect, among other things, the development of properties, production quantities and
rates, costs and expenditures, potential revenues, and production dates. We currently have very limited insurance to guard against
some of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be
recovered, we would incur a write-down of our investment in these interests. All of these factors may result in losses in relation
to amounts spent that are not recoverable, or that result in additional expenses.
We
have no history of producing commercial products from our current mining properties and there can be no assurance that we will
successfully establish mining operations or profitably produce minerals.
We
have no history of producing commercial products from our current mining properties. We do not produce commercial products and
do not currently generate operating earnings. While we seek to move our Elk Creek Project from a development stage property to
a production stage property, such efforts will be subject to all of the risks associated with establishing new mining operations
and business enterprises, including:
● the
timing and cost, which are considerable, of the construction of mining and processing
facilities;
● the
availability and costs of skilled labor and equipment;
● compliance
with environmental and other governmental approval and permit requirements;
● the
availability of funds to finance construction and development activities;
● potential
opposition from non-governmental organizations, local groups, or local residents that
may delay or prevent development activities; and
● potential
increases in construction and operating costs due to changes in the cost and availability
of labor, fuel, power, materials, and equipment and supplies, and the time elapsed since
the most recent estimates of cost and availability were made.
17
It
is common in new mining and processing operations to experience unexpected problems and delays during engineering, procurement,
construction, commissioning, and initial operations. In addition, our management and workforce will need to be expanded, and sufficient
housing and other support systems for our workforce will have to be established. This could result in delays in the commencement
of production and increased costs of production. Accordingly, we cannot assure you that our activities will result in profitable
operations or that we will successfully establish mining and processing operations.
Results
of metallurgical testing by us may not be favorable to, or as expected by, us.
We
have completed significant bench, mini-pilot, and pilot scale metallurgical testing on material from the Elk Creek Project and
will continue to complete necessary metallurgical testing at the bench, mini-pilot, and pilot scale as the exploration and, if
warranted, development of the Elk Creek Project progresses. There can be no assurance that the results of such metallurgical testing
will be favorable to, or will be as expected by, us. Furthermore, there can be no certainty that metallurgical recoveries obtained
in bench or pilot scale tests will be achieved in either subsequent testing or commercial operations. The development of a complete
metallurgical process to produce saleable final products from the Elk Creek Project is a complex and resource-intensive undertaking
that may result in overall schedule delays and increased project costs for us.
Price
volatility could have dramatic effects on our results of operations and our ability to execute our business plan.
The
price of commodities varies on a daily basis. Niobium is a specialty metal and not a commonly traded commodity such as copper,
zinc, gold, or iron ore. The price of niobium tends to be set through a limited long-term offtake market, contracted between very
few suppliers and purchasers. The world’s largest supplier of niobium, Companhia Brasileira de Metalurgia e Mineração,
supplies approximately 85% of the world’s niobium. Any attempt to suppress the price of niobium by such supplier, or an
increase in production by any supplier in excess of any increased demand, would have negative consequences on the price of niobium
and, potentially, on our value. The price of niobium may also be reduced by the discovery of new niobium deposits, which could
not only increase the overall supply of niobium (causing downward pressure on its price) but could draw new firms into the niobium
industry that would compete with us.
Sc 2 O 3
is used in solid oxide fuel cells and has the potential to become a valuable alloy with aluminum in the aerospace and automotive
industries. Supply of scandium has been sporadic in recent years, and there are no primary scandium mines in the world at present.
Production primarily occurs as a by-product from existing metallurgical plants, primarily in Russia, Canada, the Philippines,
and China. Our management believes the Elk Creek Project would significantly increase the world’s supply of scandium trioxide.
Although the Company’s market studies indicate a positive outlook for demand, there is no assurance at present that the
Company could sell all of its production. In addition, the sale of scandium represents a significant portion of the Elk Creek
Project revenue; achieving the revenue projected in the Company’s studies is subject to market growth in scandium, which
is a developing market with a risk of oversupply and/or undersupply disrupting pricing.
Titanium
metal is used in various superalloys and other applications for aerospace applications, armor, and medical implants, and in oxide
form is a key component of pigments used in paper, paint, and plastics. The Elk Creek Project would produce a small quantity of
titanium dioxide relative to other producers. As a small producer, we would be subject to fluctuations in the price of TiO 2
that would result from normal variations in supply and demand for this commodity.
We
may not be able to establish a viable recovery process for REEs .
The
market for rare earth products requires particular levels of purity and chemical form, which are achieved through the extraction
and separation of individual REEs from each other as well as from the other constituents in the rare earth ore. At present, the
Company has substantially completed the engineering and testing of a process for producing commercial rare earth products but
has not completed all work necessary to declare a REE reserve estimate for the Elk Creek deposit. The completion of the work necessary
to demonstrate an economically feasible rare earth recovery system will require additional expenditures of cash and time to complete.
There is no guarantee that the Company will be successful in demonstrating positive economics for a rare earth recovery system
tied to the Elk Creek
18
Project, nor is there any guarantee that once constructed, the rare earth recovery system will operate as
designed and produce saleable commercial products.
Estimates
of resources and reserves are subject to evaluation uncertainties that could result in project failure.
Our
exploration and future mining operations, if any, are and would be faced with risks associated with being able to accurately predict
the quantity and quality of resources/reserves within the earth using statistical sampling techniques. Estimates of any resources/reserves
on any of our properties would be made using samples obtained from appropriately placed trenches, test pits, underground workings,
and intelligently designed drilling. There is an inherent variability of assays between check and duplicate samples taken adjacent
to each other and between sampling points that cannot be reasonably eliminated. Additionally, there also may be unknown geologic
details that have not been identified or correctly appreciated at the current level of accumulated knowledge about our properties.
This could result in uncertainties that cannot be reasonably eliminated from the process of estimating resources/reserves. If
these estimates were to prove to be unreliable, we could implement an exploitation plan that may not lead to commercially viable
operations in the future.
Any
material changes in mineral resource/reserve estimates and grades of mineralization will affect the economic viability of placing
a property into production and a property’s return on capital.
Mineral
resource/reserve estimates may require adjustments or downward revisions. In addition, the grade of ore ultimately mined, if any,
may differ from that indicated by our feasibility studies and drill results. Minerals recovered in small scale tests may not be
duplicated in large scale tests under on-site conditions or at commercial production scale.
The
resource and reserve estimates included in the S-K 1300 Elk Creek Technical Report Summary and contained in this Annual Report
on Form 10-K have been determined based on assumed future prices, cut-off grades, and operating costs that may prove to be inaccurate.
Extended declines in market prices for our products may render portions of our resource/reserve estimates uneconomic and may result
in reduced reported resources/reserves or may adversely affect any commercial viability determinations we may reach. Any material
reductions in estimates of resources/reserves could have a material adverse effect on our Common Share price and on the value
of our properties.
We
face intense competition in the mining industry.
The
mining industry is intensely competitive in all of its phases. As a result of this competition, some of which is with large established
mining companies with substantial capabilities and with greater financial and technical resources than ours, we may be unable
to acquire additional properties, if any, or financing on terms we consider acceptable. We also compete with other mining companies
in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for
qualified employees, our exploration and development programs may be slowed down or suspended. We compete with other companies
that produce our planned commercial products for capital. If we are unable to raise sufficient capital, our exploration and development
programs may be jeopardized or we may not be able to acquire, develop, or operate additional mining projects.
Difficulties
in water balance management at our Elk Creek Project could negatively affect our potential production and economics at the project.
The
Company has conducted three field investigations and two major technical studies into the hydrogeology of the Elk Creek carbonatite,
which is the geologic formation which hosts the mineralized material that would be extracted by the Company’s mining operations.
The Company expects to encounter significant amounts of water in the carbonatite, which will need to be pumped out of the formation
to facilitate a mining operation. Water quality analyses have demonstrated that this water will have elevated temperature and
salt content when compared to other water resources in the area. While the Company has developed plans to treat water produced
from the mine for use in its operations, there is no guarantee that the permits needed for the treatment of the water or the disposal
of the resultant waste products will be issued by the State of Nebraska, nor is there any guarantee that such permits will be
issued in a timely fashion. Further, based on such plans, the operations will rely on a water treatment system to achieve zero
discharge of wastewater, and there is no guarantee that this system will function as designed or achieve nameplate treatment capacity.
19
Title
to our properties may be subject to other claims that could affect our property rights and claims.
There
are risks that title to our properties may be challenged or impugned. Our Elk Creek Project is located in Nebraska and may be
subject to prior unrecorded agreements or transfers or native land claims, and title may be affected by undetected defects. Our
current land and/or mineral rights lease agreements between ECRC and individual landowners give us an option to purchase additional
property (“OTP”), which, along with the property we already own, will allow us to construct the Elk Creek Project
once sufficient project financing is obtained. The rights of the current owners to sell the property subject to these options
may be subject to prior unrecorded or unknown claims to title. We have investigated our rights to explore and exploit the Elk
Creek Project resource/reserve and, to the best of our knowledge, our rights in relation to lands covering the Elk Creek Project
resource/reserve are in good standing. However, there may be valid challenges to the title of our properties that, if successful,
could impair development and/or operations. Further, our current OTP agreements, which are important for operations, are of fixed
duration and expire between December 2024 and May 2040.
Our
properties and operations may be subject to litigation or other claims.
From
time to time our properties or operations may be subject to disputes that may result in litigation or other legal claims. We may
be required to assert or defend against these claims, which will divert resources and management time from operations. The costs
of these claims or adverse filings may have a material effect on our business and results of operations.
We
do not currently insure against all the risks and hazards of mineral exploration, development, and mining operations.
Exploration,
development, mining, and surface operations involve various hazards, including environmental hazards, industrial accidents, metallurgical
and other processing problems, unusual or unexpected rock formations, structural cave-ins or slides, flooding, fires, and periodic
interruptions due to inclement or hazardous weather conditions. These risks could result in damage to or destruction of mineral
properties, facilities, or other property, personal injury, environmental damage, delays in operations, increased cost of operations,
monetary losses, and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible
premiums or at all. We may elect not to insure where premium costs are disproportionate to our perception of the relevant risks.
The payment of such insurance premiums and of such liabilities would reduce the funds available for exploration and production
activities.
Risks
Related to Government Regulation
We
may not be able to obtain or renew all required permits and licenses to place any of our properties into production.
Our
current and future operations, including development activities and commencement of production, if warranted, on the Elk Creek
Project, require permits from governmental authorities and such operations are and will be governed by laws and regulations governing
prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances,
land use, environmental protection, mine safety, and other matters. Companies engaged in mineral property exploration and the
development or operation of mines and related facilities generally experience increased costs, as well as delays in production
and other schedules as a result of the need to comply with applicable laws, regulations, and permits. We cannot predict if all
permits that we may require for continued exploration, development, or construction of mining facilities and conduct of mining
operations will be obtainable or renewable on reasonable terms, if at all. Costs related to applying for and obtaining permits
and licenses may be prohibitive and could delay our planned exploration and development activities. Failure to comply with applicable
laws, regulations, and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial
authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation
of additional equipment, or remedial actions.
Facilities
associated with the Elk Creek Project, such as the mine, surface plant, tailings facilities, stockpiles and supporting infrastructure,
are likely to either temporarily or permanently impact waterbodies and wetlands that are subject to regulation by the USACE as
Waters of the United States (“WOUS”). We believe that we have obtained the necessary USACE permits to construct the
project, but changes to the design or layout of the facility may trigger the
20
USACE to require us to obtain and maintain additional
permits for the Elk Creek Project. The duration of this permitting exercise is dictated by the USACE and would need to be completed
before facilities that would impact WOUS could be constructed. We may experience delays or additional costs in relation to obtaining
the necessary permits and these delays and additional costs could negatively affect the economics of the Elk Creek Project and
our results of operations.
Parties
engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and
may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current
laws, regulations, and permits governing operations and activities of mining companies, or more stringent implementation thereof,
could have a material adverse impact on our operations and cause increases in capital expenditures or production costs or reduction
in levels of production at producing properties or require abandonment or delays in development of new mining properties.
We
are subject to significant governmental regulations that affect our operations and costs of conducting our business.
Our
current and future operations, including development of the Elk Creek Project, are and will be governed by laws and regulations,
including:
● laws
and regulations governing mineral concession acquisition, prospecting, development, mining,
and production;
● laws
and regulations related to exports, taxes, and fees;
● labor
standards and regulations related to occupational health and mine safety; and
● environmental
standards and regulations related to waste disposal, toxic substances, land use reclamation,
and environmental protection.
Companies
engaged in development activities often experience increased costs and delays in production and other schedules as a result of
the need to comply with applicable laws, regulations, and permits. Failure to comply with applicable laws, regulations, and permits
may result in enforcement actions, including the forfeiture of mineral claims or other mineral tenures and/or orders issued by
regulatory or judicial authorities requiring operations to cease or be curtailed, and may include corrective measures requiring
capital expenditures, installation of additional equipment, or costly remedial actions. We may be required to compensate those
suffering loss or damage by reason of our development activities and may have civil or criminal fines or penalties imposed for
violations of such laws, regulations, and permits.
Existing
and possible future laws, regulations, and permits governing operations and activities of mineral development companies, or more
stringent implementation, could have a material adverse impact on our business and cause increases in capital expenditures or
require abandonment or delays in development. Our Elk Creek Project is located in Nebraska, and while the State does have a comprehensive
and modern set of environmental regulations, it does not have specific regulations with respect to permitting or reclaiming mines
which could potentially impact the total time to market for the project.
Our
activities are subject to environmental laws and regulations that may change, thereby increasing our costs of doing business and
restricting our operations.
All
phases of our operations are subject to environmental regulation in the jurisdictions in which we operate. Environmental legislation
is evolving in a manner that may require stricter standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their
officers, directors, and employees. These laws address emissions into the air, discharges into water, management of waste, management
of hazardous substances, protection of natural resources, antiquities and endangered species, and reclamation of lands disturbed
by mining operations. Compliance with environmental laws and regulations, and future changes in these laws and regulations, may
require significant capital outlays and may cause material changes or delays in our operations and future activities. It is possible
that future changes in these laws or regulations could have a significant adverse impact on our properties or some portion of
our business, causing us to re-evaluate those activities at that time.
21
Regulations
and pending legislation governing issues involving climate change could result in increased operating costs, which could have
a material adverse effect on our business.
A
number of governments or governmental bodies have introduced or are contemplating legislative and/or regulatory changes in response
to concerns about the potential impact of climate change. Legislation and increased regulation regarding climate change could
impose significant costs on us, on our future venture partners, if any, and on our suppliers, including costs related to increased
energy requirements, capital equipment, environmental monitoring and reporting, and other costs necessary to comply with such
regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies
situated in areas not subject to such limitations. Given the emotion, political significance, and uncertainty surrounding the
impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial
condition, operating performance, and ability to compete. Furthermore, even without such regulation, increased awareness and any
adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry
could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain and could be
particular to the geographic circumstances in areas in which we operate and may include changes in rainfall and storm patterns
and intensities, water shortages, changing sea levels, and changing temperatures. These impacts may adversely impact the cost,
production, and financial performance of our operations.
Land
reclamation requirements for our properties may be burdensome and expensive.
Although
variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration
companies (as well as companies with mining operations) in order to minimize long-term effects of land disturbance.
Reclamation
may include requirements to:
● control
dispersion of potentially deleterious effluents;
● treat
ground and surface water to achieve water quality standards; and
● reasonably
re-establish pre-disturbance landforms and vegetation.
In
order to carry out reclamation obligations imposed on us in connection with our potential development activities, we must allocate
financial resources that might otherwise be spent on further exploration and development programs. We plan to set up a provision
for our reclamation obligations on our properties, as appropriate, but this provision may not be adequate. If we are required
to carry out unanticipated reclamation work, our financial position could be adversely affected.
Risks
Related to Our Debt
The
level of our indebtedness from time to time could impair our ability to obtain additional financing.
From
time to time, we may enter into transactions to acquire assets or the shares of other companies or to fund development of the
Elk Creek Project. These transactions may be financed partially or wholly with debt, which may increase our debt levels above
industry standards. Our articles of incorporation do not limit the amount of indebtedness that we may incur. Our indebtedness
could impair our ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities
that may arise. Our ability to service our debt obligations will depend on our future operations, which are subject to prevailing
industry conditions and other factors, many of which are beyond our control.
Risks
Related to the Common Shares
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 of Common Shares or other securities of NioCorp, such U.S. holder
22
may be subject to certain
adverse U.S. federal income tax consequences. These adverse tax consequences include requirements to treat any gain realized upon
a disposition of Common Shares or other securities, or any “excess distribution” received on Common Shares, as ordinary
income, to pay an interest charge on a portion of such gain or distribution, and certain additional reporting requirements. Such
consequences may be mitigated with respect to Common Shares (but not with respect to warrants or other securities of NioCorp)
if the holder thereof makes a timely and effective “qualified electing fund” or “QEF” election or a “mark-to-market”
election. A U.S. holder of Common Shares that makes a QEF election generally must include in income on a current basis for U.S.
federal income tax purposes its share of NioCorp’s net capital gain and ordinary earnings for any taxable year in which
it is a PFIC, whether or not NioCorp distributes any amount to its shareholders. A U.S. holder of Common Shares that makes a mark-to-market
election generally must include as ordinary income each year the excess of the fair market value of the Common Shares over the
taxpayer’s basis therein.
NioCorp
generally will be classified as a PFIC for a taxable year if (a) 75% or more of its gross income for such year is “passive
income” (generally, dividends, interest, rents, royalties, and gains from the disposition of assets producing passive income)
or (b) at least 50% or more of the value of its assets produce, or are held for the production of, passive income, based on the
quarterly average of the fair market value of such assets. NioCorp believes that it may be classified as a PFIC for its taxable
year ended June 30, 2023 and was classified as a PFIC for its taxable year ended June 30, 2022 and, based on the current composition
of its income and assets, as well as current business plans and financial expectations, may be classified as a PFIC for 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. The
PFIC rules are complex and each holder of Common Shares or other securities of NioCorp should consult its own tax advisors regarding
these rules and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of such securities.
The
Transactions could result in NioCorp becoming subject to materially adverse U.S. federal income tax consequences.
Section
7874 and related sections 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.
Our
Common Share price may be volatile and as a result you could lose all or part of your investment.
In
addition to volatility associated with equity securities in general, the value of your investment could decline due to the impact
of any of the following factors upon the market price of the Common Shares:
● disappointing
results from our exploration and/or, if warranted, project development efforts;
● decline
in demand for Common Shares;
● downward
revisions in securities analysts’ estimates or changes in general market conditions;
● technological
innovations by competitors or in competing technologies;
● investor
perception of our industry or our prospects; and
● general
economic trends.
23
In
the past fiscal year, the trading price of our stock on the Nasdaq and TSX has ranged as follows:
Exchange
High
Low
TSX
C$17.10
C$6.44
Nasdaq 1
$7.83
$4.75
1
Trading initiated on March 21, 2023.
In
addition, stock markets in general have experienced extreme price and volume fluctuations, and the market prices of securities
have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market
price of the Common Shares. As a result, you may be unable to sell any Common Shares you acquire at a desired price.
We
have never paid dividends on the Common Shares.
We
have not paid dividends on the Common Shares to date, and we may not be in a position to pay dividends for the foreseeable future.
Our ability to pay dividends with respect to the Common Shares will depend on our ability to successfully develop one or more
properties and generate earnings from operations. Further, our initial earnings, if any, will likely be retained to finance our
operations. Any future dividends on Common Shares will depend upon our earnings, our then-existing financial requirements, and
other factors, and will be at the discretion of our Board of Directors.
Future
sales, or the perception of future sales, of Common Shares by existing shareholders or by us, or future dilutive issuances of
Common Shares by us, could adversely affect prevailing market prices for the Common Shares and cause investors to suffer dilution
in their net book value per Common Share.
Sales
of a substantial number of Common Shares in the public market could occur at any time, including issuances and sales of additional
Common Shares by us and sales by other security holders. These sales, or the market perception that the holders of a large number
of Common Shares or securities convertible, exercisable, or exchangeable into Common Shares intend to sell Common Shares, could
reduce the prevailing market price of the Common Shares. The effect, if any, that future public sales of these securities or the
availability of these securities for sale will have on the market price of the Common Shares is uncertain. If the market price
of the Common Shares were to drop as a result, this might impede our ability to raise additional capital and might cause remaining
shareholders to lose all or part of their investment.
The
Articles of NioCorp, as amended in connection with the Transactions, permit us to issue an unlimited number of Common Shares.
Subject to the requirements of the British Columbia Business Corporations Act, Nasdaq and TSX, we will not be required to obtain
the approval of the NioCorp shareholders for the issuance of additional Common Shares. We have issued Common Shares in the past
and will continue to issue Common Shares to finance our activities in the future. In addition, outstanding options, warrants,
and broker warrants to purchase Common Shares may be exercised, resulting in the issuance of additional Common Shares. If we issue
additional Common Shares or decide to enter into joint ventures with other parties in order to raise financing through the sale
of equity securities, investors’ interests in the Company will be diluted and investors may suffer dilution in their net
book value per Common Share depending on the price at which such securities are sold.
Additionally,
pursuant to the Yorkville Equity Facility Financing Agreement, Yorkville has committed to purchase up to $65.0 million of our
Common Shares, at our direction from time to time during the Commitment Period, subject to certain limitations and the satisfaction
of the conditions in the Yorkville Equity Facility Financing Agreement. We have filed a registration statement under the Securities
Act covering resales by Yorkville of the Common Shares issuable pursuant to the Yorkville Equity Facility Financing Agreement.
Accordingly, any Common Shares that we issue pursuant to the Yorkville Equity Facility Financing Agreement will be available for
sale into the public market, subject to applicable securities laws, which could reduce the prevailing market price for the Common
Shares.
24
We
are subject to the continued listing criteria of the Nasdaq and TSX and our failure to satisfy these criteria may result in delisting
of the Common Shares.
Our
Common Shares are currently listed on the Nasdaq Global Market and TSX under the symbol “NB”. The public NioCorp Assumed
Warrants are currently listed on the Nasdaq Capital Market under the symbol “NIOBW.” Both the Nasdaq Capital Market
and TSX have rules for continued listing. In order to maintain the listings, we must maintain certain financial and share distribution
targets, including maintaining a minimum number of public shareholders. In addition to objective standards, TSX may delist the
securities of any issuer if, in TSX’s opinion, the issuer’s financial condition and/or operating results appear unsatisfactory;
if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to
make continued listing on TSX inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating
company; if an issuer fails to comply with the listing requirements of TSX; or if any other event occurs or any condition exists
which makes continued listing on TSX, in the opinion of TSX, inadvisable.
If
Nasdaq or TSX delists the Common Shares, investors may face material adverse consequences, including, but not limited to, a lack
of a trading market for the Common Shares, reduced liquidity, a determination that our Common Shares are a “penny stock,”
decreased analyst coverage of the Company, and an inability for us to obtain additional financing to fund our operations.
The
issuance of additional Common Shares may negatively impact the trading price of our securities.
We
have issued Common Shares in the past and will continue to issue Common Shares to finance our activities in the future. In addition,
outstanding options, warrants, and broker warrants to purchase Common Shares may be exercised, resulting in the issuance of additional
Common Shares. The issuance by us of additional Common Shares would result in dilution to our shareholders, and even the perception
that such an issuance may occur could have a negative impact on the trading price of the Common Shares.
If
our Common Shares are considered a penny stock and are subject to the penny stock rules, broker-dealers may be discouraged from
effecting transactions in Common Shares.
Our
Common Shares has in the past, and may in the future, be considered a “penny stock.” The SEC has adopted Rule 15g-9
which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Applicable penny stock rules impose
additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited
investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5.0 million
or individuals with a net worth in excess of $1.0 million or annual income exceeding $200 or $300, jointly with their spouse.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly
account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations,
and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting
the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the
penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. If and when applicable, these disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for the Common Shares. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade in the Common Shares.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
None.
25