ITEM
1. FINANCIAL STATEMENTS
Contents
NioCorp
Developments Ltd.
Condensed
Consolidated Balance Sheets
(expressed in thousands of U.S.
dollars, except share data) (unaudited)
|
|
|
|
|
As of
|
|
|
|
Note
|
|
|
December 31,
2017
|
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|
June 30,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$
|
80
|
|
|
$
|
238
|
|
Restricted cash
|
|
4
|
|
|
|
—
|
|
|
|
265
|
|
Prepaid expenses and other
|
|
|
|
|
|
4
|
|
|
|
152
|
|
Other current assets
|
|
5
|
|
|
|
422
|
|
|
|
—
|
|
Total current assets
|
|
|
|
|
|
506
|
|
|
|
655
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
36
|
|
|
|
51
|
|
Available for sale securities at fair value
|
|
|
|
|
|
17
|
|
|
|
23
|
|
Equipment
|
|
|
|
|
|
2
|
|
|
|
5
|
|
Mineral interests
|
|
|
|
|
|
10,617
|
|
|
|
10,617
|
|
Total assets
|
|
|
|
|
$
|
11,178
|
|
|
$
|
11,351
|
|
|
|
|
|
|
|
|
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LIABILITIES
|
|
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|
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Current
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
$
|
2,772
|
|
|
$
|
3,146
|
|
Related party loans
|
|
8
|
|
|
|
1,355
|
|
|
|
1,175
|
|
Convertible debt, current portion
|
|
6
|
|
|
|
667
|
|
|
|
2,161
|
|
Derivative liability, convertible debt
|
|
|
|
|
|
82
|
|
|
|
—
|
|
Total current liabilities
|
|
|
|
|
|
4,876
|
|
|
|
6,482
|
|
Convertible debt, net of current portion
|
|
6
|
|
|
|
1,609
|
|
|
|
1,896
|
|
Derivative liability, convertible debt
|
|
6
|
|
|
|
—
|
|
|
|
82
|
|
Total liabilities
|
|
|
|
|
|
6,485
|
|
|
|
8,460
|
|
SHAREHOLDERS’ EQUITY
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Common stock, unlimited shares authorized; shares outstanding: 208,861,265 and 198,776,337, respectively
|
|
7
|
|
|
|
72,583
|
|
|
|
68,029
|
|
Additional paid-in capital
|
|
|
|
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|
11,599
|
|
|
|
10,320
|
|
Accumulated deficit
|
|
|
|
|
|
(78,625
|
)
|
|
|
(74,852
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
(864
|
)
|
|
|
(606
|
)
|
Total equity
|
|
|
|
|
|
4,693
|
|
|
|
2,891
|
|
Total liabilities and equity
|
|
|
|
|
$
|
11,178
|
|
|
$
|
11,351
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
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)
|
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|
For the three months ended
December 31,
|
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|
For the six months ended
December 31,
|
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|
|
Note
|
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|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Employee related costs
|
|
|
|
|
$
|
751
|
|
|
$
|
459
|
|
|
$
|
1,399
|
|
|
$
|
962
|
|
Professional fees
|
|
|
|
|
|
118
|
|
|
|
279
|
|
|
|
393
|
|
|
|
612
|
|
Exploration expenditures
|
|
9
|
|
|
|
303
|
|
|
|
2,397
|
|
|
|
1,016
|
|
|
|
4,367
|
|
Other operating expenses
|
|
|
|
|
|
391
|
|
|
|
215
|
|
|
|
687
|
|
|
|
389
|
|
Total operating expenses
|
|
|
|
|
|
1,563
|
|
|
|
3,350
|
|
|
|
3,495
|
|
|
|
6,330
|
|
Change in financial instrument fair value
|
|
6
|
|
|
|
274
|
|
|
|
(39
|
)
|
|
|
297
|
|
|
|
(335
|
)
|
Foreign exchange loss (gain)
|
|
|
|
|
|
36
|
|
|
|
160
|
|
|
|
(201
|
)
|
|
|
193
|
|
Interest expense
|
|
|
|
|
|
91
|
|
|
|
71
|
|
|
|
175
|
|
|
|
140
|
|
(Loss) gain on available for sale securities
|
|
|
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
7
|
|
|
|
(6
|
)
|
Loss before income taxes
|
|
|
|
|
|
1,960
|
|
|
|
3,547
|
|
|
|
3,773
|
|
|
|
6,322
|
|
Income tax benefit
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
|
|
$
|
1,960
|
|
|
$
|
3,547
|
|
|
$
|
3,773
|
|
|
$
|
6,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
$
|
1,960
|
|
|
$
|
3,547
|
|
|
$
|
3,773
|
|
|
$
|
6,322
|
|
Other comprehensive (gain) loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting currency translation
|
|
|
|
|
|
(27
|
)
|
|
|
(165
|
)
|
|
|
258
|
|
|
|
(231
|
)
|
Total comprehensive loss
|
|
|
|
|
$
|
1,933
|
|
|
$
|
3,382
|
|
|
$
|
4,031
|
|
|
$
|
6,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share, basic
|
|
|
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average common shares outstanding
|
|
|
|
|
|
206,000,263
|
|
|
|
183,625,989
|
|
|
|
204,027,181
|
|
|
|
182,078,028
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
NioCorp
Developments Ltd.
Condensed
Consolidated Statements of Cash Flows
(expressed
in thousands of U.S. dollars) (unaudited)
|
|
For the six months
ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Total loss for the period
|
|
$
|
(3,773
|
)
|
|
$
|
(6,322
|
)
|
Non-cash elements included in net loss:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3
|
|
|
|
4
|
|
Change in financial instrument fair value
|
|
|
297
|
|
|
|
(335
|
)
|
Unrealized gain (loss) on available-for-sale investments
|
|
|
7
|
|
|
|
(6
|
)
|
Accretion of convertible debt
|
|
|
75
|
|
|
|
54
|
|
Foreign exchange (gain) loss
|
|
|
(197
|
)
|
|
|
228
|
|
Share-based compensation
|
|
|
1,113
|
|
|
|
394
|
|
|
|
|
(2,475
|
)
|
|
|
(5,983
|
)
|
Change in working capital items:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
7
|
|
|
|
—
|
|
Prepaid expenses
|
|
|
144
|
|
|
|
68
|
|
Accounts payable and accrued liabilities
|
|
|
(242
|
)
|
|
|
842
|
|
Net cash used in operating activities
|
|
|
(2,566
|
)
|
|
|
(5,073
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,545
|
|
|
|
1,675
|
|
Share issue costs
|
|
|
(189
|
)
|
|
|
|
|
Issuance of convertible debt
|
|
|
1,000
|
|
|
|
|
|
Related party debt drawdown
|
|
|
180
|
|
|
|
|
|
Other current assets
|
|
|
(422
|
)
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,114
|
|
|
|
1,675
|
|
Exchange rate effect on cash, cash equivalents and restricted cash
|
|
|
14
|
|
|
|
(20
|
)
|
Change in cash, cash equivalents and restricted cash during period
|
|
|
(423
|
)
|
|
|
(3,418
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
503
|
|
|
|
4,412
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
80
|
|
|
$
|
994
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Amounts paid for interest
|
|
$
|
32
|
|
|
$
|
32
|
|
Amounts paid for income taxes
|
|
|
|
|
|
|
|
|
Non-cash financing transactions
|
|
|
|
|
|
|
|
|
Lind conversions
|
|
|
3,030
|
|
|
|
983
|
|
Debt to equity conversion
|
|
|
207
|
|
|
|
—
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2016
|
|
|
180,467,990
|
|
|
$
|
58,401
|
|
|
$
|
8,630
|
|
|
$
|
(60,222
|
)
|
|
$
|
(615
|
)
|
|
$
|
6,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
3,447,137
|
|
|
|
1,675
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,675
|
|
Exercise of options
|
|
|
150,000
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
Fair value of broker warrants granted
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
Fair value of Lind warrants granted
|
|
|
—
|
|
|
|
—
|
|
|
|
233
|
|
|
|
—
|
|
|
|
—
|
|
|
|
233
|
|
Private placements - February 2017
|
|
|
7,364,789
|
|
|
|
3,927
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,927
|
|
Debt conversions
|
|
|
7,346,421
|
|
|
|
4,103
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,103
|
|
Share issuance costs
|
|
|
—
|
|
|
|
(181
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(181
|
)
|
Fair value of stock options exercised
|
|
|
—
|
|
|
|
34
|
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share-based payments
|
|
|
—
|
|
|
|
—
|
|
|
|
1,471
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,471
|
|
Reporting currency presentation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
9
|
|
Loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,630
|
)
|
|
|
—
|
|
|
|
(14,630
|
)
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
127
|
|
|
|
—
|
|
|
|
—
|
|
|
|
127
|
|
Private placements - July 2017
|
|
|
2,962,500
|
|
|
|
1,540
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,540
|
|
Private placement – September 2017
|
|
|
415,747
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
|
|
Debt conversions
|
|
|
6,696,590
|
|
|
|
3,030
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,030
|
|
Share issuance costs
|
|
|
—
|
|
|
|
(230
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(230
|
)
|
Fair value of stock options exercised
|
|
|
—
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Share-based payments
|
|
|
—
|
|
|
|
—
|
|
|
|
1,113
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,113
|
|
Reporting currency presentation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(258
|
)
|
|
|
(258
|
)
|
Loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,773
|
)
|
|
|
—
|
|
|
|
(3,773
|
)
|
Balance, December 31, 2017
|
|
|
208,861,265
|
|
|
$
|
72,583
|
|
|
$
|
11,599
|
|
|
$
|
(78,625
|
)
|
|
$
|
(864
|
)
|
|
$
|
4,693
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless 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.
|
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, 2017.
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 December 31, 2017, 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, 2017. The interim results are not necessarily
indicative of results for the full year ending June 30, 2018, or future operating periods.
|
b)
|
Recent
Accounting Standards
|
Issued
and Adopted
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require, among other things, that
all income tax effects of awards be recognized in the income statement when the awards vest or are settled. The ASU also allows
for an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering
liability accounting, and it allows for a policy election to account for forfeitures as they occur. The amendments in this ASU
are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted
this guidance during the quarter ended September 30, 2017. The adoption of this ASU had no material impacts on our financial statement
results or disclosures.
Issued
and Not Effective
From
time to time, new accounting pronouncements are issued by the 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.
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless 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
February 2016, the FASB issued ASU 2016-02, Leases. The standard requires that a lessee recognize on the balance sheet assets
and liabilities for leases with lease terms of more than twelve months. The recognition, measurement, and presentation of expenses
and cash flows arising from a lease have not significantly changed from the previous US GAAP. The standard is effective for fiscal
years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. The
Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results
of operations, and liquidity.
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.
Certain
prior year amounts have been reclassified to conform to fiscal 2018 presentation and these reclassifications had no effect on
the reported results of operations or net equity as previously disclosed.
The
Company incurred a loss of $3,773 for the six months ended December 31, 2017 (2016 - $6,322), and had a working capital deficit
and an accumulated deficit of $4,370 and $78,625, respectively, as of December 31, 2017. 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.
Restricted
cash represents amounts held in escrow to secure payment of work related to the Company’s Elk Creek Feasibility Study. Under
the terms of the escrow agreement, the balance of $265 was drawn against outstanding accounts payable during the quarter ended
September 30, 2017.
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless otherwise stated) (unaudited)
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.
|
|
As of
|
|
|
|
December 31, 2017
|
|
|
June 30, 2017
|
|
Convertible debt, current portion
|
|
$
|
667
|
|
|
$
|
2,161
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
$
|
—
|
|
|
$
|
592
|
|
Convertible security
|
|
|
1,609
|
|
|
|
1,304
|
|
|
|
$
|
1,609
|
|
|
$
|
1,896
|
|
Convertible
Security Funding
Changes
in the Lind Partners Asset Management IV, LLC (“Lind”) convertible security (the “Convertible Security”)
balance are comprised of the following:
|
|
Convertible Security
|
|
Balance, June 30, 2017
|
|
$
|
3,465
|
|
Additional debt drawdown
|
|
|
1,000
|
|
Conversions, at fair value
|
|
|
(3,030
|
)
|
Change in fair market value
|
|
|
174
|
|
Balance, December 31, 2017
|
|
$
|
1,609
|
|
On
August 10, 2017, Lind provided notice to the Company of its election to advance an additional $1.0 million in funding (the “Initial
Convertible Security Increase”) under the convertible security (the ‘Initial Convertible Security”) pursuant
to its right under the Convertible Security Funding Agreement, dated December 14, 2015, between the Company and Lind (the “Lind
Agreement”). As a result, upon payment of the additional $1,000 in funding by Lind to the Company, the face value of the
Initial Convertible Security was increased by $1,200 ($1,000 in additional funding plus implied interest), and the Company issued
Warrants to Lind, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Black Scholes pricing model inputs
|
Funding Date
|
|
Face Value
1
|
|
|
Warrants Issued
2
|
|
|
Issue Price
3
|
|
|
Warrant Expiry Date
|
|
Risk-free rate
|
|
|
Yield
|
|
|
Volatility
|
|
|
Expected Life
|
August 15, 2017
|
|
$
|
300
|
|
|
|
260,483
|
|
|
|
C$0.73
|
|
|
August 15, 2020
|
|
|
1.23
|
%
|
|
|
0
|
%
|
|
|
49.6
|
%
|
|
3 years
|
September 28, 2017
|
|
|
300
|
|
|
|
283,413
|
|
|
|
C$0.66
|
|
|
September 28, 2020
|
|
|
1.23
|
%
|
|
|
0
|
%
|
|
|
47.7
|
%
|
|
3 years
|
October 31, 2017
|
|
|
300
|
|
|
|
308,901
|
|
|
|
C$0.62
|
|
|
October 31, 2020
|
|
|
1.59
|
%
|
|
|
0
|
%
|
|
|
47.0
|
%
|
|
3 years
|
December 6, 2017
|
|
|
300
|
|
|
|
355,132
|
|
|
|
C$0.54
|
|
|
December 6, 2020
|
|
|
1.59
|
%
|
|
|
0
|
%
|
|
|
48.9
|
%
|
|
3 years
|
Total
|
|
$
|
1,200
|
|
|
|
1,207,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Includes
implied interest.
|
|
2
|
The
value of warrants issued totaled $127, which was expensed to Change in Financial Instrument Fair Value. .
|
|
3
|
The
price to convert one warrant into one Common Share.
|
The
Initial Convertible Security is convertible into Common Shares of the Company (Common Shares”) at a conversion price equal
to 85% of the volume weighted average trading price (“Volume Weighted Average Price”) of the Common Shares (in Canadian
dollars) on the Toronto Stock Exchange (the “TSX”) 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 Initial Convertible Security
from time to time. During the six-month period ended December 31, 2017, $2,425 principal amount of the Initial Convertible Security
was converted into 6,696,590 Common Shares.
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless otherwise stated) (unaudited)
The
Convertible Security 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 December 31, 2017.
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, 2017
|
|
$
|
592
|
|
Accreted interest, net of interest paid
|
|
|
75
|
|
Balance, December 31, 2017
|
|
$
|
667
|
|
The
changes in the derivative liability related to the conversion feature of the Convertible Notes are as follows:
|
|
Derivative Liability
|
|
Balance, June 30, 2017
|
|
$
|
82
|
|
Change in fair value of derivative liability
|
|
|
(—
|
)
|
Balance, December 31, 2017
|
|
$
|
82
|
|
On
July 26, 2017, the Company closed a brokered private placement (the “July 2017 Private Placement”) of units (the “Units”)
of the Company. Under the July 2017 Private Placement, a total of 2,962,500 Units were issued at C$0.65 per Unit, for total gross
proceeds to the Company of approximately C$1,926. Each Unit issued pursuant to the July 2017 Private Placement consists of one
Common Share and one warrant of the Company (“Warrant”). Each Warrant entitles the holder thereof to purchase one
additional Common Share at a price of C$0.79 until July 26, 2021.
The
July 2017 Private Placement was brokered by Mackie Research Capital Corporation (the “Agent”). The Company paid the
Agent an aggregate cash commission of approximately C$125, equal to six and a half per cent (6.5%) of the gross proceeds raised
under the July 2017 Private Placement. The Company also issued to the Agent 192,562 broker warrants (the “Broker Warrants”),
equal to six and a half per cent (6.5%) of the Units sold pursuant to the July 2017 Private Placement. Each Broker Warrant entitles
the holder thereof to purchase one Common Share at a price of C$0.79 until July 26, 2021. The fair value of the Broker Warrants
of $41 was estimated based on the Black Scholes pricing model using a risk-free interest rate of 1.32%, an expected dividend yield
of 0%, a volatility of 60.3%, and an expected life of four years. Total cash issue costs including agents’ commission, legal
and other fees was $189.
Proceeds
of the July 2017 Private Placement were used for general working capital purposes and to continue to advance the Company’s
Elk Creek Project.
On
September 5, 2017, the Company entered into a shares-for-debt agreement with Northcott Capital Limited (“Northcott”)
whereby NioCorp issued 415,747 Common Shares to settle a debt of C$253,606 owed to Northcott for past and prospective services
through December 2017. Northcott manages NioCorp’s current effort to assemble a debt financing package as part of the Company’s
overall Elk Creek Project financing effort. The shares issued to Northcott were priced at C$0.61 per share, which represents a
10% premium over the five-day Volume Weighted Average Price of the Common Shares of C$0.5571 as of the date of the agreement.
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless otherwise stated) (unaudited)
On
November 9, 2017, the Company’s shareholders voted to approve a new Long-Term Incentive Plan (the “Long-Term Incentive
Plan”) and the granting of incentive securities thereunder until November 9, 2020. Under the Long-Term Incentive Plan, the
Company’s Board of Directors (the “Board”) may, in its discretion from time to time, grant Options and share
units (in the form of RSUs and PSUs) to directors, employees and certain other service providers (as defined in the Long-Term
Incentive Plan) of the Company and affiliated entities selected by the Board.
Subject
to adjustment as described in the Long-Term Incentive Plan, the aggregate number of Common Shares that may be reserved for issuance
to participants under the Long-Term Incentive Plan, together with all other security -based compensation arrangements of the Company,
including with respect to Options outstanding under the Company’s 2016 Incentive Stock Option Plan, may not exceed 10% of
the issued and outstanding Common Shares from time to time, and the Common Shares reserved for issuance upon settlement of share
units shall not exceed 5% of the issued and outstanding Common Shares from time to time. The Long-Term Incentive Plan limits the
maximum number of Common Shares issued to insiders (as defined under TSX rules for this purpose) within any one-year period, or
issuable to insiders at any time, in the aggregate, under all security -based compensation arrangements (including the Long-Term
Incentive Plan) to 10% of the then issued and outstanding Common Shares. The Long-Term Incentive Plan also limits the aggregate
number of Common Shares that may be reserved for issuance to any one participant under the Long-Term Incentive Plan, together
with all other security -based compensation arrangements of the Company, to 5% of the then issued and outstanding Common Shares
(on a non-diluted basis). Under the Long-Term Incentive Plan, Options and share units granted to non-employee directors, together
with all other equity awards, are limited to an annual equity award value of C$150 per non-employee director. The total value
of Options issuable to a non-employee director in a one-year period is limited to C$100. Further, and subject to the adjustment
provisions of the Long-Term Incentive Plan, the aggregate number of Common Shares actually issued or transferred by the Company
upon the exercise of incentive stock options will not exceed 20,451,895 Common Shares.
The
Board has the exclusive power over the granting, amendment, administration or settlement of any award.
Stock
option transactions are summarized as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price (C$)
|
|
Balance, June 30, 2017
|
|
|
16,605,000
|
|
|
$
|
0.73
|
|
Issued
|
|
|
3,925,000
|
|
|
|
0.47
|
|
Exercised
|
|
|
(10,091
|
)
|
|
|
0.62
|
|
Cancelled/expired
|
|
|
(4,470,000
|
)
|
|
|
0.75
|
|
Balance, December 31, 2017
|
|
|
16,049,909
|
|
|
$
|
0.66
|
|
The
following table summarizes information about stock options outstanding at December 31, 2017:
Exercise price (C$)
|
|
|
Expiry date
|
|
Number outstanding
|
|
|
Aggregate Intrinsic Value (C$000s)
|
|
|
Number exercisable
|
|
|
Aggregate Intrinsic Value (C$000s)
|
|
$
|
0.47
|
|
|
November 9, 2022
|
|
|
3,925,000
|
|
|
$
|
1,060
|
|
|
|
3,925,000
|
|
|
$
|
1,060
|
|
$
|
0.62
|
|
|
January 19, 2021
|
|
|
5,264,909
|
|
|
|
632
|
|
|
|
5,264,909
|
|
|
|
632
|
|
$
|
0.76
|
|
|
March 6, 2022
|
|
|
5,650,000
|
|
|
|
—
|
|
|
|
2,825,000
|
|
|
|
—
|
|
$
|
0.94
|
|
|
April 28, 2018
|
|
|
400,000
|
|
|
|
—
|
|
|
|
400,000
|
|
|
|
—
|
|
$
|
0.94
|
|
|
April 28, 2019
|
|
|
100,000
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
$
|
0.94
|
|
|
July 21, 2021
|
|
|
710,000
|
|
|
|
—
|
|
|
|
532,500
|
|
|
|
—
|
|
|
Balance December 31, 2017
|
|
|
16,049,909
|
|
|
$
|
1,692
|
|
|
|
13,047,409
|
|
|
$
|
1,692
|
|
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless otherwise stated) (unaudited)
The
aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing Common
Share price of C$0.74 as of December 31, 2017, 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 December 31, 2017 was 9,189,909.
The total intrinsic value of options exercised during the six months ended December 31, 2017 was nil.
As
of December 31, 2017, there was $247 of unrecognized compensation cost related to unvested share-based compensation arrangements
granted under the 2016 Incentive Stock Option Plan. The cost is expected to be recognized over a remaining weighted average period
of approximately 0.7 years.
Warrant
transactions are summarized as follows:
|
|
Warrants
|
|
|
Weighted average exercise price (C$)
|
|
Balance June 30, 2017
|
|
|
20,609,086
|
|
|
$
|
0.79
|
|
Granted
|
|
|
4,362,991
|
|
|
|
0. 75
|
|
Balance, December 31, 2017
|
|
|
24,972,077
|
|
|
$
|
0. 78
|
|
As
discussed above under Note 6, the Company granted 1,207,929 Warrants to Lind in connection with the funding of the Convertible
Security Increase. As discussed above under Note 7a, the Company granted 2,962,500 Warrants and 192,562 Broker Warrants in conjunction
with the July 2017 Private Placement.
At
December 31, 2017, 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
|
|
3,125,000
|
|
|
|
0.72
|
|
|
December 22, 2018
|
|
260,483
|
|
|
|
0.73
|
|
|
August 15, 2020
|
|
9,150,285
|
|
|
|
0.75
|
|
|
January 19, 2019
|
|
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
|
|
24,972,077
|
|
|
|
|
|
|
|
|
8.
|
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, and is due
on June 17, 2018.
NioCorp
Developments Ltd.
Notes
to the Condensed Consolidated Financial Statements
December
31, 2017
(expressed
in thousands of U.S. dollars, unless otherwise stated) (unaudited)
The
Company 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
and is due on June 16, 2018. During the quarter ended December 31, 2017, Mr. Smith advanced an additional $180 to the Company
under the Credit Facility. As of December 31, 2017, the principal amount outstanding under the Credit Facility is $355 and accounts
payable and accrued liabilities included interest payable and loan establishment fees payable to Mr. Smith of $176.
On
June 20, 2016, the Company announced a joint development agreement (the “Development Agreement”) with IBC Advanced
Alloys Corp. (“IBC”) to investigate and develop applications for scandium-containing alloys for multiple downstream
markets. In addition to his management duties at NioCorp, Mark Smith is also the Chairman of the IBC Board of Directors. Under
the terms of the Development Agreement, each party bears its own costs incurred in development efforts. During the quarter ended
December 31, 2017 the company supplied IBC with a small quantity of Scandium Trioxide which was used to manufacture several aluminum-scandium
alloy ingots. The ingots, representing a range of scandium content, will undergo chemical analysis and other metallurgical testing
to confirm the microstructure and performance of the alloys.
|
9.
|
Exploration
Expenditures
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Technical studies and engineering
|
|
$
|
59
|
|
|
$
|
1,551
|
|
|
$
|
454
|
|
|
$
|
1,988
|
|
Field management and other
|
|
|
132
|
|
|
|
399
|
|
|
|
342
|
|
|
|
633
|
|
Metallurgical development
|
|
|
89
|
|
|
|
419
|
|
|
|
172
|
|
|
|
1,691
|
|
Geologists and field staff
|
|
|
23
|
|
|
|
28
|
|
|
|
48
|
|
|
|
55
|
|
Total
|
|
$
|
303
|
|
|
$
|
2,397
|
|
|
$
|
1,016
|
|
|
$
|
4,367
|
|
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Act”), which took effect on January
1, 2018. Some notable provisions of the Act include a reduction of the corporate income tax rate from 35% to 21%, 100% bonus depreciation
for certain capital expenditures, and a change from a worldwide system with deferral to a territorial tax system, which includes
a one-time toll charge on certain undistributed earnings of non-U.S. subsidiaries. The Company does not expect any material impacts
of this new legislation on its consolidated financial statements.
|
11.
|
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.
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
December 31, 2017
|
(expressed in thousands of U.S. dollars, unless otherwise stated)
(unaudited)
|
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 table presents information about the assets and liabilities that are measured at fair value on a recurring basis as
of December 31, 2017 and June 30, 2017, and indicates 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 December 31, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80
|
|
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Available-for-sale securities
|
|
|
17
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
97
|
|
|
$
|
97
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
$
|
1,609
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,609
|
|
Derivative liability, convertible debt
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
Total
|
|
$
|
1,691
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,691
|
|
|
|
As of June 30, 2017
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
238
|
|
|
$
|
238
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
|
|
265
|
|
|
|
265
|
|
|
|
—
|
|
|
|
—
|
|
Available-for-sale securities
|
|
|
23
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
526
|
|
|
$
|
526
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
$
|
3,465
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,465
|
|
Derivative liability, convertible debt
|
|
|
82
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82
|
|
Total
|
|
$
|
3,547
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,547
|
|
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.
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, 2017
|
|
$
|
3,547
|
|
Additional debt drawdown
|
|
|
1,000
|
|
Conversions to equity
|
|
|
(3,030
|
)
|
Realized and unrealized gains
|
|
|
174
|
|
Balance, December 31, 2017
|
|
$
|
1,691
|
|
NioCorp Developments Ltd.
Notes to the Condensed Consolidated Financial Statements
December 31, 2017
|
(expressed in thousands of U.S. dollars, unless otherwise stated)
(unaudited)
|
12.
Subsequent events
Pursuant
to notice provided by Lind to the Company of its election to advance an additional $2,500 in funding under the Initial
Convertible Security and the Lind Agreement (the “Second Tranche Increase”), Lind funded the full $2,500 Second
Tranche Increase as of February 7, 2018. Upon payment of the full $2,500 in funding by Lind to the Company, the face amount of
the Initial Convertible Security was increased by $3,000 ($2,500 in additional funding and $500 in implied
interest amount). In connection with the funding, the Company issued Common Share purchase warrants (the ‘Second
Tranche Warrants”) to Lind as follows:
Funding
Date
|
|
Face
Value
1
|
Warrants
Issued
|
Issue
Price
2
|
Warrant
Expiry Date
|
January 30, 2018
|
$
|
1,800
|
1,546,882
|
C$0.72
|
January 30, 2021
|
February 5, 2018
|
|
600
|
529,344
|
C$0.70
|
February 5, 2021
|
February 7, 2018
|
|
600
|
541,435
|
C$0.69
|
February 7, 2021
|
|
1
|
Includes
implied interest.
|
|
2
|
The
price to convert one warrant into one Common Share.
|
In
addition, the terms of the Lind Agreement, as amended, provide for additional funding of up to $2,000 as part of the second tranche,
subject to certain conditions, for total gross proceeds to the Company of up to $4,500.
In
January 2018, Mark Smith advanced an additional $125 in funding under the existing Credit Facility with the Company. This funding
is subject to the same terms and conditions as the prior drawdowns under the Credit Facility and will be used for general corporate
purposes.
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 and six months ended, December 31, 2017 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 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;
|
|
●
|
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 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, 2017, as well as other
factors described elsewhere in this report and the Company’s other reports filed with the 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,
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
(“SEDAR”).
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 super-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. With the recent filing of the Revised Elk Creek Feasibility Study (see
“Elk Creek Project Update,” below), we are currently working to obtain the financing necessary to advance the Elk
Creek Project to construction and operations, as well as conducting permitting and other related activities at and for 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, 2017,
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.
Recent
Corporate Events
Long-term
financing efforts continued during the quarter ended December 31, 2017, with principal activities focused on outreach to and discussions
with several potential sources of project funding, as well as completing the technical due diligence review (the “technical
review”) of the Company’s recently released Revised Elk Creek Feasibility Study by RPM Global USA, Inc. on behalf
of a potential debt financing syndicate. The technical review is projected to be completed in the quarter ending March 31, 2018.
The technical review will provide an independent analysis and opinion on the technical content of the Revised Elk Creek Feasibility
Study, and will be provided to financial institutions expected to form debt and/or equity syndicates that will help finance the
Elk Creek Project.
Upon
completion of the technical review, the following steps remain in our financing plan:
|
●
|
Completion
of due diligence on the Elk Creek Project’s financial model;
|
|
●
|
Completion
of technical and environmental due diligence;
|
|
●
|
Completion
of additional independent market reviews for Sc and Nb;
|
|
●
|
Completion
of legal due diligence;
|
|
●
|
Additional
“road show” style presentations to potential debt and equity investors;
|
|
●
|
Negotiation
and execution of specific debt and equity financing assistance, along with necessary
regulatory approvals for such financings.
|
Pursuant
to notice provided by Lind to the Company of its election to advance an additional $2,500 in funding under the Initial
Convertible Security and the Lind Agreement (the “Second Tranche Increase”), Lind funded the full $2,500 Second
Tranche Increase as of February 7, 2018. In connection with the funding, the Company issued Common Share purchase warrants
(the ‘Second Tranche Warrants”) to Lind, as follows:
Funding
Date
|
|
Face
Value
1
|
Warrants
Issued
|
Issue
Price
2
|
Warrant
Expiry Date
|
January 30, 2018
|
$
|
1,800
|
1,546,882
|
C$0.72
|
January 30, 2021
|
February 5, 2018
|
|
600
|
529,344
|
C$0.70
|
February 5, 2021
|
February 7, 2018
|
|
600
|
541,435
|
C$0.69
|
February 7, 2021
|
1
Includes implied interest.
2
The price to convert one warrant into one Common Share.
In
addition, the terms of the Lind Agreement, as amended, provide for additional funding of up to $2,000 as part of the second tranche,
subject to certain conditions, for total gross proceeds to the Company of up to $4,500.
Elk
Creek Project Update
On
June 30, 2017, we announced the results of the Elk Creek Feasibility Study, and the related technical report was completed and
filed in Canada on SEDAR on August 10, 2017 (the “August 2017 Feasibility Study”). In connection with a review by
the Ontario Securities Commission (“OSC”), on December 15, 2017, the Company filed the Revised Elk Creek Feasibility
Study. The Revised Elk Creek Feasibility Study, which is available for download on SEDAR and on the Company’s website at
www.niocorp.com, contains no changes to any previously reported numbers or forecasted economic returns of the Elk Creek Project
from those contained in the August 2017 Feasibility Study.
At
the OSC’s request, the Revised Elk Creek Feasibility Study provides (1) additional information in Section 19.1.3 on the
growth forecast for global scandium markets provided by an independent scandium market expert (OnG Commodities LLC and Dr. Andrew
Matheson) and relied upon by the Company in its August 2017 Feasibility Study; (2) an analysis in Section 22.4 showing Net Present
Value and Internal Rate of Return sensitivities of the Elk Creek Project at +/- 30% of the August 2017 Feasibility Study’s
assumed product pricing, capital expenditures, and operating costs (vs. +/- 20% originally presented in the August 2017 Feasibility
Study); (3) disclosure in Section 3 of the reliance on OnG Commodities LLC and Dr. Matheson; (4) the removal in Section 24 of
certain disclosure regarding the Company’s relationship with Dr. Matheson; and (5) inclusion in Section 25 of certain risk
factors.
The
Elk Creek Project is planned as an underground mining operation using a long-hole stoping mining method and paste backfill, operating
with a processing rate of 2,760 tonnes per day. Expected total production over the 32-year mine life includes 143,824 tonnes of
payable niobium, 3,237 tonnes of scandium trioxide (Sc
2
O
3
), and 359,128 tonnes of titanium dioxide (TiO
2
).
Estimated up-front direct capital costs are $705 million, in addition to indirect costs of $189 million, pre-production capital
costs of $85 million, an overall contingency of $109 million, and pre-production net revenue credit of $79 million.
We
continued to advance Elk Creek Project-related work during the quarter. Primary activities included:
|
●
|
Completed
the Revised Elk Creek Feasibility Study written report and subsequent filing on SEDAR,
as noted above, as well as completion of the underlying detailed technical report volumes,
which are not public documents and are not filed on SEDAR;
|
|
●
|
Completed
the preliminary air monitoring activities, positioning us to complete the development
of an air construction permit with the Nebraska Department of Environmental Quality,
which we expect to file in calendar 2018;
|
|
●
|
Completed
step three of the nine-step Army Corps of Engineers Section 408 permitting process, with
fieldwork completed in October 2017 and a subsequent submission of design information
in calendar 2018;
|
|
●
|
Initiated
the competitive process to identify and select engineering, procurement and construction
firms for both surface and underground;
|
|
●
|
Executed
a natural gas supply agreement with Rockies Express Pipeline LLC in November 2017, and
continued discussions with drilling companies, energy providers and other related businesses
required for initiation of water management and construction activities at the Elk Creek
Project; and
|
|
●
|
Completed
a successful test production of aluminum-scandium ingots. These ingots form the basis
for the potential commercialization of new aluminum-scandium alloys and were produced
by IBC Advanced Alloys, Inc., through our previously disclosed joint development agreement.
|
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
December 31,
|
|
|
For the six
months ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-related costs
|
|
$
|
751
|
|
|
$
|
459
|
|
|
$
|
1,399
|
|
|
$
|
962
|
|
Professional fees
|
|
|
118
|
|
|
|
279
|
|
|
|
393
|
|
|
|
612
|
|
Exploration expenditures
|
|
|
303
|
|
|
|
2,397
|
|
|
|
1,016
|
|
|
|
4,367
|
|
Other operating expenses
|
|
|
391
|
|
|
|
215
|
|
|
|
687
|
|
|
|
389
|
|
Total operating expenses
|
|
|
1,563
|
|
|
|
3,350
|
|
|
|
3,495
|
|
|
|
6,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in financial instrument fair value
|
|
|
274
|
|
|
|
(39
|
)
|
|
|
297
|
|
|
|
(335
|
)
|
Foreign exchange (gain) loss
|
|
|
36
|
|
|
|
160
|
|
|
|
(201
|
)
|
|
|
193
|
|
Interest expense
|
|
|
91
|
|
|
|
71
|
|
|
|
175
|
|
|
|
140
|
|
Gain (loss) on available for sale securities
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
7
|
|
|
|
(6
|
)
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net Loss
|
|
$
|
1,960
|
|
|
$
|
3,547
|
|
|
$
|
3,773
|
|
|
$
|
6,322
|
|
Six
months ended December 31, 2017 compared to six months ended December 31, 2016
Significant
items affecting operating expenses are noted below:
Employee
related costs
increased due to increased 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 registration statements
filed with the SEC and ongoing compliance efforts.
Exploration
expenditures
decreased $3.4 million, reflecting the timing of expenditures at the Elk Creek Project as discussed above under
“
Elk Creek Project Update
.” 2017 expenditures primarily related to the final wrap-up and issuance of the August
2017 Feasibility Study and the Revised Elk Creek Feasibility Study and ongoing permitting and project advancement activities,
while 2016 costs were primarily directed towards engineering and metallurgical bench and pilot plant test work in support of our
continuing feasibility study work.
Other
operating expenses
include investor relations, general office expenditures, equity offering and proxy expenditures and other
miscellaneous costs. These costs increased primarily due to the timing of option issuances and the corresponding vesting periods,
as well as the number of options granted and associated fair value calculations for Board members.
Other
significant items impacting the change in the Company’s net loss are noted below
:
Change
in financial instrument fair value
represents non-cash changes in the market value of the Convertible Security, which is carried
at fair value, as well as changes in the market value of the derivative liability component of the Convertible Notes, and the
fair market value of Warrants issued under the Convertible Security. The 2017 loss includes the value of Warrants issued to Lind
in connection with the Convertible Security Increase, while the 2016 gain primarily represents the impact of declining Common
Share prices and trading volumes on the underlying valuation of the Convertible Security.
Foreign
exchange (gain) loss
is primarily due to changes in the United States dollar (“USD”) against the Canadian dollar
(“C$”), and reflects the timing of foreign currency transactions and subsequent changes in exchange rates. The impact
in 2017 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$.
Three
months ended December 31, 2017 compared to three months ended December 31, 2016
Overall,
the increase in net loss for the quarter ended December 31, 2017 as compared to the same period in 2016 is the result of primarily
the same factors underlying the six-month changes, as discussed above, with respect to employee-related costs, professional fees,
exploration expenditures, change in financial instrument fair value, and foreign exchange (gain) loss.
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 interest(s).
As
of December 31, 2017, the Company had cash of $0.1 million and a working capital deficit of $4.4 million, compared to cash of
$0.2 million and working capital deficit of $5.8 million on June 30, 2017. This change in working capital is the result of cash
inflows from financing initiatives and the continued conversion of the Convertible Security. These positive impacts to the working
capital deficit were partially offset by year-to-date operating expenditures and the transfer of our convertible notes obligation
from long term to current liabilities. As noted above under “
Recent Corporate Events”
, as of February 7,
2018, Lind had invested the full $2.5 million Second Tranche Increase. Subject to certain conditions, Lind may
provide additional funding for up to $2 million as part of the Second Tranche funding.
We
expect that the Company will operate at a loss for the foreseeable future. The Company’s current planned operational
needs are approximately $3.1 million until June 30, 2018, net of the recent investment by Lind and assuming the
Company’s exercise of its right to call an additional $1.0 million under the Lind Agreement. In addition to outstanding
accounts payable and short-term liabilities, our average monthly expenditures are approximately $379 per month where
approximately $289 is for administrative purposes, including overhead and estimated costs related to securing financing
necessary for advancement of the Elk Creek Project. Approximately $89 per month is planned for expenditures relating to the
advancement of Elk Creek Project. 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 $5.0 to 6.0 million to continue planned operations for the next twelve months focused
on financing the Elk Creek Resources 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 $34 until June 30, 2018. 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, 2018, the Company will 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.
Other
than the Lind Second Tranche funding arrangements, discussed above under “
Recent Corporate Events
”, 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 arms’-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, 2017 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 12 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.
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 six months ended December 31, 2017, the Company’s operating activities consumed $2.6 million of cash (2016: $5.1 million).
The cash used in operating activities for 2017 reflects the Company’s funding of losses of $3.8 million, partially offset
by share-based compensation charges and other non-cash transactions. Overall, 2017 operational outflows declined from 2016 due
to the timing of the work efforts on the August 2017 Feasibility Study and the Revised Elk Creek Feasibility Study, offset by
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 $2.1 million during the six months ended December 31, 2017 as compared to $1.7 million during the corresponding period
in 2016, primarily reflecting the timing of convertible debt instrument and private placement issuances initiated during the comparative
periods, as well as financing provided by NioCorp’s President, CEO and Executive Chairman, Mark Smith.
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 financing(s).
Contractual
Obligations
Other
than as described below, 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, 2017, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.
During the six-month period ended December 31, 2017, debt obligations decreased $3.0 million due to conversions under the Lind
Agreement, partially offset by the $1.2 million Convertible Security Increase. There were no other substantial changes to contractual
obligations.
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, 2017, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017.
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, 2017, under the heading “Risks Related to the Common Shares.”