Item 1A. Risk Factors
Item 1A. Risk Factors.
An investment in our securities involves a
high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in
this Annual Report, before making a decision to invest in our securities. If any of the following events occur, our business, financial
condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline,
and you could lose all or part of your investment.
Risks Related to Our Business and Industry
The Stillwater Facility is under development
and is not yet completed, we have not commenced producing and selling neo magnets, and we have no history in commercial operations and
the lack of commercial operations limits the accuracy of any forward-looking forecasts, prospects or business outlook or plans.
We have not commenced production of neo
magnets at our Stillwater Facility, and we may not be able to secure the necessary feedstock, offtake, or equipment in order to
economically produce neo magnets, including from the Round Top Project. We have not realized any revenues to date from the sale of
neo magnets or critical minerals, rare earth minerals, or lithium, and our operating cash flow needs have been financed through the
incurrence of debt and equity raises and not through cash flows derived from our operations. As a result, we have little historical
financial and operating information available to help you evaluate our performance. Any profitability in the future from our
business will be dependent upon economical development of the Stillwater Facility and production of neo magnets, which is subject to
numerous risk factors. Accordingly, we may not realize profits, including in the medium to long term. Additional expenditures are
required to construct, complete and install additional neo magnet production equipment and our neo magnet production capabilities
might not be able to fully utilize the nameplate capacity of the equipment. In addition, we have no operating history upon which to
base estimates of future operating costs and capital requirements. Actual operating costs and economic returns of any and all of our
Projects may materially differ from the costs and returns estimated, and accordingly our financial condition, results of operations
and cash flows may be negatively affected. In the near term, our development and growth depends on our ability to:
(i) successfully produce magnets at the Stillwater Facility; (ii) secure one or more reliable sources of rare earth
feedstock at prices that are acceptable and attractive to us; and (iii) secure one or more neo magnet customers that are
willing and able to purchase our neo magnets at prices that are expected to be profitable for us. Delays in the completion of the
Stillwater Facility or the Round Top Project could have a material adverse effect on our business, results of operations and
financial condition.
We may not be able to generate positive
cashflow from our expected future business operations. Our long-term success will depend on implementing the business strategy
and operational plan of the Company, as well as our ability to generate revenues, achieve and maintain profitability and develop positive
cash flows from our magnet production.
Our ability to continue with our business plan
to produce and sell neo magnets and our future plans regarding the Round Top Project, ultimately depends on our ability to generate revenues,
achieve and maintain profitability, and generate positive cash flow from our operations. We cannot assure you that our Projects will result
in achieving and maintaining profitability and developing positive cash flows. The economic viability of the Company’s future business
activities has many risks and uncertainties including, but not limited to:
● a significant, prolonged decrease in the price of neo magnets;
● difficulty in marketing and/or selling neo magnets;
● significantly higher than expected capital costs to construct
and commission our Projects;
● significantly higher than expected feedstock costs to support
magnet production in the near term until the Round Top Project is capable of satisfying our feedstock needs;
● significant delays, reductions or stoppages of production activities;
● shortages of adequate and skilled labor or a significant increase
in labor costs;
● the introduction of significantly more stringent regulatory
laws and regulations and associated delays in permitting; and
● delays in the availability of necessary equipment, including
construction or production equipment.
Our future business activities may change as a
result of any one or more of these risks and uncertainties.
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We may experience time delays, unforeseen
expenses, increased capital costs, and other complications while developing our Projects, these could delay the start of revenue-generating activities
and increase development costs.
The production of neo magnets and mineral exploration
and mining by their nature involve significant risks and hazards, including environmental hazards, as well as industrial and mining accidents.
These include, for example, occupational hazards, leaks, ruptures, explosions, chemical spills, seismic events, fires, cave-ins and
blockages, flooding, discharges of gasses and toxic substances, contamination of water, air or soil resources, unusual and unexpected
rock formation affecting mineralization or wall rock characteristics, ground or slope failures, rock bursts, wildfires, radioactivity
and other accidents, incidents, or conditions resulting from mining or manufacturing activities, including, among others, blasting and
the transport, storage and handling of hazardous materials. In particular, the production of neo magnets involves the use of heavy equipment
and operations at high temperatures. These operations can be dangerous and safety incidents in these operations may cause damage to and
loss of equipment, injury or death, monetary losses and potential legal liabilities. Any such incidents could have a material adverse
effect on our business, operating results and financial condition. Furthermore, there is the risk that relevant regulators may impose
fines and work stoppages for non-compliant production or mining operating procedures and activities, which could reduce or halt production
or mining until lifted. The occurrence of any of these events could delay or halt production, increase production costs and result in
financial and regulatory liability for us, which could have a material adverse effect on our business, results of operations and financial
condition. In addition, the relevant environmental authorities have issued and may issue administrative directives and compliance notices
in the future, to enforce the provisions of the relevant statutes to take specific anti-pollution measures, continue with those measures
and/or to complete those measures. The authorities may also order the suspension of part, or all of, our operations if there is non-compliance with
legislation. Contravention of some of these statutes may also constitute a criminal offense and an offender may be liable for a fine or
imprisonment, or both, in addition to administrative penalties. As a result, the occurrence of any of these events may have a material
adverse effect on our business, results of operations and financial condition.
Until our Round Top Project is capable of
satisfying our feedstock needs, if ever, our business is subject to the availability of rare earth oxide and metal feedstock, in quantities
and prices that allow us to develop and commercially operate our Stillwater Facility.
Our Round Top Project is in its exploration stage
and is not currently able to satisfy the feedstock needs necessary for the development and commercial operation of our Stillwater Facility
and may never be able to do so. Unless and until our Round Top Project is capable of satisfying our feedstock needs, we will be required
to enter into feedstock supply agreements with third-parties. We are in the process of pursuing feedstock supply and offtake arrangements
with potential counterparties in an effort to provide adequate sources of feedstock for the purchase of all or substantially all of our
production from our Stillwater Facility, once operational, on terms favorable to us. As discussed elsewhere in this Annual Report, we
have executed feedstock supply agreements with two counterparties. However, they may not be able to provide all of the feedstock which
we may require or at economical prices. If we are unable to secure supply agreements that ensure that all of our feedstock needs are met
or if we are able to secure such agreements but the counterparties fail to meet their obligations, we may not achieve our goals. If this
happens, our results of operations and financial condition could be materially and adversely affected.
We may be adversely affected by fluctuations
in demand for, and prices of, neo magnets, magnet materials, and necessary feedstock.
Because our revenue is, and will for the foreseeable
future be, derived from the production and sale of neo magnets, changes in demand for, and the market price of, and taxes and other tariffs
and fees imposed upon such products and their inputs could significantly affect our profitability. Our financial results may be significantly
adversely affected by declines in the prices of neo magnets or increases in the prices of necessary feedstock. Neo magnet prices may fluctuate
and are affected by numerous factors beyond our control such as interest rates, exchange rates, taxes, tariffs, inflation or deflation,
fluctuation in the relative value of the U.S. dollar against foreign currencies on the world market, shipping and other transportation
and logistics costs, global and regional supply and demand for neo magnets, potential industry trends, such as competitor consolidation
or other integration methodologies, and the political and economic conditions of countries that produce and procure neo magnets. Furthermore,
supply side factors have a significant influence on price volatility for critical and rare earth minerals, necessary feedstock, and neo
magnet prices. Supply of rare earth minerals, necessary feedstock, and neo magnets is currently dominated by Chinese producers. The Chinese
Central Government regulates production via quotas and environmental standards and has and may continue to change such production quotas
and environmental standards. Periods of over supply or speculative trading of critical and rare earth minerals can lead to significant
fluctuations in the market price of critical and rare earth minerals.
In contrast, extended periods of high commodity
prices may create economic dislocations that may be destabilizing to critical and rare earth minerals supply and demand and ultimately
to the broader markets. While some periods of high critical and rare earth mineral market prices generally are beneficial to our financial
performance if we are producing rare earth minerals, if ever, or if magnet prices rise in concert with such higher mineral prices, strong
critical and rare earth mineral prices however also create economic pressure to identify or create alternate technologies that ultimately
could depress future long-term demand for neo magnets or increase our feedstock costs, and at the same time may incentivize development
of competing mining properties.
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Additionally, because the Company is heavily dependent
on third parties for feedstock, changes in the demand for, the market price of, or taxes, tariffs, or other fees imposed on such feedstock
may affect our ability to acquire our supply needs at an economical price. Changes in the price of feedstock could materially and adversely
affect our operations and ultimate financial results.
We may not be able to convert current commercial
discussions and/or memorandums of understanding with customers for the sale of our neo magnets and other products into definitive contracts,
which may have a negative effect on our business.
We do not currently have any contractually committed
customers for the planned output and delivery of neo magnets. We are actively working on completing our Stillwater Facility which will,
once completed, have the capability to produce neo magnets. Our success depends on our ability to generate revenue and operate profitably,
which depends in part on our ability to identify target customers and convert such contacts into meaningful orders or expand on current
customer relationships. We do not currently have any revenue or definitive off-take or sales agreements with customers in place.
Although we are in periodic discussions with potential customers regarding potential offtake agreements, there is no assurance that the
parties will be able to reach an agreement or that we will be able to produce and deliver the required neo magnets in accordance with
the customer’s required specifications and timing requirements. If we are unable to negotiate, finalize and maintain such agreements
and satisfy the conditions thereto in order to enter into definitive agreements, or are only able to do so on terms that are unfavorable
to us, we will not be able to generate any revenue, which would have a material adverse effect on our business, prospects, operating results
and financial condition.
We anticipate that in some cases our products
will be delivered to certain customers on an early trial deployment basis, where such customers have the ability to evaluate whether our
products meet their performance requirements before they commit to meaningful orders of our products. If our targeted customers do not
commit to making meaningful orders, or at all, it could adversely affect our business, prospects and results of operations. Our customers
may require protections in the form of price reductions and similar arrangements that allow them to require us to deliver additional product
or reimburse them for losses they suffer as a result of our late delivery or failure to meet agreed upon performance specification. Delays
in delivery of our products, unexpected performance problems or other events could cause us to fail to meet these contractual commitments,
resulting in delays in obtaining necessary materials used in our production process, defects in material or workmanship or unexpected
problems in our manufacturing process, which could lead to unanticipated revenue and earnings losses and financial penalties. The occurrence
of any of these events could harm our business, prospects, results of operations and financial results.
Prior to reaching expected production rates at
the Stillwater Facility, we intend to enter into short- and long-term sales contracts with new customers. However, there can be no
assurance that these customers will enter into sales contracts for our products. Even if we do enter into offtake and/or sales agreements,
we may fail to deliver the product required by such agreements or may experience production costs in excess of the fixed price to be paid
to us under such agreements. The failure to enter into such contracts may have a material adverse effect on our financial position and
results of operations.
The success of our business will depend,
in part, on the growth of existing and emerging uses for neo magnets.
Our strategy is to produce and sell neo magnets,
which are used in existing and emerging technologies, such as hybrid and electric vehicles, wind turbines, robotics, medical equipment,
military equipment and other high-growth, advanced motion technologies. The success of our business accordingly depends on the continued
growth of these end markets and successfully commercializing neo magnets, in such markets. If the market for these existing and emerging
technologies does not grow as we expect, grows more slowly than we expect, or if the demand for our products in these markets decreases,
then our business, prospects, financial condition and operating results could be harmed. In addition, the market for these technologies,
particularly in the automotive and wind turbine industry, tends to be cyclical, which exposes us to increased volatility, and it is uncertain
as to how such macroeconomic factors will impact our business.
A prolonged or significant economic contraction
in the United States or worldwide could put downward pressure on market prices of neo magnets. Protracted periods of low prices for
neo magnets could significantly reduce revenues and the availability of required development funds in the future. This could cause substantial
reductions to, or a suspension of, magnet production operations, impair asset values and reduce our results of operations and financial
condition.
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Demand for our products may be impacted by demand
for downstream products incorporating neo magnets, including hybrid and electric vehicles, wind turbines, robotics, medical equipment,
military equipment and other high-growth, advanced motion technologies, as well as demand in the general automotive and electronic industries.
Lack of growth or changes in these markets may adversely affect the demand for our products. Any unexpected costs or delays in the commercialization
of neo magnets or any of our other expected products, or less than expected demand for the critical existing and emerging technologies
that use neo magnets, could have a material adverse effect on our financial condition or results of operations.
An increase in the global supply of neo
magnets or, dumping, predatory pricing and other tactics by our competitors or state actors may adversely affect our profitability.
The pricing and demand for neo magnets is
affected by a number of factors beyond our control, including growth of economic development and the global supply and demand for
neo magnets. China is projected to continue to account for a substantial portion of global neo production in the near future. China
dominates the manufacture of metals and neo magnets from rare earths, capabilities that are not currently materially present in the
United States, and the Chinese Central Government regulates production via quotas and environmental standards. Over the past
few years, there has been significant restructuring of the Chinese markets in line with China Central Government policy.
Assuming that we reach anticipated production rates for neo magnets and other planned downstream products and subsequently become
fully operational and integrated, increased competition may lead our competitors to engage in predatory pricing or other behaviors
designed to inhibit our further downstream integration. Any increase in the amount of neo magnets or related products available in
the market, including those exported from other nations would result in increased competition and may result in price reductions,
reduced margins or loss of potential market share, any of which could materially adversely affect our profitability. As a result of
these factors, we may not be able to compete effectively against current and future competitors.
The Round Top Project is at the exploration
stage and we have not commenced construction or commission of the mine nor related facilities, and the development of the Round Top Project
into a producing mine is subject to a variety of risks, any number of which may cause the development of the Round Top Project into a
producing mine to not occur, be delayed, or not result in the commercial extraction of minerals.
We do not have declared mineral resources as defined
under Item 1300 and has not yet begun to extract minerals from the Round Top Project. The Round Top Deposit might not be able to be commercially
mined and our ongoing exploration programs may not result in the development of profitable commercial mining operations. Few properties
or deposits that are explored are ultimately developed into producing mines. Major expenses will be required to complete the Round Top
Project. We may not be able to develop the Round Top project into an operating mine and doing so may not result in the commercial extraction
of mineral deposits. There are many factors that may result in the Round Top Project not reaching completion or production, including
failure to obtain adequate funding, failure to successfully complete a pre- or a definitive feasibility study that the project could profitably
produce rare earth minerals, failure to meet lease related timelines, failure to satisfy other operational risks regarding obtaining adequate
power, water, expertise and human resources, failure to obtain and sustain the necessary permits for operations and other aspects of the
business of operating the Round Top Project. We may never reach commercial or profitable production of rare earth minerals. Even if the
Round Top Project is mined, we may not realize profits from our exploration or development activities in the short, medium, or long term.
The actual risks that we will face in the future in connection with the Round Top Project are unknown at this time, but may include:
● The preliminary and definitive feasibility studies, when delivered,
may not support the economic viability of the Round Top Project moving forward, and the assumptions used in the studies to underpin the
viability of the Round Top Project (including, but not limited to, the prices of critical minerals, rare earth minerals or lithium) may
not remain accurate in the future.
● We are in the process of developing a flow sheet with respect
to the processing of rare earth minerals from our assets in the Round Top Project, but we may not be able to do so. If we are unable
to develop a flow sheet that results in profitable production, our business and results of operations may be harmed.
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● An increase in the global supply of rare earth magnets or critical
and rare earth minerals and lithium related products, dumping, predatory pricing and other tactics by our competitors or state actors
may adversely affect our profitability.
● When compared to many industrial and commercial operations,
mining exploration and development projects are high risk and subject to uncertainties. Each mineral resource is unique and the nature
of the mineralization, and the occurrence and grade of the minerals, as well as behavior of the mineral resource during mining, are unpredictable.
Any mineral resource estimates may be materially different from mineral quantities we may recover, any life-of-mine estimates may
prove inaccurate and market price fluctuations and changes in operating and capital costs may render mineral resources uneconomic to
mine. Uncertainty and/or error in our estimates of minerals in the Round Top Deposit could result in lower-than-expected revenues
and higher-than-expected costs.
● The mining and production of rare earth and critical minerals
and lithium and related products is a highly competitive industry in a high demand and growth environment and additional rare earth and
critical mineral and lithium manufacturing, refining and mining competitors could result in a reduction in revenue.
● The imposition of tariffs related to rare earths and other critical
minerals and a resulting trade dispute could disrupt the market for our products.
● The mining and production of rare earth and critical minerals
and lithium and related products is a capital-intensive business that requires the commitment of substantial resources; if we do
not have sufficient capital or resources to provide for such activities, it could negatively impact our business.
● The performance of the Round Top Project will depend on its
ability to reach favorable production rates for the separation of rare earths.
● The revenue generated by the Round Top Project may be negatively
impacted by possible competition from substitutions for critical and rare earth minerals and lithium.
● Our continued growth depends on our ability to obtain commercial
deployment of our mineral processing and purification technology, or the identification of third-party technologies or processes,
and the ability of any such technology and/or processes to efficiently process and purify one or more feedstocks of mixed rare earth
mineral concentrates.
● Actual capital costs, operating costs, production and economic
returns may differ significantly from those we have anticipated, and future development activities may not result in profitable mining,
processing or production operations.
● The Round Top Project has no operating history on which to base
estimates of future operating costs and capital requirements. Before operations commence, any projections we may produce are based upon
estimates and assumptions made at the time they were prepared. If these estimates or assumptions prove to be incorrect or inaccurate,
our actual operating results may differ materially from any forecasted results.
● Our resource estimates, if any, may change significantly when
new information or techniques become available. In addition, by their very nature, resource estimates are imprecise and depend to some
extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional fieldwork and
analysis, our estimates, if any, are likely to change and these changes may result in a reduction in our resources. These changes may
also result in alterations to our development and mining plans, which may, in turn, adversely affect our operations.
● We face opposition from organizations that oppose mining which
may disrupt or delay our Round Top Project.
● We will be required to obtain and sustain governmental permits
and approvals to develop and operate the Round Top Project, a process which is often costly, time-consuming and somewhat uncertain
as to outcome. These permits may include permits related to disposal of radioactive mineral waste, which will depend on how we conduct
our processing operations in the future as well as what thresholds (regarding whether a permit is required or not) are set by the government
at that point in time. Failure to obtain or retain any necessary permits or approvals for our planned operations may negatively impact
our business.
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● Our mining rights are held by one of our subsidiaries, which as of December 31, 2024, is owned
approximately 81% by the Company and approximately 19% by a minority member of the applicable subsidiary. If the minority member
does not meet its capital contribution requirements, then we would need to raise additional funds to cover the minority
member’s shortfall in connection with the Round Top Project in exchange for additional equity in the subsidiary. Additionally,
if the value of the equity of the minority member increases then the rate of dilution of the minority member’s equity in the
subsidiary will decrease. Further, our interests may not align at all times with such minority member and divergence of interests
may negatively impact our business.
● A third-party has obtained prospecting permits from the
GLO for land in close proximity to our Round Top Project, including land for which we have an active surface lease. There is a possibility
for the third-party to convert such prospecting permits into mineral leases and, if converted, such mineral leases would potentially
impact our ability to conduct our operations as currently planned.
● Land reclamation and mine closure may be burdensome and costly.
● Because of the dangers involved in the mining of minerals, there
is a risk that we may incur liability or damages as we conduct our business.
● We and our management do not have experience operating a mine
and may not have a complete or accurate understanding of the risks we may face in the future related to the Round Top Project.
We operate in a highly competitive industry
in a high demand and growth environment and additional manufacturing, refining and mining competitors could result in a reduction in revenue.
The rare earth magnet production and critical
and rare earth minerals mining and processing markets are capital intensive and competitive. Production of neo magnets, and critical and
rare earth minerals is dominated by our Chinese competitors. These competitors may have greater financial resources, as well as other
strategic advantages to operate, maintain, improve and possibly expand their facilities. Additionally, our Chinese competitors have historically
been able to produce at relatively low costs due to domestic economic and regulatory factors, including less stringent environmental and
other governmental regulations and lower labor and benefit costs. For instance, many of our Chinese competitors dispose of the waste material
from beneficiation in wet tailings dams, which are significantly less expensive to operate and potentially more harmful to the environment
than the dry tailings method that we would expect to employ. Even upon successful completion of our planned business stages and/or Projects,
if we are not able to achieve our anticipated costs of production, then any strategic advantages that our competitors may have over us,
including, without limitation, lower labor, compliance and production costs, could have a material adverse effect on our business.
Some of our competitors have made, or may make,
acquisitions or enter into partnerships or other strategic relationships to achieve competitive advantages. In addition, new entrants
not currently considered competitors may enter our market through acquisitions, partnerships or strategic relationships. We expect these
trends to continue as demand for neo magnets and critical and rare earth materials increases. Industry consolidation may result in competitors
with more compelling product offerings or greater pricing flexibility than we have, or business practices that make it more difficult
for us to compete effectively, including on the basis of price, sales, technology or supply. These competitive pressures could have a
material adverse effect on our business.
Changes in China’s or the United States’
political environment and policies, including changes in export/import policy may adversely affect our business.
Because of the current dominance of China in the
critical and rare earth minerals industry, the possibility of adverse changes in trade or political relations with China, political instability
in China, increases in labor or shipping costs, the occurrence of prolonged adverse weather conditions or a natural disaster such as an
earthquake or typhoon, or the outbreak of another global pandemic disease like COVID-19 could severely interfere with our industry
and would have a material adverse effect on our operations.
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Our sales may be adversely affected by the current
and future political environment in China and the policies of the China Central Government. China could oversupply our markets in the
United States and elsewhere with either cheaper magnet products or rare earth minerals or feedstock. China has historically heavily subsidized
its domestic rare earth producers with respect to both rare earth feedstock and magnets. The United States government has called
for substantial changes to foreign trade policy with China and has from time to time raised (as well as has proposed to further raise
in the future), tariffs on several Chinese goods. China has at times retaliated with increased tariffs on United States goods, or
the ban of exports of rare earth technologies and feedstock to other countries such as the United States. While some impacts of Chinese
trade policy may be beneficial for our business, any changes in United States trade policy could trigger retaliatory actions by affected
countries, including China, resulting in trade wars which could likely result in increased volatility in the prices of rare earth and
critical minerals, necessary feedstock, and neo magnets. Furthermore, unless and until these dynamic changes in favor of the increased
competitiveness of domestic production, domestic production may not be economically viable in the global market place. As we are heavily
dependent upon third-party feedstock unless and until our Round Top Project becomes a producing mine capable of satisfying our feedstock
needs, if ever, and as China currently dominates the global supply of rare earth feedstock necessary for the production of neo magnets,
any changes in United States and China relations, including through changes in policies by the Chinese government could adversely
affect our financial condition and results of operations, including: changes in laws, regulations or the interpretation thereof, confiscatory
taxation, governmental royalties, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization
of private enterprises.
The production of neo magnets is a capital-intensive business
that requires the commitment of substantial resources; if we do not have sufficient capital or other resources necessary to provide for
such production, it could negatively impact our business.
Neo magnet production requires large amounts of
capital, and long-term production and processing requires significant capital investment, working capital, and ongoing maintenance
expenditure. We expect to materially increase our capital expenditures and working capital requirements to begin production of neo magnets
and support the growth of our business and operations. We do not currently have sufficient capital to fund our anticipated capital expenditures.
We will need to raise additional capital (debt or equity) to complete or fund our Projects. Our business plan is based on, among other
things, expectations as to capital expenditures and if we are unable to fund those capital expenditures or the level of necessary capital
expenditures increases above our current expectations, we will not achieve the targets set forth in our business plan or be able to develop
currently contemplated or future capital projects or be able to continue production at cost-effective levels. We may not be able
to raise additional capital (debt or equity) to complete or fund our projects. Furthermore, any such reduction in capital expenditure
may cause us to forego some of the benefits of any future increases in commodity prices, as it is generally costly or impossible to resume
production immediately or complete a deferred expansionary capital expenditure project once delayed, which may adversely affect our results
of operations or financial condition.
The amount of capital required for completion
and build-out of our Projects may increase materially from our current estimates, and we expect to raise further funds through
equity or debt financing, joint ventures, production sharing arrangements or other means. Consequently, we depend on
our ability to successfully access the capital and financial markets. Any inability to access the capital or financial markets may limit
our ability to fund our ongoing operations, execute our business plan or pursue investments that we may rely on for future growth.
Until commercial production is achieved from our
Projects, we will continue to incur operating and investing net cash outflows associated with including, but not limited to, build out
and growth of our Stillwater Facility, maintaining and acquiring properties, undertaking ongoing activities and the funding obligations
to develop the assets of our Projects. We will require additional capital to fund our ongoing operations, complete our Stillwater Facility,
and — in connection with our Round Top Project — explore and define rare earth mineralization and establish
any future mining or rare earth manufacturing operations. Such additional funding may not be available to us on satisfactory terms, or
at all.
In order to finance our future ongoing operations
and future capital needs, we will require additional funds through the issuance of additional equity or debt securities. Depending on
the type and terms of any financing we pursue, shareholders’ rights and the value of their investment in our ordinary shares could
be reduced. Any additional equity financing will dilute shareholdings. If the issuance of new securities results in diminished rights
to holders of our ordinary shares, the market price of our ordinary shares could be negatively impacted. New or additional debt financing,
if available, may involve restrictions on financing and operating activities. In addition, if we issue secured debt, the holders
of the debt would have a claim to our assets that would be prior to the rights of shareholders until the debt is paid. Interest on such
debt would increase costs and negatively impact operating results.
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If we are unable to obtain additional financing,
as needed, at competitive rates, our ability to fund our current operations and implement our business plan and strategy will be affected,
and we would be required to reduce the scope of our operations and scale back our exploration, development and mining programs. There
is, however, no guarantee that we will be able to secure any additional funding or be able to secure funding which will provide us with
sufficient funds to meet our objectives, which may adversely affect our business and financial position. Certain market disruptions may
increase our cost of borrowing or affect our ability to access one or more financial markets. Such market disruptions could result from:
● adverse economic conditions, including inflationary factors
and recessionary fears;
● adverse general capital market conditions, including rising
interest rates;
● poor performance and health of the neo magnets industry in general;
● bankruptcy or financial distress of neo magnet companies or
marketers;
● significant decrease in the demand for neo magnets; or
● adverse regulatory actions that affect our exploration and construction
plans or the use of our current and planned products generally.
If additional capital is not available in sufficient
amounts or on a timely basis, the Company will experience liquidity problems, and the Company could face the need to significantly curtail
current operations, change our planned business strategies and pursue other remedial measures. Any curtailment of business operations
would have a material negative effect on operating results, the value of the Company’s outstanding common and preferred shares and
the Company’s ability to continue as a going concern.
Any failure by management to manage growth
properly could negatively impact our business.
Future growth may place strains on our financial,
technical, operational and administrative resources and cause us to rely more on project partners and independent contractors, thus, potentially
adversely affecting our financial position and results of operations. We may not be successful in upgrading our technical, operational
and administrative resources or increasing our internal resources sufficiently to provide certain of our services currently provided by
third parties or which will be necessary in the future. Our inability to achieve or manage growth may materially and adversely affect
our business, results of operations and financial condition.
A power or other utility disruption or shortage
at our Projects could temporarily delay operations and increase costs, which may negatively impact our business.
Our facilities currently rely on electricity and
other utilities each provided by a single utility company in West Texas and North-Central Oklahoma, respectively. Instability in
electrical or other utility supply could cause sporadic outages and brownouts. Any such outages or brownouts could have a negative impact
on our production. As a result, our revenue could be adversely impacted and our relationships with our customers could suffer, adversely
impacting our ability to generate future revenue and otherwise perform our contractual obligations. In addition, if power to any of our
Projects is disrupted during certain phases of our production processes, we may incur significant expenses that may adversely affect our
business.
Increasing costs, including rising electricity
and other utility costs, or limited access to raw materials may adversely affect our profitability.
We use significant amounts of electricity and
other utilities, including water, in our operations at our Projects and such usage will increase as we increase production. We also use
significant amounts of raw materials, whether rare earth feedstock or other raw materials such as chemical reagents used to process rare
earth oxides. We will need to purchase utilities and raw materials in the open market and as a result, we could be subject to significant
volatility in cost and availability. We may not be able to pass increased prices of such utilities or raw materials through to our customers
in the form of price increases. If the Round Top Project is not completed, operative, and commercial, we will be wholly reliant on third-party sources
for feedstock for neo production which could be costly and damaging to results of operations. A significant increase in the price or decrease
in the availability of these utilities or raw materials, could materially increase our operating costs and adversely affect our profit
margins and production volumes.
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Fluctuations in transportation costs or
disruptions in transportation services or damage or loss during transport could decrease our competitiveness or impair our ability to
deliver products to our customers.
We will need to transport our products to our
future customers wherever they may be located. Finding affordable and dependable transportation is important because it allows us to supply
customers around the world. Labor disputes, embargos, government restrictions, work stoppages, pandemics, derailments, damage or loss
events, adverse weather conditions, other environmental events, changes to rail or ocean freight systems or other events and activities
beyond our control could interrupt or limit available transport services, which could result in customer dissatisfaction and loss of sales
potential and could materially adversely affect our results of operations.
We will need to produce our products to
exacting specifications in order to provide future customers with a consistently high-quality product. An inability to meet
individual customer specifications would negatively impact our business.
Upon commencing commercial operations at our Stillwater
Facility, we need to produce neo magnets to meet customer needs and specifications and to provide customers with a consistently high-quality product
and to meet ever-stricter purity requirements. An inability to perfect the neo magnet production process to the level necessary in
order to meet individual customer specifications may have a material adverse effect on our financial condition or results of operations.
In addition, customer needs and specifications may change with time. Any delay or failure in developing processes to meet changing customer
needs and specifications may have a material adverse effect on our financial condition or results of operations. Additionally, natural
disasters, could also impact the facilities of our customers, which could have a material adverse effect on our ability to deliver our
product to our customers or our customer’s demand for our products.
Diminished access to water may adversely
affect our operations.
Processing of rare earth oxides requires significant
amounts of water. Any disruption in the process or loss of access to adequate water sources could prompt the need for significant access
to fresh water. Additionally, once we complete the Round Top Project and our Stillwater Facility, we will require an even greater amount
of water for our separation and extraction operations, including additional fresh water. With respect to the Round Top Project, we maintain
and operate one water supply well field, which currently contains two wells, for potable and process water and own and/or lease land and
wells in another water supply well field that we may be able to operate in the future. Any disruption to our current process or decrease
in available water supply may have a material adverse effect on our operations and our financial condition or results of operations. In
addition, future regulation or industry best practices may require more complex water reuse and recycling processes, which may increase
operating costs.
Work stoppages or similar difficulties,
breakdown in labor relations, or a shortage of skilled technicians and engineers could significantly disrupt our operations and reduce
our revenues.
A work stoppage by any of the third-parties providing
services in connection with construction at our Projects could significantly delay our Projects, especially our Stillwater Facility, and
disrupt our operations, reduce our revenues and materially adversely affect our results of operations. Efficient production of critical
minerals and rare earth products using modern techniques and equipment requires skilled technicians and engineers. In addition, our optimization
and eventual downstream efforts will significantly increase the number of skilled operators, maintenance technicians, engineers and other
personnel required to successfully operate our business. In the event that we are unable to hire, train and retain the necessary number
of skilled technicians, engineers and other personnel there could be an adverse impact on our labor costs and our ability to reach anticipated
production levels in a timely manner, which could have a material adverse effect on our results of operations.
We depend on key personnel for the success
of our business. If we fail to retain our key personnel or if we fail to attract additional qualified personnel, we may not be able to
achieve our desired level of growth and our business could suffer.
We highly value and depend on the contributions
of our senior management and key personnel, particularly our experts with respect to magnet production. Our success continues to depend
largely upon the performance of key officers, employees and consultants who have advanced us to our current stage and contributed to our
potential for future growth. The market for qualified talent has become increasingly competitive, with shortages of qualified talent relative
to the number of available opportunities being experienced in all markets where we conduct our operations. The ability to remain competitive
by offering higher compensation packages and programs for growth and development of personnel, with a view to retaining existing talent
and attracting new talent, has become increasingly important to us and our operations in the current climate. We may not be able to replace
our senior management or key personnel (including personnel that are key to magnet production) with persons of equivalent expertise and
experience within a reasonable period of time or at all if one or more of our senior management and key personnel are not retained, and
we may incur additional expenses to recruit, train and retain additional personnel. Any prolonged inability to retain key individuals,
or to attract and retain new talent as we grow, could have a material adverse effect upon our growth potential and prospects. Additionally,
we have not purchased any “key-man” insurance for our directors, officers or key employees.
24
We are subject to certain agreements with
government entities that have provided us with certain incentives and favorable financing and contain conditions and obligations, including
local investment, job creation, and repayment terms, that, if not complied with, could negatively impact our business or require us to
repay that financing or lose access to those incentives.
We have been offered incentives by the State of
Oklahoma, as well as the city of Stillwater, Oklahoma, to locate and operate our Projects, especially our Stillwater Facility. These incentives
include cash grants, development financing at favorable terms, certain tax exemptions and rights to participate in government-subsidized jobs
programs, among other things. If we do not comply with certain conditions and obligations in any such agreements, the governmental entities
may terminate the respective agreement under which the incentives are to be provided, potentially resulting in the Company being required
to repay certain funds and/or losing access to the applicable incentives and subsidized jobs programs. For more information on these agreements
with government entities, see the section entitled “ Information About USARE — Government Programs and Grants ”.
The holders of our preferred stock have
certain approval rights over actions taken by the Company, including related to incurring debt. If we are unable to secure those approvals
or do so in a timely manner, we may fail to access debt capital when otherwise necessary or advisable.
The holders of our preferred stock have
certain approval rights over actions taken by the Company, including: liquidation, dissolution or wind-up of the Company,
amendment of the Company’s organizational documents, creation or issuance of the Company’s equity interests, the
purchase or redemption of our preferred stock, entrance into affiliate transaction (subject to certain exceptions) or the incurrence
of debt by the Company above certain specified thresholds. The approval rights remain in effect as long as certain parties specified
in the Series A Preferred Stock Certificate of Designation (as defined below) own 20% or more of our Series A Preferred Stock and require the
approval of a majority holders of our preferred stock. Our obligations to the holders of our preferred stock could limit our ability
to obtain additional financing or increase our borrowing costs, which could have an adverse effect on the value of our equity. If we
issue additional shares of preferred stock in the future, they would likely also have preference over our common stock with respect
to payment of dividends or upon our liquidation, dissolution or winding up. So long as we have preferred stock outstanding, the
rights of the holders of our common stock could be adversely affected, including as a result of any delay in receiving any necessary
approvals from the holders of our preferred stock or as a result of our preferred stock making it more difficult for another company
to acquire us.
Our business may be adversely affected by
force majeure events outside our control, including labor unrest, civil disorder, war, subversive activities or sabotage, extreme weather
conditions, fires, floods, tornados, explosions or other catastrophes, epidemics or quarantine restrictions.
We may be impacted by natural disasters, wars,
health epidemics or pandemics or other events outside of our control. For example, our Stillwater Facility is located in Stillwater, Oklahoma,
which is in the geographical area known as “tornado alley”. If major disasters such as tornados, earthquakes, wildfires, health
epidemics or pandemics, floods or other events occur, or our information system or communications network breaks down or operates improperly,
our ability to continue operations at our Projects may be seriously damaged, or we may have to stop or delay production and shipment of
our products. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact
on our business, operating results and financial condition.
25
Our success depends on developing and maintaining
relationships with local communities and stakeholders.
Our ongoing and future success depends on developing
and maintaining productive relationships with the communities surrounding our Projects, including those people who may have rights or
may assert rights to certain of our properties and other stakeholders in our operating locations. Local communities and stakeholders may
be dissatisfied with our activities or the level of benefits provided, which may result in legal or administrative proceedings, civil
unrest, protests, direct action or campaigns against us. Any such occurrence could materially and adversely affect our business, financial
condition or results of operations, as well as our ability to commence or continue exploration or mine development activities.
Since its inception, USARE OpCo has generated
negative operating cash flows and we may experience negative cash flow from operations in the future. USARE OpCo’s consolidated
financial statements have been prepared on a going concern basis.
Since its inception, USARE OpCo has generated
negative operating cash flows and we may experience negative cash flow from operations in the future. USARE OpCo’s consolidated
financial statements, which were included in the Company’s Current Report on Form 8-K, which was filed with the SEC on March 19,
2025, have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the
normal course of business. USARE OpCo’s independent registered public accounting firm has included in its report for the year ended
December 31, 2024 an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. New USARE’s
and USARE OpCo’s ability to continue as a going concern is contingent upon, other factors, our ability to achieve our revenue forecasts
and our ability to raise additional capital through sales of our securities, including this offering, and incurrence of debt, as needed
to fund future growth. Our future operations are dependent upon the identification and successful completion of equity or debt financings
and the continued achievement of profitable operations at an indeterminate time in the future. We may not be successful in completing
equity or debt financings or in achieving profitability. The financial statements do not give effect to any adjustments relating to the
carrying values and classifications of assets and liabilities that would be necessary should we be unable to continue as a going concern.
Risks Related to Legal, Compliance, and Regulations
Our operations at our Projects are subject,
or may become subject, to extensive and costly environmental requirements; and current and future laws, regulations and permits impose
or may impose significant costs, liabilities or obligations or could limit or prevent our ability to continue our current operations or
to undertake new operations.
We are subject, or may be subject in the future,
to numerous and detailed, federal, state and local environmental laws, certifications, regulations and permits, including, without limitation,
those pertaining to employee health and safety, air emissions, water usage, wastewater and stormwater discharges, air quality standards,
GHG, emissions, water usage and pollution, waste management, plant and wildlife protection, handling and disposal of radioactive substances,
remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, the discharge of materials into
the environment, procurement of certain materials used in our operations and groundwater quality and availability. These requirements
may result in significant costs, liabilities and obligations, impose conditions that are difficult to achieve or otherwise delay, limit
or prohibit current or planned operations. These requirements may in the future result in the exploration and development in connection
with our Round Top Project being delayed, limited or prevented, and development operations may be curtailed. Failure to comply with these
laws, regulations and permits, including as they evolve, may result in the assessment of administrative, civil and criminal penalties,
the issuance of injunctions to limit or cease operations, fines, the suspension or revocation of permits and other sanctions or the loss
of support from key stakeholders. Pursuant to such requirements, we may also be subject to third-party claims, including for damages
to property or injury to persons arising from our operations. Moreover, environmental legislation and regulation, as well as the expectations
of stakeholders, are evolving in a manner which may require stricter standards and enforcement, increased fines and penalties for non-compliance,
cessation of operations, more stringent environmental assessments, and a heightened degree of responsibility for companies and their officers,
directors and employees. Any changes in these laws, regulations or permits (or the interpretation or enforcement thereof) or any sanctions,
damages, costs, obligations or liabilities in respect of these matters could have a material adverse effect on our business and/or the
results of our operations and financial condition.
26
We will be required to obtain and maintain
governmental permits and approvals to develop and operate the Projects, a process which is often costly and time-consuming. Failure
to obtain or retain any necessary permits or approvals for our planned operations may negatively impact our business.
We are required to obtain and renew governmental
permits and approvals for our Projects in connection with any exploration and development activities that we may in the future undertake
and, prior to mining any mineralization that we discover, we may be required to obtain additional governmental permits and approvals that
we do not currently possess or anticipate. Obtaining and renewing any of these governmental permits is a complex, time-consuming and
uncertain process involving numerous jurisdictions, multiple government agencies, public hearings and possibly costly undertakings. The
timeliness and success of permitting efforts are contingent upon many variables, some of which are not within our control, including the
interpretation of approval requirements administered by the applicable governmental authority as well as the time required for, and the
outcome of, any necessary environmental impact assessment.
We may not be able to obtain or renew permits
or approvals that are necessary to our planned operations, or we may discover that the cost and time required to obtain or renew such
permits and approvals exceeds our expectations. Any unexpected delays, costs or conditions associated with the governmental approval process
could delay our planned exploration, development and mining operations, which in turn could materially adversely affect our prospects,
revenues and profitability. In addition, our prospects may be adversely affected by the revocation or suspension of permits or by changes
in the scope or conditions for use of any permits obtained.
For example, while many of the permits required
for development of the Round Top Project come, or are expected to come, from the State of Texas, it is possible that the project will
require a permit from the federal governments, such as a permit under Section 404 of the Clean Water Act. If the project requires a federal
permit, the project will be subject to environmental review under the NEPA. In that circumstance, in addition to additional permitting
review, NEPA also provides an additional avenue for opponents to challenge the project.
For example, in addition to the permits that we
have been issued to date, we are required to obtain other permits and approvals before construction or operations related to zoning, rezoning,
construction mining, mineral concentration and chemical manufacturing. To obtain certain permits, we may be required to conduct environmental
studies and collect and present data to governmental authorities pertaining to the potential impact of our current and future operations
upon the environment and to take steps to avoid or mitigate those impacts. The permitting rules, and interpretation thereof, are complex
and have generally become more stringent over time. In some cases, the public (including environmental interest groups) has rights to
comment upon, and submit objections to, permit applications and environmental impact statements prepared in connection therewith, and
otherwise participate in the permitting process, including challenging the issuance of permits, validity of environmental impact statements
and determinations and performance of permitted activities. Accordingly, permits required for our operations, including our Projects,
may not be issued, maintained, exchanged, amended or renewed in a timely fashion or at all, or may be issued or renewed upon conditions
that restrict our ability to conduct our operations economically. Any such failure to obtain, maintain, exchange, amend or renew permits,
or other permitting delays or conditions, including in connection with any environmental impact analyses, could have a material adverse
effect on our business, results of operations and financial condition.
Private parties, such as environmental organizations
and local residents, frequently attempt to intervene in the permitting process to persuade regulators to deny necessary permits or seek
to overturn permits that have been issued. These third-party actions can materially increase the costs of and cause delays in the
permitting process and could cause us not to proceed with the development or operation of a property. In addition, our ability to successfully
obtain key permits and approvals to explore for, develop, operate and expand operations will likely depend on our ability to undertake
such activities in a manner consistent with the creation of social and economic benefits in the surrounding communities, which may or
may not be required by law. Our ability to obtain permits and approvals and to successfully operate in particular communities may be adversely
affected by real or perceived detrimental events associated with our activities.
Our failure to comply with applicable anti-corruption, anti-bribery, anti-money laundering
and similar laws and regulations could negatively impact our reputation and results of operations.
The legal and regulatory framework in which we
operate is complex, and our governance and compliance policies and processes may not prevent potential breaches of law or accounting or
other governance practices. Our operating and ethical codes, among other standards and guidance, may not prevent instances of fraudulent
behavior and dishonesty, nor guarantee compliance with legal and regulatory requirements.
27
We are required to comply with anti-corruption laws
and regulations imposed by governments around the world with jurisdiction over our operations, which may include Australian
anti-bribery and corruption legislation, as well as the laws of the other countries (for example, the U.S. Foreign Corrupt Practices
Act and the UK’s Bribery Act 2010) where we do business or have a close connection. These laws and regulations may restrict
our operations, trade practices, investment decisions and partnering activities. These and other applicable laws prohibit us and our officers,
directors, employees and business partners acting on our behalf, including agents, from corruptly offering, promising, authorizing or
providing anything of value to “foreign officials” for the purposes of influencing official decisions or obtaining or retaining
business or otherwise obtaining favorable treatment. We are subject to the jurisdiction of various governments and regulatory agencies
around the world, which may bring our personnel and representatives into contact with “foreign officials” responsible for
issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations.
Our failure to successfully comply with these
laws and regulations may expose us to reputational harm, as well as significant sanctions, including criminal fines, imprisonment, civil
penalties, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations
of alleged violations can be expensive and disruptive. Compliance, on the other hand, often adds cost and complexity to the permitting
process and subsequent operations. We continuously develop and maintain policies and procedures designed to comply with applicable anti-corruption,
anti-bribery, anti-money laundering and similar areas. However, there can be no guarantee that our policies and procedures will effectively
prevent violations by our employees or business partners acting on our behalf, for which we may be held responsible, and any such violation
could adversely affect our reputation, business, results of operations and financial condition.
Our operations at our Projects are subject,
or may become subject, to environmental, health and safety regulations, which could impose additional costs and compliance requirements,
and we may face claims and liability for breaches, or alleged breaches, of such regulations and other applicable laws.
Our operations at our Projects are subject to
compliance with various environmental, health and safety laws, regulations, permitting requirements and standards.
We are subject to environmental laws, regulations
and permits in the various jurisdictions in which we operate. These environmental laws, regulations, and permits present greater risks
if we progress our mining operations. Such regulations would include those relating to, among other things, the removal and extraction
of natural resources, the emission and discharge of materials into the environment, including plant and wildlife protection, remediation
of soil and groundwater contamination, reclamation and closure of properties, including waste storage facilities, groundwater quality
and availability, and the handling, storage, transport and disposal of wastes and hazardous materials. Pursuant to such requirements,
we may be subject to inspections or reviews by governmental authorities. Failure to comply with these environmental requirements may expose
us to litigation, fines or other sanctions, including the revocation of permits and suspension of operations. We expect to continue to
incur significant capital and other compliance costs related to such requirements. These laws, regulations and permits, and the enforcement
and interpretation thereof, change frequently and generally have become more stringent over time. If our noncompliance with such regulations
were to result in a release of hazardous materials into the environment, such as soil or groundwater, we could be required to remediate
such contamination, which could be costly. Moreover, noncompliance could subject us to private claims for property damage or personal
injury based on exposure to hazardous materials or unsafe working conditions. In addition, changes in applicable requirements or stricter
interpretation of existing requirements may result in costly compliance requirements or otherwise subject us to future liabilities. The
occurrence of any of the foregoing, as well as any new environmental, health and safety laws and regulations applicable to our business
or stricter interpretation or enforcement of existing laws and regulations, could have a material adverse effect on our business, financial
condition and results of operations.
We also could be liable for any environmental
contamination at, under or released from our or our predecessors’ currently or formerly owned or operated properties or third-party waste
disposal sites. Certain environmental laws impose joint and several strict liability for releases of hazardous substances at such properties
or sites, without regard to fault or the legality of the original conduct. A generator of waste can be held responsible for contamination
resulting from the treatment or disposal of such waste at any off-site location (such as a landfill), regardless of whether the generator
arranged for the treatment or disposal of the waste in compliance with applicable laws. Costs associated with liability for removal or
remediation of contamination or damage to natural resources could be substantial and liability under these laws may attach without regard
to whether the responsible party knew of, or was responsible for, the presence of the contaminants. Accordingly, we may be held responsible
for more than our share of the contamination or other damages, up to and including the entire amount of such damages. In addition to potentially
significant investigation and remediation costs, such matters can give rise to claims from governmental authorities and other third parties,
including for orders, inspections, fines or penalties, natural resource damages, personal injury, property damage, toxic torts and other
damages. Our costs, liabilities and obligations relating to environmental matters could have a material adverse effect on our business,
financial position and results of operations.
28
Additionally, due to the nature of our operations,
our employees and contractors are exposed to varying degrees of risk in the workplace. These risks may include exposure to dangerous situations,
machinery or materials and/or health hazards and have the potential to result in disease, personal injury or death. We are subject to
laws and regulations concerning the health, safety and security of our employees (including third-party personnel) working at sites
and persons who are not employed by us but may be directly affected by our operations under our management and, accordingly, must implement
adequate health and safety systems and procedures. Health and safety incidents can result in loss of life, losses and liabilities, work
stoppages, serious damage to equipment or property or environmental damage. These risk factors can, singularly or in combination, have
a material effect on our reputation, results of operations and financial condition. In the event of disease, injury or death arising out
of the negligence of an employer or its employees, a risk of civil and, in certain circumstances, criminal litigation exists. In the case
of a work-related fatality, an employer may be subjected to criminal charges in a court of law. Furthermore, such incidents can result
in citations for violation of various health and safety laws and regulations that could have a material adverse effect on our results
of operations, financial condition and/or prospects.
The impacts of climate change may adversely
affect our operations and/or result in increased costs to comply with changes in regulations.
Climate change is an international and community
concern which may directly or indirectly affect our business and current and future activities. The continuing rise in global average
temperatures has created varying changes to regional climates across the world and extreme weather events have the potential to delay
or hinder our exploration activities at our mineral projects, and to delay or cease operations at any future mine. This may require us
to make additional expenditures to mitigate the impact of such events which may materially and adversely increase our costs and/or reduce
production at a future mine. Governments at all levels are amending or enacting additional legislation to address climate change by regulating,
among other things, carbon emissions and energy efficiency, or where legislation has already been enacted, regulation regarding emission
levels and energy efficiency are becoming more stringent. As a significant emitter of GHG emissions, the mining industry is particularly
exposed to such laws and regulations. Compliance with such legislation and regulations, including the associated costs, may have a material
adverse effect on our business, financial condition, results of operations, prospects and our ability to commence or continue our exploration
and future development and mining operations.
Changing climate patterns may also affect the
availability of water. If the effects of climate change cause prolonged disruption in the delivery of essential commodities, then production
efficiency may be reduced, which may have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, climate change is perceived as a
threat to communities and governments globally and stakeholders may demand reductions in emissions or call upon companies to better manage
their consumption of climate-relevant resources. A number of governments have already introduced or are moving to introduce climate
change legislation and treaties at the international, national, state/provincial and local levels. Regulations relating to emission levels
(such as carbon taxes) and energy efficiency are becoming more stringent. If the current regulatory trend continues, this may result in
increased costs at our Round Top Project.
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We are exposed to possible litigation risks,
including permit disputes (including in respect of access and/or validity of tenure), environmental claims, occupational health and safety
claims and employee claims. Further, we may be involved in disputes with other parties in the future that may result in litigation. Current
or future litigation or administrative proceedings could have a negative impact on our business.
We may become involved in, named as a party to,
or be the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions, relating to personal
injuries, property damage, property taxes, land rights, the environment and contract disputes.
The outcome of outstanding, pending or future
proceedings cannot be predicted with certainty and may be determined adversely to us and as a result, could have a material adverse effect
on our assets, liabilities, business, financial condition or results of operations. Even if we prevail in any such legal proceeding, the
proceedings could be costly, time-consuming and may divert the attention of management and key personnel from our business operations,
which could adversely affect our financial condition.
If we take federal monies, we could become
subject to federal regulations. This could delay timing and increase costs.
To date, we have not accepted any federal grants
or other monies. The acceptance of federal monies would make the Company and its operations subject to continued compliance with various
federal regulations to which the Company is not currently subject. The imposition of any additional federal regulations as a result of
accepting any federal monies could delay timing of the expected completion of our Projects and increase our costs. Any such delays or
increased costs could harm our business and operations.
Risks Related to Intellectual Property and
Technology
If we infringe, or are accused of infringing,
the intellectual property rights of third parties, it may increase our costs or prevent us from being able to commercialize new products.
There is a risk that we may infringe, or may be
accused of infringing, the proprietary rights of third parties under patents and pending patent applications belonging to third parties
that may exist in the United States and elsewhere in the world that relate to our rare earth products and processes. Because the
patent application process can take several years to complete, there may be currently pending applications that may later result
in issued patents that cover our products and processes. In addition, our products and processes may infringe existing patents.
Defending ourselves against third-party claims,
including litigation in particular, would be costly and time consuming and would divert management’s attention from our business,
which could lead to delays in the completion of our Projects and our downstream expansion plans. If third parties are successful in their
claims, we might have to pay substantial damages or take other actions that are adverse to our business. As a result of intellectual property
infringement claims, or to avoid potential claims, we might:
● be prohibited from, or delayed in, selling or licensing some
of our products or using some of our processes unless the patent holder licenses the patent to us, which it is not required to do;
● be required to pay substantial royalties or grant a cross license
to our patents to another patent holder; or
● be required to redesign a product or process so it does not
infringe a third party’s patent, which may not be possible or could require substantial funds and time.
In addition, we could be subject to claims that
our employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of third parties.
If we are unable to resolve claims that may be
brought against us by third parties related to their intellectual property rights on terms acceptable to us, we may be precluded from
offering some of our products or using some of our processes.
30
We may not be able to adequately protect
our intellectual property rights. If we fail to adequately enforce or defend our intellectual property rights, our business may be harmed.
Much of the technology used in the markets in
which we compete is protected by patents and trade secrets, and our commercial success will depend in significant part on our ability
to obtain and maintain patent and trade secret protection for our products and methods. To compete in these markets, we rely or may rely
on a combination of trade secret protection, nondisclosure and licensing agreements, patents and trademarks to establish and protect our
proprietary intellectual property rights, including our proprietary rare earth oxide and magnet production processes that are not currently
patented. Our intellectual property rights may be challenged or infringed upon by third parties or we may be unable to maintain, renew
or enter into new license agreements with third-party owners of intellectual property on reasonable terms. In addition, our intellectual
property may be subject to infringement or other unauthorized use outside of the United States. In such case, our ability to protect
our intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices
are undeveloped or do not recognize or protect intellectual property rights to the same extent as the United States. Unauthorized
use of our intellectual property rights or our inability to preserve existing intellectual property rights could adversely impact our
competitive position and results of operations. The loss of our patents, if and once received, could reduce the value of the related products.
In addition, the cost to litigate infringements of our patents (if and once received) or other intellectual property, or the cost to defend
ourselves against patent or other intellectual policy infringement actions by others, could be substantial and, if incurred, could materially
affect our business and financial condition.
Proprietary trade secrets and unpatented know-how are
also very important to our business. We rely on trade secrets to protect certain aspects of our technology, especially where we do not
believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Our employees, consultants,
contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential information
to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential
or proprietary information. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time
consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We are dependent upon information technology
systems, which are subject to cyber threats, disruption, damage and failure. Any unauthorized access to, disclosure, or theft of personal
information we gather, store, or use could harm our reputation and subject us to claims or litigation. Further, a failure of our information
technology and data security infrastructure could adversely affect our business and operations.
We maintain information necessary to conduct our
businesses, including confidential and proprietary information as well as personal information regarding our customers and employees,
in digital form. We also use computer systems to deliver our products and services and operate our businesses. Data maintained in digital
form is subject to the risk of unauthorized access, modification, exfiltration, destruction or denial of access and our computer systems
are subject to cyberattacks that may result in disruptions in service. We use many third-party systems and software, which are also
subject to supply chain and other cyberattacks. We attempt to develop and maintain information security programs to identify and mitigate
cyber risks but the development and maintenance of these programs is costly and requires ongoing monitoring and updating as technology
changes and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts, the risk of unauthorized
access, modification, exfiltration, destruction or denial of access with respect to data or systems and other cybersecurity attacks cannot
be eliminated entirely, and the risks associated with a potentially material incident remain. In addition, we provide some confidential,
proprietary and personal information to third parties in certain cases when it is necessary to pursue business objectives. While we obtain
assurances that these third parties will protect this information and, where we believe appropriate, monitor the protections employed
by these third parties, there is a risk the confidentiality of data held by third parties may be compromised.
If our information or cyber security systems or
data are compromised in a material way, our ability to conduct our businesses may be impaired, we may lose profitable opportunities or
the value of those opportunities may be diminished and, as described above, we may lose revenue as a result of unlicensed use of our intellectual
property. If personal information of our customers or employees is misappropriated, our reputation with our customers and employees may
be damaged, resulting in loss of business or morale, and we may incur costs to remediate possible harm to our customers and employees
or damages arising from litigation and/or to pay fines or take other action with respect to judicial or regulatory actions arising out
of the incident. Insurance we obtain may not cover losses or damages associated with such attacks or events.
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We rely on various information technology systems.
These systems remain vulnerable to disruption, damage or failure from a variety of sources, including, but not limited to, errors by employees
or contractors, computer viruses, cyberattacks, including phishing, ransomware, and similar malware, misappropriation of data by outside
parties, and various other threats. Techniques used to obtain unauthorized access to or sabotage our systems are under continuous and
rapid evolution, and we may be unable to detect efforts to disrupt our data and systems in advance. Breaches and unauthorized access carry
the potential to cause losses of assets or production, operational delays, equipment failure that could cause other risks to be realized,
inaccurate recordkeeping, or disclosure of confidential information, any of which could result in financial losses and regulatory or legal
exposure, and could have a material adverse effect on our business, financial condition or results of operations. We may incur material
losses relating to cyberattacks or other information security breaches in the future. Our risk and exposure to these matters cannot be
fully mitigated because of, among other things, the evolving nature of these threats. As such threats continue to evolve, we may be required
to expend additional resources to modify or enhance any protective measures or to investigate and remediate any security vulnerabilities.
Risks Related to our Securities.
The Certificate of Designation for our
Series A Cumulative Convertible Preferred Stock and the Series A Preferred Investor Warrants each
contain “full ratchet” anti-dilution provisions and a VWAP adjustment provision applicable to the
conversion price and exercise price, respectively, which may result in a greater number of shares of Common Stock being issued upon
conversions or exercises than if the conversions or exercises were effected at the conversion price or exercise price in effect
currently.
The Certificate of Designations of Preferences,
Rights and Limitations of 12% Series A Cumulative Convertible Preferred Stock (the “ Series A Preferred
Stock Certificate of Designation ”) for our Series A Cumulative Convertible Preferred Stock (the “ Series A Preferred
Stock ”) contains “full ratchet” anti-dilution provisions applicable to the conversion prices used in voluntary conversions
of Series A Preferred Stock by the holders thereof which provisions require the lowering of the applicable conversion price, as then in
effect, to the purchase price of equity or equity-linked securities issued in subsequent offerings at prices less than $10.00 per share.
In addition, if the 20-day volume-weighted average price of the Common Stock on the twenty-first trading day following
the date that is six months after Closing Date is less than the conversion price then in effect, the conversion price will be adjusted
to the greater of (i) such volume weighted average price and (ii) $7.50 (the “ VWAP Adjustment ”). The exercise
price of the Series A Preferred Investor Warrants are initially exercisable at $12.00 per share of Common Stock, subject to the same anti-dilution and
other adjustments as the Series A Preferred Stock. If the exercise price of the Series A Preferred Investor Warrants is reduced,
the number of shares of Common Stock that may be purchased upon exercise of such Series A Preferred Investor Warrants will be increased
proportionately, so that after such adjustment, the aggregate exercise price payable thereunder for the adjusted number of shares of Common
Stock shall be the same as the aggregate exercise price in effect immediately prior to such adjustment.
If in the future, while any of our Series A
Preferred Stock or Series A Preferred Investor Warrants are outstanding, we issue securities at an effective Common Stock purchase
price below $10.00 that is less than the applicable conversion price of our Series A Preferred Stock or exercise price of our Series
A Preferred Investor Warrants, as then in effect, we will be required, subject to certain limitations and adjustments as provided in
the Series A Preferred Stock Certificate of Designation and the Series A Preferred Investor Warrants, to further reduce the relevant
conversion price, which will result in a greater number of shares of Common Stock being issuable upon conversion or exercise of the
Series A Preferred Stock or Series A Preferred Investor Warrants, as applicable, which in turn will have a greater dilutive effect
on our stockholders. Similarly, if the VWAP Adjustment is triggered, we will be required to reduce the relevant conversion price,
which will result in a greater number of shares of Common Stock being issuable upon conversion or exercise of the Series A Preferred
Stock or Series A Preferred Investor Warrants, as applicable, which in turn will have a greater dilutive effect on our stockholders.
Further, because the Series A Preferred Stock votes, together with the Common Stock, on an as-converted basis, a reduction in the
conversion price will immediately dilute the voting interest of our Common Stock, even if the Series A Preferred Stock is not
converted. The potential for such additional issuances may depress the price of our Common Stock regardless of our business
performance. We may find it more difficult to raise additional equity capital while any of our Series A Preferred Stock or Series A
Preferred Investor Warrants are outstanding.
Further, it is possible that we will not have
a sufficient number of available shares to satisfy the conversion of the Series A Preferred Stock and exercise of the Series A Preferred
Investor Warrants if the applicable conversion price or exercise price is reduced. If we do not have a sufficient number of available
shares for such conversions or exercises, we will be required to increase our authorized shares, which may not be possible and will be
time consuming and expensive.
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Delaware law and our certificate of incorporation
and bylaws contain certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions
and could delay or discourage takeover attempts that stockholders may consider favorable.
The provisions of our certificate of incorporation,
our bylwas and the DGCL summarized below may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt
that you might consider in your best interest, including an attempt that might result in your receipt of a premium over the market price
for your shares of Common Stock.
Our certificate of incorporation and bylaws contain
certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of our board of directors
and that may have the effect of delaying, deferring or preventing a future takeover or change in control of us unless such takeover or
change in control is approved by our board of directors.
These provisions include:
● Authorized but Unissued Capital Stock . The authorized but unissued shares of our preferred stock
will be available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence
of authorized but unissued shares of our preferred stock could render more difficult or discourage an attempt to obtain control of a majority
of Common Stock by means of a proxy contest, tender offer, merger or otherwise.
● No Cumulative Voting for Directors . The DGCL provides that stockholders are not entitled to cumulate
votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our certificate of incorporation
does not provide for cumulative voting. As a result, the holders of our Common Stock representing a majority of the voting power of all
of the outstanding shares of our capital stock of will be able to elect all of the directors then standing for election.
● Quorum . Our bylaws provide that at all meetings of our board of directors, a majority of the Whole
Board (as defined therein) will constitute a quorum for the transaction of business.
● Action by Written Consent . Any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in lieu of a meeting of
stockholders by such holders; provided, however, that any action required or permitted to be taken by the holders of our preferred stock,
voting separately as a series or separately as a class with one or more other such series, may be taken without a meeting, without prior
notice and without a vote, to the extent expressly so provided by the applicable certificate(s) of designation relating to such series
of preferred stock.
● Special Meetings of Stockholders . Our certificate of incorporation provides that, except as otherwise
required by law and subject to the rights of the holders of any series of our preferred stock, special meetings of stockholders of for
any purpose or purposes may be called at any time only by or at the direction of the Chair of our board of directors or by a resolution
adopted by the affirmative vote of a majority of the total number of directors that we would have if there were no vacancies on the our
board of directors, but such special meetings may not be called by stockholders or any other person or persons.
● Advance Notice Procedures . Our bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of the stockholders, and for stockholder nominations of persons for election to our board of directors
to be brought before an annual or special meeting of stockholders. Stockholders at an annual meeting will only be able to consider proposals
or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors or by
a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given
our secretary timely written notice, in proper form, of the stockholder’s intention to bring that business or nomination before
the meeting. Although our bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates
or proposals regarding other business to be conducted at a special or annual meeting, as applicable, our bylaws may have the effect of
precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential
acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the
company.
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The requirements of being a public company
in the U.S. may strain our resources and divert management’s attention, and the increases in legal, accounting and compliance expenses
that result from being a public company in the U.S. may be greater than we anticipate.
Requirements associated with being a public company
in the United States requires significant resources and management attention. We are subject to certain reporting requirements of
the Exchange Act, and the other rules and regulations of the SEC, and Nasdaq. We are also subject to various other regulatory requirements,
including the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal, accounting and financial compliance
costs and to make some activities more time-consuming and costly. For example, these rules and regulations have made it, and may
continue to make it, more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which
could make it more difficult for us to attract and retain qualified members of our board of directors. In addition, as a public company
we are required to provide a report from management on our internal control over financial reporting that includes an assessment of the
effectiveness of these controls. Internal control over financial reporting has inherent limitations, including human error, the possibility
that controls could be circumvented or become inadequate because of changed conditions and fraud. Because of these inherent limitations,
internal control over financial reporting might not prevent or detect all misstatements. If we cannot provide reliable financial reports
or prevent fraud and errors in our financial statements, our reputation and operating results could be materially adversely affected.
We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs. In addition,
complying with rules and regulations and the increasingly complex laws pertaining to public companies requires substantial attention from
our senior management, which could divert their attention away from the day-to-day management of our business. These cost increases
and the diversion of management’s attention could materially and adversely affect our business, results of operations and financial
condition. We are also hiring additional personnel to support our financial reporting function and may face challenges in doing so.
If the benefits of the Business Combination
do not meet the expectations of investors or securities analysts, the market price of our securities may decline.
If the benefits of the Business Combination do
not meet the expectations of investors or securities analysts, the market price of our securities may decline. The market values of these
securities at the time of the Business Combination could have varied significantly from their prices on the date the Business Combination
Agreement was executed, the date of this Annual Report, or the date on which Inflection Point’s shareholders voted on the Business
Combination. Because the number of shares issued pursuant to the Business Combination Agreement were based on the per share value of the
amount in Inflection Point’s trust account and was not adjusted to reflect any changes in the market price of Inflection Point’s
Class A ordinary shares, the market value of shares of our and securities converted or exercised for shares of our Common Stock issued
in the Business Combination could have been higher or lower than the values of these securities on earlier dates.
In addition, following the Business Combination,
our shares of Common Stock do not have any redemption rights like Inflection Point’s public shares had and fluctuations in the price
of shares of our Common Stock could contribute to the loss of all or part of your investment. The trading price of shares of our Common
Stock following the Business Combination could be volatile and subject to wide fluctuations in response to various factors, some of which
are beyond our control. Inflationary pressures, increases in interest rates and other adverse economic and market forces may contribute
to potential downward pressures in market value of shares of Common Stock. Additionally, any of the risk factors discussed in this Annual
Report could have a material adverse effect on your investment and shares of Common Stock may trade at prices significantly below the
price you paid for them. In such circumstances, the trading price of shares of Common Stock may not recover and may experience a further
decline.
Broad market and industry factors may materially
harm the market price of shares of Common Stock irrespective of our operating performance. The stock market in general, and Nasdaq specifically,
has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of
this volatility, you may not be able to sell your securities at or above the price at which they were acquired. A loss of investor confidence
in the market for the stocks of other companies which investors perceive to be similar to us could depress our share price regardless
of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could
adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
There is no guarantee that the New USARE
Warrants will ever be in the money, and they may expire worthless.
The exercise price for the New USARE Warrants
is $11.50 per share of Common Stock, subject to adjustment. There is no guarantee that the New USARE Warrants will ever be in the money
prior to their expiration, and as such, the New USARE Warrants may expire worthless.
34
Your unexpired New USARE Warrants may be
redeemed prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.
Outstanding New USARE Warrants may be
redeemed at any time after they become exercisable and prior to their expiration, at a price of $0.01 per New USARE Warrant,
provided that the last reported sales price of the Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits,
stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period commencing at least 150 days after completion of the Business Combination ending on the third trading day
prior to the date we send
the notice of redemption to the New USARE Warrant holders. If and when the warrants become
redeemable by us, we may not exercise our redemption rights if the issuance of share of Common Stock upon exercise of
the New USARE Warrants is not exempt from registration or qualification under applicable state blue sky laws or we are is unable
to effect such registration or qualification, subject to New USARE’s obligation in such case to use its best efforts to
register or qualify the shares of Common Stock under the blue sky laws of the state of residence in those states in which the
warrants were initially offered by Inflection Point in its IPO. Redemption of the outstanding New USARE Warrants could force
you (a) to exercise your New USARE Warrants and pay the exercise price at a time when it may be disadvantageous for you to do so,
(b) to sell your New USARE Warrants at the then-current market price when you might otherwise wish to hold your New USARE
Warrants or (c) to accept the nominal redemption price which, at the time the outstanding New USARE Warrants are called for
redemption, is likely to be substantially less than the market value of your New USARE Warrants.
The New USARE Warrants and the Series A
Preferred Investor Warrants may have an adverse effect on the market price of the Common Stock.
There are an aggregate of 18,500,000 New
USARE Warrants outstanding, each exercisable for $11.50 per share of Common Stock. The Company has issued Series A Preferred
Investor Warrants exercisable for an aggregate of 5,279,413 shares of Common Stock, subject to adjustment, at an initial exercise
price of $12.00, subject to adjustment. Such New USARE Warrants and the Series A Preferred Investor Warrants, if and when exercised,
will increase the number of issued and outstanding shares and may reduce the market price of the Common Stock.
You may only be able to exercise your New
USARE Warrants on a “cashless basis” under certain circumstances, and if you do so, you will receive fewer shares of Common
Stock from such exercise than if you were to exercise such New USARE Warrants for cash.
The warrant agreement governing the New USARE
Warrants, dated as of May 24, 2023 (the “ Warrant Agreement ”), by and between the Company and Continental Stock Transfer
& Trust Company, as warrant agent, provides that in the following circumstances holders of public New USARE Warrants who seek to exercise
their New USARE Warrants will not be permitted to do for cash and will, instead, be required to do so on a cashless basis in accordance
with Section 3(a)(9) of the Securities Act: (i) if the shares of Common Stock issuable upon exercise of the New USARE Warrants are not
registered under the Securities Act in accordance with the terms of the Warrant Agreement; (ii) if we have so elected and the shares of
Common Stock are at the time of any exercise of a public New USARE Warrant not listed on a national securities exchange such that they
satisfy the definition of “covered securities” under Section 18(b)(1) of the Securities Act; and (iii) if we have so elected
and we call the public New USARE Warrants for redemption.
If you exercise your New USARE Warrants on a cashless
basis, you would pay the warrant exercise price by surrendering the New USARE Warrants for that number of shares of Common Stock equal
to the quotient obtained by dividing (x) the product of the number of shares of Common Stock underlying the New USARE Warrants, multiplied
by the excess of the “fair market value” of shares of Common Stock (as defined in the next sentence) over the exercise price
of the New USARE Warrants by (y) the fair market value. The “fair market value” is the average reported closing price of the
shares of Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of exercise is received
by the warrant agent or on which the notice of redemption is sent to the holders of New USARE Warrants, as applicable. As a result, you
would receive fewer shares of Common Stock from such exercise than if you were to exercise such New USARE Warrants for cash.
A significant portion of our total outstanding
Common Stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price
of our Common Stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception
in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
We are party to a registration rights agreement with Inflection Point Holdings II LLC, the holders of Series A Preferred Stock and Series
A Preferred Investor Warrants, and certain other holders of our securities.
Although former members of USARE OpCo that received more than 2% of our Common Stock in the Business Combination and the Sponsor are prohibited
from transferring any of the Common Stock they held as of the Closing Date (subject to customary exceptions) until six months after the
Closing Date, and are further prohibited from selling more than 50% of such holdings until one year after the Closing Date, these shares
may be sold under a registration statement or pursuant to an exemption from registration after the expiration or early termination or
release of the respective applicable lock-ups. The holders of Series A Preferred Stock and Series A Preferred Investor Warrants are not,
in their capacities as such, subject to any contractual lock-up restrictions. As restrictions on resale end and the registration statement
is available for use, the market price of Common Stock could decline if the holders of currently restricted shares sell them or are perceived
by the market as intending to sell them.
35
Our certificate of incorporation provides,
subject to limited exceptions, that the courts of the State of Delaware are the sole and exclusive forum for certain stockholder litigation
matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers, employees or stockholders.
Our certificate of incorporation requires, to
the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for
breach of fiduciary duty and other similar actions be brought in the Court of Chancery of the State of Delaware or, if that court does
not have jurisdiction, a state court located within the State of Delaware or the federal district court for the District of Delaware.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and
consented to the forum provisions in our certificate of incorporation. In addition, our certificate of incorporation provides that this
choice of forum does not apply to any complaint asserting a cause of action under the Securities Act and the Exchange Act. Finally, our
certificate of incorporation provides that federal district courts of the United States are the exclusive forum for the resolution of
any complaint asserting a cause of action under the Securities Act or the Exchange Act.
While the Delaware Supreme Court has upheld provisions
of the certificates of incorporation of other Delaware corporations that are similar to the exclusive forum provision in our certificate
of incorporation, a court of a state other than the State of Delaware could decide that such provisions are not enforceable under the
laws of that state.
The choice of forum provision may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees
or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum
provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs
associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
We may be subject to securities litigation,
which is expensive and could divert management’s attention.
The share price of our Common Stock may be volatile and, in the past, companies that have experienced volatility in the market price of
their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation
of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material
adverse effect on its business, financial condition, results of operations and prospects. Any adverse determination in litigation could
also subject us to significant liabilities.
As an “emerging growth company,”
we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our Common
Stock less attractive to investors.
As an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies, including not being required to obtain an assessment of the effectiveness of our internal controls
over financial reporting from our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying
with new or revised accounting standards, which we have elected to do.
We cannot predict if investors will find our Common Stock less attractive because we rely on these exemptions. If some investors find
our Common Stock less attractive as a result, there may be a less active market for our Common Stock, our share price may be more volatile
and the price at which our securities trade could be less than if we did not use these exemptions.