UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2018 | ||
| OR | ||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
|
Commission file number: 000-55710 |
NioCorp Developments Ltd.
(Exact Name of Registrant as Specified in its Charter)
| British Columbia, Canada | 98-1262185 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 7000
South Yosemite Street, Suite 115 Centennial, CO |
80112 | |
| (Address of Principal Executive Offices) | (Zip code) | |
| Registrant’s telephone number, including area code: (855) 264-6267 | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large Accelerated Filer ☐ | Accelerated Filer ☒ |
| Non-Accelerated Filer ☐ |
Smaller Reporting Company ☐ Emerging Growth Company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 8, 2018, the registrant had 221,846,266 Common Shares outstanding.
TABLE OF CONTENTS
Contents
NioCorp Developments Ltd.
Condensed Consolidated Balance Sheets
(expressed in thousands of U.S. dollars, except share data) (unaudited)
| As of | ||||||||||||
| Note | September
30, | June 30, | ||||||||||
| ASSETS | ||||||||||||
| Current | ||||||||||||
| Cash | $ | 2,011 | $ | 73 | ||||||||
| Prepaid expenses and other | 164 | 18 | ||||||||||
| Other current assets | 4 | 543 | 474 | |||||||||
| Total current assets | 2,718 | 565 | ||||||||||
| Non-current | ||||||||||||
| Deposits | 36 | 35 | ||||||||||
| Available for sale securities at fair value | 13 | 12 | ||||||||||
| Mineral interests | 10,617 | 10,617 | ||||||||||
| Total assets | $ | 13,384 | $ | 11,229 | ||||||||
| LIABILITIES | ||||||||||||
| Current | ||||||||||||
| Accounts payable and accrued liabilities | $ | 1,729 | $ | 1,686 | ||||||||
| Related party loans | 7 | 1,480 | 1,480 | |||||||||
| Convertible debt, current portion | 5 | — | 756 | |||||||||
| Derivative liability, convertible debt | — | 8 | ||||||||||
| Total current liabilities | 3,209 | 3,930 | ||||||||||
| Convertible debt, net of current portion | 5 | 5,174 | 4,106 | |||||||||
| Total liabilities | 8,383 | 8,036 | ||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Common stock, unlimited shares authorized; shares outstanding: 220,944,160 and 213,405,372, respectively | 6 | 78,143 | 74,683 | |||||||||
| Additional paid-in capital | 12,561 | 12,379 | ||||||||||
| Accumulated deficit | (85,080 | ) | (83,349 | ) | ||||||||
| Accumulated other comprehensive loss | (623 | ) | (520 | ) | ||||||||
| Total equity | 5,001 | 3,193 | ||||||||||
| Total liabilities and equity | $ | 13,384 | $ | 11,229 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
NioCorp Developments Ltd.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars, except share and per share data) (unaudited)
| For the three months ended September 30, | ||||||||||||
| Note | 2018 | 2017 | ||||||||||
| Operating expenses | ||||||||||||
| Employee related costs | $ | 312 | $ | 772 | ||||||||
| Professional fees | 51 | 275 | ||||||||||
| Exploration expenditures | 8 | 777 | 713 | |||||||||
| Other operating expenses | 118 | 172 | ||||||||||
| Total operating expenses | 1,258 | 1,932 | ||||||||||
| Change in financial instrument fair value | 5 | 493 | 23 | |||||||||
| Foreign exchange loss (gain) | (118 | ) | (237 | ) | ||||||||
| Interest expense | 99 | 84 | ||||||||||
| (Gain) loss on available for sale securities | (1 | ) | 11 | |||||||||
| Loss before income taxes | 1,731 | 1,813 | ||||||||||
| Income tax benefit | — | — | ||||||||||
| Net loss | $ | 1,731 | $ | 1,813 | ||||||||
| Other comprehensive loss: | ||||||||||||
| Net loss | $ | 1,731 | $ | 1,813 | ||||||||
| Other comprehensive (gain) loss: | ||||||||||||
| Reporting currency translation | 103 | 285 | ||||||||||
| Total comprehensive loss | $ | 1,834 | $ | 2,098 | ||||||||
| Loss per common share, basic and diluted | $ | 0.01 | $ | 0.01 | ||||||||
| Weighted average common shares outstanding | 215,355,392 | 202,023,001 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NioCorp Developments Ltd.
Condensed Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars) (unaudited)
| For the three months ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Total loss for the period | $ | (1,731 | ) | $ | (1,813 | ) | ||
| Non-cash elements included in net loss: | ||||||||
| Depreciation | — | 2 | ||||||
| Change in financial instrument fair value | 493 | 23 | ||||||
| Unrealized loss on available-for-sale investments | (1 | ) | 11 | |||||
| Accretion of convertible debt | 44 | 36 | ||||||
| Foreign exchange gain loss | (105 | ) | (227 | ) | ||||
| Share-based compensation | 41 | 451 | ||||||
| (1,259 | ) | (1,517 | ) | |||||
| Change in working capital items: | ||||||||
| Receivables | — | 8 | ||||||
| Prepaid expenses | (146 | ) | 52 | |||||
| Accounts payable and accrued liabilities | 33 | (322 | ) | |||||
| Net cash used in operating activities | (1,372 | ) | (1,779 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Deposits | — | 15 | ||||||
| Net cash used in investing activities | — | 15 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of capital stock | 2,412 | 1,545 | ||||||
| Share issue costs | (44 | ) | (189 | ) | ||||
| Issuance of convertible debt | 1,000 | 500 | ||||||
| Other current assets | (69 | ) | (289 | ) | ||||
| Net cash provided by financing activities | 3,299 | 1,567 | ||||||
| Exchange rate effect on cash and cash equivalents | 11 | 11 | ||||||
| Change in cash and cash equivalents during period | 1,938 | (186 | ) | |||||
| Cash and cash equivalents, beginning of period | 73 | 503 | ||||||
| Cash and cash equivalents, end of period | $ | 2,011 | $ | 317 | ||||
| Supplemental cash flow information: | ||||||||
| Amounts paid for interest | $ | 16 | $ | 16 | ||||
| Amounts paid for income taxes | $ | — | $ | — | ||||
| Non-cash financing transactions | ||||||||
| Lind conversions | $ | 1,077 | $ | 1,441 | ||||
| Debt to equity conversion | $ | — | $ | 207 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
NioCorp Developments Ltd.
Condensed Consolidated Statements of Shareholders’ Equity
(expressed in thousands of U.S. dollars, except for Common Shares outstanding) (unaudited)
| Common Shares Outstanding | Common Stock | Additional Paid-in Capital | Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
| Balance, June 30, 2017 | 198,776,337 | $ | 68,029 | $ | 10,320 | $ | (74,852 | ) | $ | (606 | ) | $ | 2,891 | |||||||||||
| Exercise of options | 10,091 | 5 | — | — | — | 5 | ||||||||||||||||||
| Fair value of broker warrants granted | — | — | 41 | — | — | 41 | ||||||||||||||||||
| Fair value of Lind Warrants granted | — | — | 724 | — | — | 724 | ||||||||||||||||||
| Private placement – July 2017 | 2,962,500 | 1,540 | — | — | — | 1,540 | ||||||||||||||||||
| Private placement – September 2017 | 415,747 | 207 | — | — | — | 207 | ||||||||||||||||||
| Debt conversions | 11,240,697 | 5,130 | — | — | — | 5,130 | ||||||||||||||||||
| Share issuance costs | — | (230 | ) | — | — | — | (230 | ) | ||||||||||||||||
| Fair value of stock options exercised | — | 2 | (2 | ) | — | — | — | |||||||||||||||||
| Share-based payments | — | — | 1,296 | — | — | 1,296 | ||||||||||||||||||
| Reporting currency presentation | — | — | — | — | 86 | 86 | ||||||||||||||||||
| Loss for the year | — | — | — | (8,497 | ) | — | (8,497 | ) | ||||||||||||||||
| Balance, June 30, 2018 | 213,405,372 | $ | 74,683 | $ | 12,379 | $ | (83,349 | ) | $ | (520 | ) | $ | 3,193 | |||||||||||
| Exercise of options | 16,203 | — | — | — | — | — | ||||||||||||||||||
| Fair value of Lind warrants granted | — | — | 156 | — | — | 156 | ||||||||||||||||||
| Private placements – September 2018 | 4,975,158 | 2,412 | — | — | — | 2,412 | ||||||||||||||||||
| Debt conversions | 2,547,427 | 1,077 | — | — | — | 1,077 | ||||||||||||||||||
| Share issuance costs | — | (44 | ) | — | — | — | (44 | ) | ||||||||||||||||
| Fair value of stock options exercised | — | 15 | (15 | ) | — | — | — | |||||||||||||||||
| Share-based payments | — | — | 41 | — | — | 41 | ||||||||||||||||||
| Reporting currency presentation | — | — | — | — | (103 | ) | (103 | ) | ||||||||||||||||
| Loss for the period | — | — | — | (1,731 | ) | — | (1,731 | ) | ||||||||||||||||
| Balance, September 30, 2018 | 220,944,160 | $ | 78,143 | $ | 12,561 | $ | (85,080 | ) | $ | (623 | ) | $ | 5,001 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
| 1. | DESCRIPTION OF BUSINESS |
NioCorp Developments Ltd. (“NioCorp” or the “Company”) was incorporated on February 27, 1987 under the laws of the Province of British Columbia and currently operates in one reportable operating segment consisting of exploration and development of mineral deposits in North America, specifically, the Elk Creek Niobium/Scandium/Titanium property (the “Elk Creek Project”) located in southeastern Nebraska.
These financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities at their carrying values in the normal course of business for the foreseeable future. These financial statements do not reflect any adjustments that may be necessary if the Company is unable to continue as a going concern.
The Company currently earns no operating revenues and will require additional capital in order to advance the Elk Creek Project. The Company’s ability to continue as a going concern is uncertain and is dependent upon the generation of profits from mineral properties, obtaining additional financing, and maintaining continued support from its shareholders and creditors.
| 2. | BASIS OF PREPARATION |
| a) | Basis of Preparation and Consolidation |
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“US GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The interim condensed consolidated financial statements include the consolidated accounts of the Company and its wholly-owned subsidiaries with all significant intercompany transactions eliminated. The accounting policies followed in preparing these interim condensed consolidated financial statements are those used by the Company as set out in the audited consolidated financial statements for the year ended June 30, 2018.
In the opinion of management, all adjustments considered necessary (including reclassifications and normal recurring adjustments) to present fairly the financial position, results of operations, and cash flows at September 30, 2018, and for all periods presented, have been included in these interim condensed consolidated financial statements. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to appropriate SEC rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2018. The interim results are not necessarily indicative of results for the full year ending June 30, 2019, or future operating periods.
| b) | Recent Accounting Standards |
Issued and Not Effective
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption.
In February 2016, Accounting Standards Update (“ASU”) 2016-02 was issued related to leases, which was further amended in September 2017 by ASU 2017-13, in January 2018 by ASU 2018-01 and in July 2018 by ASU 2018-10 and 2018-11. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities arising from most leases on the balance sheet. The new guidance is effective for the Company’s fiscal year beginning December 1, 2019 and early adoption is permitted. The Company anticipates adopting the new guidance effective with our fiscal year beginning July 1, 2020. Adoption of this guidance is not expected to materially increase the Company’s assets and liabilities.
6
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will apply the provisions of the update to potential future acquisitions occurring after the effective date.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation — Improvements to Nonemployee Share-Based Payment Accounting. This update aims to simplify the accounting for share-based payments awarded to non-employees for goods or services acquired. The update specifies that the measurement date is the grant date and that awards are required to be measured at fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This update modifies the disclosure requirements on fair value measurements in Topic 820 and eliminates ‘at a minimum’ from the phrase ‘an entity shall disclose at a minimum’ to promote the appropriate exercise of discretion by entities when considering fair value disclosures and to clarify that materiality is an appropriate consideration. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impacts that adoption of this guidance will have on its consolidated financial statements.
| c) | Use of Estimates |
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuations, convertible debt valuations, and share-based compensation. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.
| 3. | GOING CONCERN ISSUES |
The Company incurred a loss of $1,731 for the three months ended September 30, 2018 (2017 - $1,813) and had a working capital deficit and an accumulated deficit of $491 and $85,080, respectively, as of September 30, 2018. These factors indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue operations and fund its expenditures is dependent on management’s ability to secure additional financing. Management is actively pursuing such additional sources of financing, and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future. These consolidated financial statements do not give effect to any adjustments required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.
| 4. | OTHER CURRENT ASSETS |
Other current assets include legal and other professional fees associated with obtaining project debt financing for the Elk Creek Project. Amounts will be deferred until funding is completed, at which time the balance will become a direct deduction from the related debt liability.
7
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
| 5. | CONVERTIBLE DEBT |
| As of | ||||||||
| September 30, 2018 | June 30, 2018 | |||||||
| Convertible notes, current portion | $ | — | $ | 756 | ||||
| Convertible notes, net of current portion | $ | 800 | $ | — | ||||
| Convertible security, noncurrent | 4,374 | 4,106 | ||||||
| Convertible debt, net of current portion | $ | 5,174 | $ | 4,106 | ||||
Convertible Security Funding
Changes in the Lind Asset Management IV, LLC (“Lind”) convertible securities balance are comprised of the following:
| Convertible Security | ||||
| Balance, June 30, 2018 | $ | 4,106 | ||
| Additional debt drawdown | 1,000 | |||
| Conversions, at fair value | (1,077 | ) | ||
| Change in fair market value | 345 | |||
| Balance, September 30, 2018 | $ | 4,374 | ||
On June 27, 2018, the Company signed a definitive convertible security funding agreement (the “Subsequent Lind Agreement”) with Lind. Pursuant to the issuance of a convertible security (the “Subsequent Convertible Security” and, together with the previous Lind convertible security (the “Original Lind Security), the “Convertible Securities”), a total of $1,000 was funded on July 9, 2018. The Subsequent Lind Agreement replaces the Convertible Security Funding Agreement, dated December 14, 2015, between the Company and Lind (the “Original Lind Agreement”) in respect of the remaining $1,000 funding amount available under the Original Lind Agreement and accordingly, no further funding will be provided by Lind to the Company under the Original Lind Agreement. The terms of the Subsequent Convertible Security are substantially similar to the terms governing like securities under the Original Lind Agreement. As a result, upon payment of the $1,000 in funding by Lind to the Company, the Subsequent Convertible Security was issued in the amount of $1,200 ($1,000 in funding plus implied interest), and the Company issued warrants (“Warrants”) to Lind, as follows:
| Black Scholes Pricing Model Inputs | ||||||||||||||||||||||||||
| Funding Date | Face Value1 | Warrants Issued2 | Issue Price3 | Warrant Expiry Date | Risk-free Rate | Yield | Volatility | Expected Life | ||||||||||||||||||
| July 9, 2018 | $ | 1,200 | 1,035,319 | C$0.77 | July 9, 2021 | 2.0% | 0 | % | 58.3 | % | 3 years | |||||||||||||||
| 1 | Includes implied interest. |
| 2 | The value of Warrants issued totaled $156, which was expensed to Change in Financial Instrument Fair Value. |
| 3 | The price to convert one Warrant into one common share of the Company (“Common Share”). |
The Convertible Securities are convertible into Common Shares at a conversion price equal to 85% of the volume weighted average trading price of the Common Shares (in Canadian dollars) on the Toronto Stock Exchange for the five consecutive trading days immediately prior to the date on which Lind provides the Company with notice of its intention to convert an amount of the applicable Convertible Security from time to time. During the three-month period ended September 30, 2018, $1,000 principal amount of the Original Convertible Security was converted into 2,547,427 Common Shares.
The Convertible Securities contains financial and non-financial covenants customary for a facility of its size and nature, and includes a financial covenant defining an event of default as all present and future liabilities of the Company or any of its subsidiaries, exclusive of related party loans, for an amount or amounts exceeding $2,000 and which have not been satisfied on time or within 90 days of invoice, or have become prematurely payable as a result of its default or breach. The Company was in compliance with these covenants as of September 30, 2018.
8
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
Convertible Notes
Changes in the Company’s outstanding convertible promissory notes (the “Convertible Notes”) balance are comprised of the following:
| Convertible Notes | ||||
| Balance, June 30, 2018 | $ | 756 | ||
| Accreted interest, net of interest paid | 44 | |||
| Balance, September 30, 2018 | $ | 800 | ||
The changes in the derivative liability related to the conversion feature of the Convertible Notes are as follows:
| Derivative Liability | ||||
| Balance, June 30, 2018 | $ | 8 | ||
| Change in fair value of derivative liability | (8 | ) | ||
| Balance, September 30, 2018 | $ | — | ||
Effective October 10, 2018, the due date for the Convertible Notes was extended for one year to October 14, 2019. All other terms and conditions remained unchanged.
| 6. | COMMON STOCK |
| a) | Issuances |
On September 14, 2018, the Company completed the first tranche closing (the “First Tranche Closing”) of a non-brokered private placement (the “September 2018 Offering”) of units (each a “Unit”). The First Tranche Closing consisted of the issuance of 2,917,587 Units, at a price of C$0.63 per Unit, for gross proceeds of C$1,838. Each Unit issued in connection with the First Tranche Closing consists of one Common Share and one-half of one Warrant. Each Warrant entitles the holder thereof to purchase one additional Common Share at a price of C$0.75 until September 14, 2020.
On September 28, 2018, the Company completed the second and final tranche closing (the “Second Tranche Closing”) of the September 2018 Offering. The Second Tranche Closing consisted of the issuance of 2,057,571 Units, at a price of C$0.63 per Unit, for gross proceeds of C$1,296. Each Unit issued in connection with the Second Tranche Closing consists of one Common Share and one-half of one Warrant. Each Warrant entitles the holder thereof to purchase one additional Common Share at a price of C$0.75 until September 28, 2020.
Net proceeds from the September 2018 Offering will be used by the Company for continued development of NioCorp’s Elk Creek Project and for general corporate purposes. The Company paid cash commissions of C$18 in connection with the September 2018 Offering to brokers outside of the United States.
| b) | Stock Options |
| Number of Options | Weighted Average Exercise Price (C$) | |||||||
| Balance, June 30, 2018 | 15,587,409 | $ | 0.65 | |||||
| Issued | — | — | ||||||
| Exercised | (16,203 | ) | 0.47 | |||||
| Cancelled/expired | (466,297 | ) | 0.76 | |||||
| Balance, September 30, 2018 | 15,104,909 | $ | 0.65 | |||||
9
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
The following table summarizes information about options to purchase Common Shares (“Options”) outstanding at September 30, 2018:
| Exercise Price (C$) | Expiry Date | Number Outstanding | Aggregate Intrinsic Value (C$) | Number Exercisable | Aggregate Intrinsic Value (C$) | |||||||||||||||
| $ | 0.47 | November 9, 2022 | 3,800,000 | $ | 380 | 3,800,000 | $ | 380 | ||||||||||||
| $ | 0.62 | January 19, 2021 | 5,264,909 | — | 5,264,909 | — | ||||||||||||||
| $ | 0.76 | March 6, 2022 | 5,400,000 | — | 5,400,000 | — | ||||||||||||||
| $ | 0.94 | April 28, 2019 | 100,000 | — | 100,000 | — | ||||||||||||||
| $ | 0.94 | July 21, 2021 | 540,000 | — | 540,000 | — | ||||||||||||||
| 15,104,909 | $ | 380 | 15,104,909 | $ | 380 | |||||||||||||||
The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing Common Share price of C$0.57 as of September 30, 2018, that would have been received by the Option holders had all Option holders exercised their Options as of that date. The total number of in-the-money Options vested and exercisable as of September 30, 2018, was 3,800,000. The total intrinsic value of Options exercised during the three months ended September 30, 2018, was C$8.
As of September 30, 2018, there was no unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Option plans.
| c) | Warrants |
| Warrants | Weighted Average Exercise Price (C$) | |||||||
| Balance June 30, 2018 | 28,648,610 | $ | 0.77 | |||||
| Granted | 3,522,896 | 0. 76 | ||||||
| Balance, September 30, 2018 | 32,171,506 | $ | 0. 77 | |||||
As discussed above under Note 5, the Company granted 1,035,319 Warrants to Lind in connection with the Convertible Security funding increases. As discussed above under Note 6a, the Company granted 2,487,577 Warrants in conjunction with the September 2018 Offering.
10
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
At September 30, 2018, the Company has outstanding exercisable Warrants, as follows:
| Number | Exercise Price (C$) | Expiry Date | ||||||
| 355,132 | 0.54 | December 6, 2020 | ||||||
| 308,901 | 0.62 | October 31, 2020 | ||||||
| 283,413 | 0.66 | September 28, 2020 | ||||||
| 541,435 | 0.69 | February 7, 2021 | ||||||
| 529,344 | 0.70 | February 5, 2021 | ||||||
| 3,125,000 | 0.72 | December 22, 2018 | ||||||
| 1,546,882 | 0.72 | January 30, 2021 | ||||||
| 1,058,872 | 0.72 | April 5, 2021 | ||||||
| 260,483 | 0.73 | August 15, 2020 | ||||||
| 9,150,285 | 0.75 | January 19, 2019 | ||||||
| 1,458,792 | 0.75 | September 14, 2020 | ||||||
| 1,028,785 | 0.75 | September 28, 2020 | ||||||
| 1,035,319 | 0.77 | July 9, 2021 | ||||||
| 3,155,062 | 0.79 | July 26, 2021 | ||||||
| 3,860,800 | 0.85 | February 14, 2020 | ||||||
| 3,043,024 | 0.85 | February 21, 2020 | ||||||
| 539,307 | 0.85 | February 28, 2020 | ||||||
| 890,670 | 0.90 | March 31, 2020 | ||||||
| 32,171,506 | ||||||||
| 7. | RELATED PARTY TRANSACTIONS AND BALANCES |
The Company has a loan with Mark Smith, President, Chief Executive Officer (“CEO”) and Executive Chairman of NioCorp (the “Original Smith Loan”), that bears an interest rate of 10%, is secured by the Company’s assets pursuant to a concurrently executed general security agreement (the “General Security Agreement”), and is subject to both a 2.5% establishment fee and 2.5% prepayment fee. The principal amount outstanding under the Original Smith Loan is $1,000.
The Company also has a non-revolving credit facility agreement (the “Credit Facility”) in the amount of $2,000 with Mr. Smith. The Credit Facility bears an interest rate of 10% and drawdowns from the Credit Facility are subject to a 2.5% establishment fee. Amounts outstanding under the Credit Facility are secured by all of the Company’s assets pursuant to the General Security Agreement. The Credit Facility contains financial and non-financial covenants customary for a facility of its size and nature.
As of September 30, 2018, the principal amount outstanding under the Credit Facility was $480 and accounts payable and accrued liabilities included interest payable and loan establishment fees payable to Mr. Smith of $109.
| 8. | Exploration Expenditures |
| For the Three Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Technical studies and engineering | $ | 609 | $ | 395 | ||||
| Field management and other | 129 | 210 | ||||||
| Metallurgical development | 39 | 83 | ||||||
| Geologists and field staff | — | 25 | ||||||
| Total | $ | 777 | $ | 713 | ||||
11
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
| 9. | Fair Value Measurements |
The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition.
Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized in income.
Financial instruments including receivables, accounts payable and accrued liabilities, and related party loans are carried at amortized cost, which management believes approximates fair value due to the short-term nature of these instruments.
The following tables present information about the assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2018 and June 30, 2018, respectively, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical instruments. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates, and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the financial instrument and include situations where there is little, if any, market activity for the instrument.
| As of September 30, 2018 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 2,011 | $ | 2,011 | $ | — | $ | — | ||||||||
| Available-for-sale securities | 13 | 13 | — | — | ||||||||||||
| Total | $ | 2,024 | $ | 2,024 | $ | — | $ | — | ||||||||
| Liabilities: | ||||||||||||||||
| Convertible debt | $ | 4,374 | $ | — | $ | — | $ | 4,374 | ||||||||
| Derivative liability, convertible debt | — | — | — | — | ||||||||||||
| Total | $ | 4,374 | $ | — | $ | — | $ | 4,374 | ||||||||
| As of June 30, 2018 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 73 | $ | 73 | $ | — | $ | — | ||||||||
| Available-for-sale securities | 12 | 12 | — | — | ||||||||||||
| Total | $ | 85 | $ | 85 | $ | — | $ | — | ||||||||
| Liabilities: | ||||||||||||||||
| Convertible debt | $ | 4,106 | $ | — | $ | — | $ | 4,106 | ||||||||
| Derivative liability, convertible debt | 8 | — | — | 8 | ||||||||||||
| Total | $ | 4,114 | $ | — | $ | — | $ | 4,114 | ||||||||
The Company measures the fair market value of the Level 3 components using the Black Scholes model and discounted cash flows, as appropriate. These models take into account management’s best estimate of the conversion price of the stock, an estimate of the expected time to conversion, an estimate of the stock’s volatility, and the risk-free rate of return expected for an instrument with a term equal to the duration of the convertible debt.
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NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
September 30, 2018
(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)
The following table sets forth a reconciliation of changes in the fair value of the Company’s convertible debt components classified as Level 3 in the fair value hierarchy:
| Balance, June 30, 2018 | $ | 4,114 | ||
| Additional debt drawdown | 1,000 | |||
| Conversions to equity | (1,077 | ) | ||
| Realized and unrealized losses | 337 | |||
| Balance, September 30, 2018 | $ | 4,374 |
| 10. | SUBSEQUENT EVENTS |
See Note 5 for disclosure regarding the extension of the due date for the Convertible Notes.
On October 8, 2018, the Company and IBC Advanced Alloys (“IBC”) announced the successful production of aluminum-scandium master alloy. The master alloy was produced at the Ames Laboratory, a U.S. government-owned, contractor-operated national laboratory of the U.S. Department of Energy, located in Ames Iowa. NioCorp and IBC intend to utilize the master alloy from this program to further the companies’ ongoing efforts to develop specialty scandium-containing alloys and/or prototype products for potential commercial use. The two companies are operating under a joint development agreement to investigate and develop applications for scandium-containing materials for a range of downstream markets.
On October 10, 2018, the Company announced that it signed a commercial sales agreement with Traxys North America LLC (“Traxys”) for up to 120 tonnes of scandium trioxide over the first 10 years of operation of the Elk Creek Project. The contract presupposes the Company securing project financing, obtaining all necessary approvals, and constructing a mine and processing facility at Elk Creek. Under the sales agreement, Traxys is obligated to purchase 12 tonnes per year of scandium trioxide for the first 10 years of the Elk Creek Project’s production, subject to satisfaction of certain conditions. That annual amount represents approximately 10 percent of NioCorp’s planned annual production of Scandium. Traxys can purchase more than 12 tonnes per year from NioCorp, and the agreement can be extended beyond the 10-year term, by mutual agreement. Pursuant to the commercial sales agreement, Traxys will focus its scandium sales and marketing efforts on customers in the aerospace and sporting goods sectors, and it retains the exclusive right to sell NioCorp scandium to those sectors. In return, pursuant to the commercial sales agreement, Traxys has agreed to purchase its entire needs of scandium trioxide, scandium alloys, scandium master alloy and other scandium-based products exclusively from NioCorp, including for scandium sales to other sectors, subject to availability of adequate supplies by NioCorp and other conditions. Pursuant to the commercial sales agreement, NioCorp will work with Traxys to promote and market scandium to the aerospace, sporting goods and other industry sectors. NioCorp retains the right to make direct sales of scandium to markets outside of aerospace and sporting goods, as well as direct sales to the U.S. Government.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with our unaudited condensed interim consolidated financial statements as of, and for the three months ended September 30, 2018, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”). This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors, including, but not limited to, those set forth elsewhere in this Quarterly Report on Form 10-Q. See “Note Regarding Forward-Looking Statements” below.
All currency amounts are stated in thousands of U.S. dollars unless noted otherwise.
As used in this report, unless the context otherwise indicates, references to “we,” “our,” the “Company,” “NioCorp,” and “us” refer to NioCorp Developments Ltd. and its subsidiaries, collectively.
Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and “forward-looking information” within the meaning of applicable Canadian securities legislation (collectively, “forward-looking statements”). Such forward-looking statements concern our anticipated results and developments in the operations of the Company in future periods, planned exploration activities, the adequacy of the Company’s financial resources, and other events or conditions that may occur in the future. Forward-looking statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible,” and similar expressions, or statements that events, conditions, or results “will,” “may,” “could,” or “should” (or the negative and grammatical variations of any of these terms) occur or be achieved. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect,” “is expected,” “anticipates” or “does not anticipate,” “plans,” “estimates,” or “intends,” or stating that certain actions, events, or results “may,” “could,” “would,” “might,” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Such forward-looking statements reflect the Company’s current views with respect to future events and are subject to certain known and unknown risks, uncertainties, and assumptions. Many factors could cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including, among others, risks related to the following:
| ● | risks related to our ability to operate as a going concern; |
| ● | risks related to our requirement of significant additional capital; |
| ● | risks related to our limited operating history; |
| ● | risks related to changes in economic valuations of the Elk Creek Project, such as net present value calculations, changes, or disruptions in the securities markets; |
| ● | risks related to our history of losses; |
| ● | risks related to cost increases for our exploration and, if warranted, development projects; |
| ● | risks related to feasibility study results; |
| ● | risks related to the determination of the economic viability of a deposit; |
| ● | risks related to mineral exploration and production activities; |
| ● | risks related to our lack of mineral production from our properties; |
| ● | risks related to the results of our metallurgical testing; |
| ● | risks related to the price volatility of commodities; |
| ● | risks related to estimates of mineral resources and reserves; |
| ● | risks related to changes in mineral resource and reserve estimates; |
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| ● | risks related to differences in United States and Canadian reserve and resource reporting; |
| ● | risks related to our exploration activities being unsuccessful; |
| ● | risks related to our ability to obtain permits and licenses for production; |
| ● | risks related to government and environmental regulations that may increase our costs of doing business or restrict our operations; |
| ● | risks related to proposed legislation that may significantly affect the mining industry; |
| ● | risks related to land reclamation requirements; |
| ● | risks related to competition in the mining industry; |
| ● | risks related to the difficulties of handling the disposal of mine water at our Elk Creek Project; |
| ● | risks related to equipment and supply shortages; |
| ● | risks related to current and future joint ventures and partnerships; |
| ● | risks related to our ability to attract qualified management; |
| ● | risks related to the ability to enforce judgment against certain of our Directors; |
| ● | risks related to currency fluctuations; |
| ● | risks related to claims on the title to our properties; |
| ● | risks related to surface access on our properties; |
| ● | risks related to potential future litigation; |
| ● | risks related to our lack of insurance covering all our operations; |
| ● | risks related to covenants contained in agreements with our secured creditors that may affect our assets; |
| ● | risks related to the extent to which our level of indebtedness may impair our ability to obtain additional financing; |
| ● | risks related to our status as a “passive foreign investment company” under the United States Internal Revenue Code of 1986, as amended; |
| ● | risks related to the Common Shares, including price volatility, lack of dividend payments, dilution, and penny stock rules; and |
| ● | risks related to our debt. |
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties, and other factors, including without limitation those discussed under the heading “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, as well as other factors described elsewhere in this report and the Company’s other reports filed with the Securities and Exchange Commission (“SEC”).
The Company’s forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the beliefs, expectations, and opinions of management as of the date of this report. The Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations, or opinions should change, except as required by law. For the reasons set forth above, investors should not attribute undue certainty to, or place undue reliance on, forward-looking statements.
National Instrument 43-101 Compliance
Scott Honan, M.Sc., SME-RM, a qualified person as defined by National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”), has supervised the preparation of the scientific and technical information that forms the basis for the Elk Creek Project disclosure in this Quarterly Report on Form 10-Q and has approved the disclosure in this Quarterly Report on Form 10-Q related thereto. Mr. Honan is not independent of the Company, as he is the Vice President, Business Development. For additional information on the Elk Creek Project, including information relating to exploration, data verification, the mineral resource estimates and the mineral reserve estimates, see the Revised NI 43-101 Technical Report (the “Revised Elk Creek Feasibility Study”), dated December 15, 2017, which is available under NioCorp’s profile on the Canadian Securities Administrators website at www.sedar.com.
15
Company Overview
NioCorp is developing the Elk Creek Project, located in southeast Nebraska. The Elk Creek Project is an advanced Niobium (Nb)/Scandium (Sc)/Titanium (Ti) exploration project. Niobium is used to produce various superalloys that are extensively used in high performance aircraft and jet turbines. It also is used in High-Strength, Low-Alloy (“HSLA”) steel, a stronger steel used in automotive, bridges, structural systems, buildings, pipelines, and other applications that generally reduces the weight of those applications, which can result in environmental benefits, including reduced fuel consumption and material usage and fewer air emissions. Scandium can be combined with aluminum to make high-performance alloys with increased strength and improved corrosion resistance. Scandium also is a critical component of advanced solid oxide fuel cells, an environmentally preferred technology for high-reliability, distributed electricity generation. Titanium is a component of various superalloys and other applications that are used for aerospace applications, weapons systems, protective armor, medical implants and many others. It also is used in pigments for paper, paint, and plastics.
Our primary business strategy is to advance our Elk Creek Project to commercial production. We are focused on obtaining additional funds to carry out our near-term planned work programs associated with securing the project financing necessary to complete mine development and construction of the Elk Creek Project.
Emerging Growth Company Status
We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1.07 billion in annual gross revenue and did not have such amount as of June 30, 2018, this being the last day of our most recently completed fiscal year.
We may lose our status as an emerging growth company on the last day of our fiscal year during which (i) our annual gross revenue exceeds $1.07 billion or (ii) we issue more than $1.07 billion in non-convertible debt in a three-year period. We will lose our status as an emerging growth company if at any time we are deemed to be a large accelerated filer, as defined in Rule 405 under the Exchange Act. We will lose our status as an emerging growth company on the last day of our fiscal year following the fifth anniversary of the date of our first sale of Common Shares pursuant to an effective registration statement.
As an emerging growth company under the JOBS Act, we have elected to opt out of the extended transition period for complying with new or revised standards pursuant to Section 107(b) of the JOBS Act. The election is irrevocable.
As an emerging growth company, we are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Exchange Act. Such sections are described below:
| ● | Section 404(b) of the Sarbanes-Oxley Act of 2002 requires a public company’s auditor to attest to, and report on, management’s assessment of its internal controls. |
| ● | Sections 14A(a) and (b) of the Exchange Act, implemented by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) Act, require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation. |
As long as we qualify as an emerging growth company, we will not be required to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 and Section 14A (a) and (b) of the Exchange Act.
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Recent Corporate Events
On October 10, 2018, the Company announced that it signed a commercial sales agreement with Traxys North America LLC (“Traxys”) for up to 120 tonnes of scandium trioxide over the first 10 years of operation of the Elk Creek Project. The contract presupposes the Company securing project financing, obtaining all necessary approvals, and constructing a mine and processing facility at Elk Creek. Under the sales agreement, Traxys is obligated to purchase 12 tonnes per year of scandium trioxide for the first 10 years of the Elk Creek Project’s production, subject to satisfaction of certain conditions. That annual amount represents approximately 10 percent of NioCorp’s planned annual production of Scandium. Traxys can purchase more than 12 tonnes per year from NioCorp, and the agreement can be extended beyond the 10-year term, by mutual agreement. Pursuant to the commercial sales agreement, Traxys will focus its scandium sales and marketing efforts on customers in the aerospace and sporting goods sectors, and it retains the exclusive right to sell NioCorp scandium to those sectors. In return, pursuant to the commercial sales agreement, Traxys has agreed to purchase its entire needs of scandium trioxide, scandium alloys, scandium master alloy and other scandium-based products exclusively from NioCorp, including for scandium sales to other sectors, subject to availability of adequate supplies by NioCorp and other conditions. Pursuant to the commercial sales agreement, NioCorp will work with Traxys to promote and market scandium to the aerospace, sporting goods and other industry sectors. NioCorp retains the right to make direct sales of scandium to markets outside of aerospace and sporting goods, as well as direct sales to the U.S. Government.
In September 2018, the Company completed the September 2018 Offering and received aggregate gross proceeds of approximately C$3.13 million. In connection with the September 2018 Offering, the Company issued an aggregate total of 4,975,158 Units at a price of C$0.63 per Unit. Each Unit was comprised of one Common Share of the Company and one half of one Warrant. Each full Warrant entitles the holder to acquire a Common Share of the Company at a price of C$0.75 until September 14 or September 28, 2020.
On July 9, 2018, Lind funded $1,000 pursuant to notice provided by Lind to the Company of its election to advance funding under the Subsequent Convertible Security. In connection with the funding, the Company issued Warrants to Lind, as follows:
| Funding Date | Face
Value1 | Warrants
Issued | Issue
Price2 | Warrant Expiry Date | ||||||||||
| July 9, 2018 | $ | 1,200 | 1,035,319 | C$0.77 | July 9, 2021 | |||||||||
1 Includes implied interest.
2 The price to convert one Warrant into one Common Share.
Elk Creek Project Update
On July 10, 2018, we announced that ongoing work on detailed underground engineering being conducted by the Nordmin Group of Companies (“Nordmin”) shows that the proposed waterline to the Missouri River, as contemplated in the Revised Elk Creek Feasibility Study, is no longer needed. Nordmin’s ongoing design engineering of the underground mine, and recently updated hydrogeological findings, show that significantly less bedrock water may be encountered during mining operations than was estimated in the Revised Elk Creek Feasibility Study. This has allowed removal of the waterline, proposed in the Revised Elk Creek Feasibility Study, from the new mine plan. Removing the proposed waterline will eliminate the Elk Creek Project’s need for Section 404 and Section 408 federal permits from the U.S. Army Corps. of Engineers (the “USACE”).
On August 27, 2018, the Company announced the receipt of a new proposed design for the underground portion of the Elk Creek Project by Nordmin. The new mine design confirms the technical feasibility of several innovative approaches to mining Elk Creek’s critical minerals which, if accepted by NioCorp, could further streamline the process of moving the Elk Creek Project to initial construction. In its mine design, Nordmin’s top-level recommendations to NioCorp include the following:
| ● | Artificial ground freezing is technically feasible for use when the Company sinks the production and ventilation shafts for the mine. Such technology can assist in controlling the inflow of water encountered during shaft sinking operations. The technology may also improve productivity during shaft sinking operations and eliminate the need for substantial dewatering operations prior to the onset of shaft sinking. |
| ● | Bedrock water encountered during mining operations can be handled without the 33-mile waterline to the Missouri River that was included in the Revised Elk Creek Feasibility Study. |
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| ● | NioCorp has already secured a Section 404 permit from the USACE under Nationwide Permit 12 for the Elk Creek Project. Removing plans for a waterline to the Missouri River eliminates the Elk Creek Project’s need for an additional Section 404 permit, as well as a Section 408 permit, from the USACE. The Section 408 permit would have triggered the need for an Environmental Assessment under the National Environmental Policy Act, a process that can take months or more to complete. |
| ● | Additionally, removing the waterline eliminates the need for the Elk Creek Project to secure a National Pollutant Discharge Elimination Permit from the Nebraska Department of Environmental Quality. |
The mine design recommendations submitted to NioCorp by Nordmin are being reviewed and analyzed by NioCorp. If approved, they will then be integrated into the project plan and overall impacts to the economics of the Elk Creek Project can be assessed and, if material, an update to the Revised Elk Creek Feasibility Study will be completed.
In addition to the mine design work completed under the Nordmin Agreement, we continued to advance other Elk Creek Project-related work during the quarter. Primary activities included:
| ● | Continued development of an air construction permit application with the Nebraska Department of Environmental Quality, which we expect to file in calendar 2019; and |
| ● | Continued the competitive process to identify and select engineering, procurement and construction firms for surface development. |
In addition to the underground engineering and permit application work noted above, we expect to undertake the following planned activities to advance the Elk Creek Project through to the construction phase as funds become available through the Company’s fundraising efforts:
| ● | Acquisition of key land parcels currently subject to the Company’s Option to Purchase agreements; |
| ● | Construction of natural gas and electrical infrastructure under existing agreements to serve the project site; |
| ● | Initiation and completion of detailed engineering for surface project facilities; |
| ● | Negotiation and completion of engineering, procurement and construction agreements; |
| ● | Initiation of mine groundwater control activities; and |
| ● | Initiation
of long-lead equipment procurement activities. |
18
Financial and Operating Results
The Company continues to expense all expenditures when incurred, except for equipment, which is capitalized. The Company has no revenues from mining operations. Operating expenses incurred related primarily to performing exploration activities, as well as the activities necessary to support corporate and shareholder duties and are detailed in the following table.
For the three months ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Operating expenses: | ||||||||
| Employee-related costs | $ | 312 | $ | 772 | ||||
| Professional fees | 51 | 275 | ||||||
| Exploration expenditures | 777 | 713 | ||||||
| Other operating expenses | 118 | 172 | ||||||
| Total operating expenses | 1,258 | 1,932 | ||||||
| Change in financial instrument fair value | 493 | 23 | ||||||
| Foreign exchange gain | (118 | ) | (237 | ) | ||||
| Interest expense | 99 | 84 | ||||||
| (Gain) loss on available for sale securities | (1 | ) | 11 | |||||
| Income tax expense | — | — | ||||||
| Net Loss | $ | 1,731 | $ | 1,813 | ||||
Three months ended September 30, 2018 compared to three months ended September 30, 2017
Significant items affecting operating expenses are noted below:
Employee related costs decreased due to decreased share-based compensation costs reflecting the timing of Option issuances and the corresponding vesting periods, as well as the number of Options granted and associated fair value calculations.
Professional fees include legal and accounting services. Overall, these fees decreased, reflecting the timing of legal fees associated with SEC filings and ongoing compliance efforts.
Other operating expenses include investor relations, general office expenditures, equity offering and proxy expenditures and other miscellaneous costs. These costs decreased primarily due to the timing of Option issuances and the corresponding vesting periods, and the number of Options granted and associated fair value calculations for Board members, as well as the timing of financial services.
Other significant items impacting the change in the Company’s net loss are noted below:
Change in financial instrument fair value represents non-cash changes in the market value of the Convertible Securities, which are carried at fair value, as well as changes in the market value of the derivative liability component of the Company’s outstanding convertible promissory notes, and the fair market value of Warrants issued in connection with the funding of the Original Convertible Security and the Subsequent Convertible Security. The 2018 loss includes the value of Warrants issued to Lind in connection with the funding of the Subsequent Convertible Security, as well as recognition of prepaid interest incurred on funding.
Foreign exchange (gain) loss is primarily due to changes in the United States dollar (“USD”) against the Canadian dollar (“C$”) and reflects the timing of foreign currency transactions and subsequent changes in exchange rates. The impact in 2018 primarily relates to changing foreign currency rates as applied to the USD-denominated convertible debt instruments and related-party debt, which are recorded on the Canadian parent company books in C$.
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Liquidity and Capital Resources
We have no revenue generating operations from which we can internally generate funds. To date, our ongoing operations have been financed by the sale of our equity securities by way of private placements, convertible securities issuances, and the exercise of incentive stock options and share purchase warrants. We believe that we will be able to secure additional private placement financings in the future, although we cannot predict the size or pricing of any such financings. In addition, we may raise funds through the sale of interests in our mineral properties, although current market conditions have substantially reduced the number of potential buyers/acquirers of any such interests.
As of September 30, 2018, the Company had cash of $2.0 million and a working capital deficit of $0.5 million, compared to cash of $0.1 million and working capital deficit of $3.4 million on June 30, 2018. This change in working capital is the result of cash inflows from financing initiatives and the continued conversion of the Original Convertible Security.
We expect that the Company will operate at a loss for the foreseeable future. The Company’s current planned operational needs are approximately $3.8 million until June 30, 2019. In addition to outstanding accounts payable and short-term liabilities, our average monthly expenditures are approximately $430 per month where approximately $270 is for corporate overhead and estimated costs related to securing financing necessary for advancement of the Elk Creek Project. Approximately $160 per month is planned for expenditures relating to the advancement of Elk Creek Project by NioCorp’s wholly-owned subsidiary, Elk Creek Resources Corp. The Company’s ability to continue operations and fund our current work plan is dependent on management’s ability to secure additional financing.
The Company anticipates that it may need to raise $4.5 million - $5.0 million to continue planned operations for the next twelve months focused on financing and detailed engineering efforts related to the Elk Creek Project. Management is actively pursuing such additional sources of debt and equity financing, and while it has been successful in doing so in the past, there can be no assurance it will be able to do so in the future.
Elk Creek property lease commitments are $30 until June 30, 2019. To maintain its currently held properties and fund its currently anticipated general and administrative costs and planned exploration and development activities at the Elk Creek Project for the fiscal year ending June 30, 2019, the Company will likely require additional financing during the current fiscal year. Should such financing not be available in that time-frame, we will be required to reduce our activities and will not be able to carry out all our presently planned activities at the Elk Creek Project.
We currently have no further funding commitments or arrangements for additional financing at this time (other than the potential exercise of Options and Warrants) and there is no assurance that we will be able to obtain additional financing on acceptable terms, if at all. There is significant uncertainty that we will be able to secure any additional financing in the current equity or debt markets. The quantity of funds to be raised and the terms of any proposed equity or debt financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. management intends to pursue funding sources of both debt and equity financing, including but not limited to the issuance of equity securities in the form of Common Shares, Warrants, subscription receipts, or any combination thereof in units of the Company pursuant to private placements to accredited investors or pursuant to equity lines of credit or public offerings in the form of underwritten/brokered offerings, at-the-market offerings, registered direct offerings, or other forms of equity financing and public or private issuances of debt securities including secured and unsecured convertible debt instruments or secured debt project financing. Management does not currently know the terms pursuant to which such financings may be completed in the future, but any such financings will be negotiated at arm’s-length. Future financings involving the issuance of equity securities or derivatives thereof will likely be completed at a discount to the then-current market price of the Company’s securities and will likely be dilutive to current shareholders.
The audit opinion and notes that accompany our financial statements for the year ended June 30, 2018 disclose a “going concern” qualification and disclosures to our ability to continue in business. The financial statements included in this Quarterly Report on Form 10-Q have been prepared under the assumption that we will continue as a going concern. We are an exploration stage company and we have incurred losses since our inception. We do not have sufficient cash to fund normal operations and meet debt obligations for the next twelve months without deferring payment on certain current liabilities and raising additional funds. We believe that the going concern condition cannot be removed with confidence until the Company has entered into a business climate where funding of its planned ongoing operating activities is secured.
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We have no exposure to any asset-backed commercial paper. Other than cash held by our subsidiaries for their immediate operating needs in Colorado and Nebraska, all of our cash reserves are on deposit with major United States and Canadian chartered banks. We do not believe that the credit, liquidity, or market risks with respect thereto have increased as a result of the current market conditions. However, in order to achieve greater security for the preservation of our capital, we have, of necessity, been required to accept lower rates of interest, which has also lowered our potential interest income.
Operating Activities
During the three months ended September 30, 2018, the Company’s operating activities consumed $1.4 million of cash (2017: $1.8 million). The cash used in operating activities for 2018 reflects the Company’s funding of losses of $1.7 million, partially offset by share-based compensation charges and other non-cash transactions. Overall, 2018 operational outflows declined from 2017 due to a reduction in professional fees incurred, as well as changes in accounts payable and accrued liabilities. Going forward, the Company’s working capital requirements are expected to increase substantially in connection the development of the Elk Creek Project.
Financing Activities
Financing inflows were $3.3 million during the three months ended September 30, 2018 as compared to $1.6 million during the corresponding period in 2017, primarily reflecting the timing of private placement issuances and convertible debt instrument issuances initiated during the comparative periods.
Cash Flow Considerations
The Company has historically relied upon equity financings and, to a lesser degree, debt financings, to satisfy its capital requirements and will continue to depend heavily upon equity capital to finance its activities. The Company may pursue debt financing in the medium term if it is able to procure such financing on terms more favorable than available equity financing; however, there can be no assurance the Company will be able to obtain any required financing in the future on acceptable terms.
The Company has limited financial resources compared to its proposed expenditures, no source of operating income, and no assurance that additional funding will be available to it for current or future projects, although the Company has been successful in the past in financing its activities through the sale of equity securities.
The ability of the Company to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions and its success in developing the Elk Creek Project. Any quoted market for the Common Shares may be subject to market trends generally, notwithstanding any potential success of the Company in creating revenue, cash flows, or earnings, and any depression of the trading price of the Common Shares could impact its ability to obtain equity financing on acceptable terms.
Historically, the Company has used net proceeds from issuances of Common Shares to provide sufficient funds to meet its near-term exploration and development plans and other contractual obligations when due. However, further development and construction of the Elk Creek Project will require substantial additional capital resources. This includes near-term funding and, ultimately, funding for Elk Creek Project construction and other costs. See “Liquidity and Capital Resources” above for the Company’s discussion of arrangements related to possible future financings.
Contractual Obligations
There have been no material changes to our contractual obligations discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Tabular Disclosure of Contractual Obligations” as of June 30, 2018, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
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Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements.
Critical Accounting Policies
There have been no material changes in our critical accounting policies discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Critical Accounting Policies” as of June 30, 2018, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
Certain U.S. Federal Income Tax Considerations
The Company has been a “passive foreign investment company” (“PFIC”) as defined under Section 1297 of the U.S. Internal Revenue Code of 1986, as amended, in recent years and expects to continue to be a PFIC in the future. Current and prospective United States shareholders should consult their tax advisors as to the tax consequences of PFIC classification and the U.S. federal tax treatment of PFICs. Additional information on this matter is included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018, under the heading “Risks Related to the Common Shares.”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
The Company’s exposure to changes in market interest rates, relates primarily to the Company’s earned interest income on cash deposits and short-term investments. The Company maintains a balance between the liquidity of cash assets and the interest rate return thereon. The carrying amount of financial assets, net of any provisions for losses, represents the Company’s maximum exposure to credit risk.
Foreign currency exchange risk
The company incurs expenditures in both USD and C$. Canadian dollar expenditures are primarily related to certain Common Share-related costs and corporate professional services. As a result, currency exchange fluctuations may impact the costs of our operating activities. To reduce this risk, we maintain sufficient cash balances in C$ to fund expected near-term expenditures.
Commodity price risk
The Company is exposed to commodity price risk related to the elements associated with the Elk Creek Project. A significant decrease in the global demand for these elements may have a material adverse effect on our business. The Elk Creek Project is not in production, and the Company does not currently hold any commodity derivative positions.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, an evaluation was carried out under the supervision of and with the participation of our management, including the CEO and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation, the CEO and the CFO have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including the CEO and the CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
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Management does not expect that our disclosure controls and procedures will prevent all error and all fraud. The effectiveness of our or any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that the objectives of the system will be met and is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating controls and procedures and the assumptions used in identifying the likelihood of future events.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
We know of no material, active, or pending legal proceedings against the Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers, or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
There have been no changes to the risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose specified information about mine health and safety in their periodic reports. These reporting requirements are based on the safety and health requirements applicable to mines under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) which is administered by the U.S. Department of Labor’s Mine Safety and Health Administration (“MSHA”). During the three-month period ended September 30, 2018, the Company and its subsidiaries and their properties or operations were not subject to regulation by MSHA under the Mine Act and thus no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
None.
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| (1) | Previously filed as an exhibit to the Company’s Draft Registration Statement on Form S-1 (Registration No. 377-01354) submitted to the SEC on July 26, 2016 and incorporated herein by reference. |
| (2) | Previously filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 000-55710) filed with the SEC on September 18, 2018 and incorporated herein by reference. |
| (3) | Submitted Electronically Herewith. Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Interim Consolidated Balance Sheets as of September 30, 2018 and June 30, 2018, (ii) the Condensed Interim Consolidated Statements of Operations and Comprehensive Loss for the Three Months ended September 30, 2018 and 2017, (iii) the Condensed Interim Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2018 and 2017, (iv) the Condensed Interim Consolidated Statements of Shareholders’ Equity for the Three Months Ended September 30, 2018 and the Year Ended June 30, 2018 and (v) the Notes to the Condensed Interim Consolidated Financial Statements. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NIOCORP DEVELOPMENTS LTD.
(Registrant)
| By: | /s/ Mark A. Smith | |
| Mark A. Smith | ||
| President, Chief Executive Officer and Executive Chairman | ||
| (Principal Executive Officer) | ||
| Date: November 8, 2018 | ||
| By: | /s/ Neal Shah | |
| Neal Shah | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| Date: November 8, 2018 | ||
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