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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

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

(Address of Principal Executive Offices)

 

80112

(Zip code)

     
Registrant’s telephone number, including area code: (855) 264-6267

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Not Applicable   Not Applicable   Not Applicable

 

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 14, 2022, the registrant had 27,945,088 Common Shares outstanding.

 

 

 

EXPLANATORY NOTE

 

NioCorp Developments Ltd. (“NioCorp” or the “Company”) filed its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 with the U.S. Securities and Exchange Commission (“SEC”) on November 14, 2022 (the “Original Form 10-Q”). This Amendment No. 1 on Form 10-Q/A (this “Amendment” or “Form 10-Q/A”) is being filed to restate (the “Restatement”) certain information in the Company’s previously issued condensed consolidated financial statements as of and for the three months ended September 30, 2022 (the “Affected Period”).

 

Background of Restatement

 

On May 19, 2023, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company, in consultation with the Company’s management, concluded that the Company’s previously issued condensed consolidated financial statements with respect to the Affected Period contained errors related to the accounting for the Waiver and Consent Agreement, dated September 25, 2022 (the “Lind Consent”), between the Company and Lind Global Asset Management III, LLC, and its evaluation under Accounting Standards Codification Topic 450 – Contingencies (“ASC 450”) instead of under Accounting Standards Codification Topic 470 – Debt (“ASC 470”), which requires an evaluation of the contract amendment under ASC 470 debt modification guidance. As a result of this error, the Audit Committee determined that the Company’s condensed consolidated financial statements for the Affected Period should not be relied upon and should be restated by adjusting deferred transaction costs, convertible debt, and warrant liability recognized in the Affected Period. Any previously issued or filed reports, press releases, earnings releases and investor presentations or other communications describing the Company’s previously issued condensed consolidated financial statements and other related financial information covering the Affected Period should no longer be relied upon.

 

The identification of the need for the restatement arose during the Company’s quarterly close for the quarter ended March 31, 2023. Pursuant to these procedures, the Audit Committee, in consultation with the Company’s management, assessed the Company’s accounting policies, as well as the presentation and accounting for modifications of debt agreements, and concluded that the Company should have evaluated the Lind Consent as a contract amendment under ASC 470 debt modification guidance. 

 

This correction affects the Company’s condensed consolidated statements of operations and comprehensive loss and also impacts the Company’s condensed consolidated balance sheet, condensed consolidated statements of shareholders’ equity, and certain notes to the condensed consolidated financial statements, as well as management’s discussion and analysis of financial condition and results of operations included in the Original Form 10-Q. This correction does not impact the condensed consolidated statements of cash flows besides offsetting adjustments

 

 

 

between net loss, accretion of convertible debt, and loss on debt extinguishment within the cash flows from operating activities section.

 

See Note 3 to the condensed consolidated financial statements in Part I, Item 1, “Financial Statements” for more information regarding this correction and the background of the Restatement.

 

Internal Control Considerations

 

The Company’s management has concluded that the Company had material weaknesses in its internal control over financial reporting during the Affected Period relating to the error described above. For a discussion of management’s considerations of the Company’s disclosures controls and procedures, internal control over financial reporting, and material weaknesses identified, refer to Part I, Item 4, “Controls and Procedures.”

 

Items Amended in this Amendment

 

This Amendment sets forth the Original Form 10-Q, as modified and superseded where necessary to reflect the Restatement and the related internal control considerations. Accordingly, the following items included in the Original Form 10-Q have been amended, as appropriate, to reflect the Restatement and the related internal control considerations:

 

  Part I, Item 1, “Financial Statements”;
  Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
  Part I, Item 4, “Controls and Procedures”;
  Part II, Item 1A, “Risk Factors”; and
  Part II, Item 6, “Exhibits.”

 

On March 17, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of its common shares, without par value (“Common Shares”), on the basis of one (1) post-Reverse Stock Split Common Share for every ten (10) pre-Reverse Stock Split Common Shares issued and outstanding, with any fractional shares resulting from the Reverse Stock Split rounded down to the nearest whole share. All references to share and per share amounts (excluding authorized shares), as well as option and warrant amounts and exercise prices, in this Amendment, including the condensed consolidated financial statements and accompanying notes, have also been restated to give retroactive effect to the Reverse Stock Split.

 

Additionally, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company is including with this Amendment currently dated certifications from its Chief Executive Officer and Chief Financial Officer. These certifications are filed or furnished, as applicable, as Exhibits 31.1, 31.2, 32.1 and 32.2.

 

Except as described above, this Amendment does not amend, update or change any other disclosures in the Original Form 10-Q. In addition, the information contained in this Amendment does not reflect events occurring after the Original Form 10-Q was filed and does not modify or update the disclosures therein, except to reflect the effects of the Restatement and the restatement of share and per share amounts (excluding authorized shares), as well as option and warrant amounts and exercise prices, to give retroactive effect to the Reverse Stock Split, as discussed above. This Amendment should be read in conjunction with the Company’s other filings with the SEC.

 

 

 

TABLE OF CONTENTS

 

       
      Page
PART I — FINANCIAL INFORMATION     
       
ITEM 1.  FINANCIAL STATEMENTS   1
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   18
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   29
ITEM 4.  CONTROLS AND PROCEDURES   29
       
PART II — OTHER INFORMATION     
       
ITEM 1.  LEGAL PROCEEDINGS   31
ITEM 1A.  RISK FACTORS   31
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   33
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES   33
ITEM 4.  MINE SAFETY DISCLOSURES   33
ITEM 5.  OTHER INFORMATION   33
ITEM 6.  EXHIBITS   34
       
SIGNATURES    35

 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Contents

 

    Page
Condensed consolidated balance sheets as of September 30, 2022 and June 30, 2022 (unaudited)   2
     
Condensed consolidated statements of operations and comprehensive loss for the three months ended September 30, 2022 and 2021 (unaudited)   3
     
Condensed consolidated statements of cash flows for the three months ended September 30, 2022 and 2021 (unaudited)     4
     
Condensed consolidated statements of shareholders’ equity for the three months ended September 30, 2022 and 2021 (unaudited)   5
     
Notes to condensed consolidated financial statements (unaudited)   6 – 17

1

 

 

NioCorp Developments Ltd.

Condensed Consolidated Balance Sheets

(expressed in thousands of U.S. dollars, except share data) (unaudited)

 

 

                     
          As of  
    Note     September 30, 2022    

June 30,

2022

 
          As  restated (a)        
ASSETS                  
Current                  
Cash           $ 3,192     $ 5,280  
Prepaid expenses and other             189       402  
Total current assets             3,381       5,682  
Non-current                        
Deferred transaction costs     5       2,609       -  
Deposits             35       35  
Investment in equity securities             10       10  
Right-of-use assets             76       94  
Land and buildings, net             850       850  
Mineral interests             16,085       16,085  
Total assets           $ 23,046     $ 22,756  
                         
LIABILITIES                        
Current                        
Accounts payable and accrued liabilities     6     $ 3,670     $ 817  
Related party loan     9       2,000       2,000  
Convertible debt     7       914       2,169  
Operating lease liability     11       86       82  
Total current liabilities             6,670       5,068  
Non-current                        

Warrant liability

     3       964       -  
Operating lease liability     11       -       23  
Total liabilities             7,634       5,091  
SHAREHOLDERS’ EQUITY                        

Common shares, unlimited shares authorized; shares outstanding: 27,939,322 at September 30, 2022 and 27,667,060 at June 30, 2022 (b)

    8       130,684       129,055  
Accumulated deficit             (114,274 )     (110,397 )
Accumulated other comprehensive loss             (998 )     (993 )
Total shareholders’ equity             15,412       17,665  
Total liabilities and equity           $ 23,046     $ 22,756  

 

(a)Amounts are restated. See Note 3 for more information.
(b)Amounts of shares outstanding are restated to give retroactive effect to the Reverse Stock Split (as defined below). See Note 2d for more information.

 

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     2022     2021  
          As  restated (a)        
Operating expenses                  
Employee related costs           $ 293     $ 319  
Professional fees             164       90  
Exploration expenditures     10       1,288       621  
Other operating expenses             337       226  
Total operating expenses             2,082       1,256  
                         

Change in fair value of warrant liability

            (257)       -  
Loss on debt extinguishment             1,622       -  
Foreign exchange loss             173       225  
Interest expense             258       605  
Other (gain) loss on equity securities             (1 )     2  
Loss before income taxes             3,877       2,088  
Income tax benefit             -       -  
Net loss     4     $ 3,877     $ 2,088  
                         
Other comprehensive loss:                        
Net loss           $ 3,877     $ 2,088  
Other comprehensive loss (gain):                        
Reporting currency translation             5       (124 )
Total comprehensive loss           $ 3,882     $ 1,964  
                         
Loss per common share, basic and diluted (b)           $ 0.14     $ 0.08  
                         
Weighted average common shares outstanding (b)             27,792,631       25,802,304  

 

(a)Amounts are restated. See Note 3 for more information.

 

(b)Amounts are restated to give effect to the Reverse Stock Split. See Note 2d for more information.

 

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,
 
    2022     2021  
    As restated (a)        
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss for the period   $ (3,877 )   $ (2,088 )
Adjustments to reconcile net loss to net cash used in operations:                
Unrealized (gain) loss on equity securities     (1 )     2  
Accretion of convertible debt     194       551  
Noncash lease expense     (2 )     (1 )
Change in fair value of warrant liability     (257 )     -  
Loss on debt extinguishment     1,622       -  
Depreciation     1       1  
Foreign exchange loss     177       288  
       (2,143 )     (1,247 )
Change in working capital items:                
Prepaid expenses and other     209       (270 )
Accounts payable and accrued liabilities     196       (92 )
Net cash used in operating activities     (1,738 )     (1,609 )
                 
 CASH FLOWS FROM INVESTING ACTIVITIES                
Acquisition of land and buildings     -       (16 )
Net cash used in financing activities     -       (16 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from issuance of common shares     -       664  
Share issue costs     (21 )     -  
Related party debt repayments     -       (318 )
Net cash provided by financing activities     (21 )     346  
Exchange rate effect on cash and cash equivalents     (329 )     (170 )
Change in cash and cash equivalents during period     (2,088 )     (1,449 )
Cash and cash equivalents, beginning of period     5,280       7,317  
Cash and cash equivalent, end of period   $ 3,192     $ 5,868  
                 
Supplemental cash flow information:                
Amounts paid for interest   $ -     $ 40  
Amounts paid for income taxes     -       -  
Non-cash financing transactions:                
Conversions of debt for common shares   $ 1,650     $ 1,350  
Deferred transaction costs, accrued but not paid     2,809       -  

 

(a)Amounts are restated. See Note 3 for more information.

 

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)

 

 

                                       
    For the three months ended September 30, 2022 and 2021
    Common Shares Outstanding (b)     Common Shares    

Accumulated

Deficit

    Accumulated Other Comprehensive Loss     Total  
Balance, June 30, 2021     25,637,993     $ 113,882     $ (99,510 )   $ (1,159 )   $ 13,213  
Exercise of warrants     87,175       543       -       -       543  
Exercise of options     28,270       121       -       -       121  
Debt conversions     158,398       1,350       -       -       1,350  
Reporting currency translation     -       -       -       124       124  
Loss for the period     -       -       (2,088 )     -       (2,088 )
Balance, September 30, 2021     25,911,836     $ 115,896     $ (101,598 )   $ (1,035 )   $ 13,263  
                                         
Balance, June 30, 2022     27,667,060     $ 129,055     $ (110,397 )   $ (993 )   $ 17,665  
Debt conversions     272,262       1,650       -       -       1,650  
Share issuance costs     -       (21 )     -       -       (21 )
Reporting currency translation     -       -       -       (5 )     (5 )

Loss for the period, as restated (a)

    -       -        (3,877 )     -       (3,877 )

Balance, September 30, 2022, as restated (a)

    27,939,322     $ 130,684     $ (114,274 )   $ (998 )   $ 15,412  

 

(a)Amounts are restated. See Note 3 for more information.
(b)Amounts are restated to give retroactive effect to the Reverse Stock Split. See Note 2d for more information.

 

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, 2022

(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 consolidated 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 to construction and commercial operation. As further discussed in Note 4, these matters raised substantial doubt about the Company's ability to continue as a going concern, and the Company 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 (“U.S. 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, 2022. Certain transactions include reference to Canadian dollars (“C$”) where applicable.

 

In the opinion of management, all adjustments considered necessary (including reclassifications and normal recurring adjustments) for a fair statement of the financial position, results of operations, and cash flows at September 30, 2022, 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 U.S. 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, 2022. The interim results are not necessarily indicative of results for the full year ending June 30, 2023, or future operating periods.

 

  

  b) Recent Accounting Standards

 

Issued and Adopted

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. ASU 2020-06 removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU 2020-06 on July 1, 2022, with no material effect on the Company’s current financial position, results of operations or financial statement disclosures.

 

6

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

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.

  

 

  c) Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. 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.

 

 

  d) Basic and Diluted Earnings per Share

 

On March 17, 2023, the Company effected a reverse stock split (the “Reverse Stock Split”) of its common shares, without par value (“Common Shares”), on the basis of one (1) post-Reverse Stock Split Common Share for every ten (10) pre-Reverse Stock Split Common Shares issued and outstanding, with any fractional shares resulting from the Reverse Stock Split rounded down to the nearest whole share. All references to share and per share amounts (excluding authorized shares), as well as Option and Warrant (each as defined below) amounts and exercise prices, in the condensed consolidated financial statements and accompanying notes have also been restated to give retroactive effect to the Reverse Stock Split.

 

Basic net loss per share is computed by dividing net loss by the weighted average number of the Company’s Common Shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of Common Share equivalents outstanding for the period determined using the treasury stock method or the if-converted method, as applicable. For purposes of this calculation, options to purchase Common Shares (“Options”) and warrants to purchase Common Shares (“Warrants”) are considered to be Common Share equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. The following shares underlying Options, Warrants, and outstanding convertible debt were antidilutive due to a net loss in the periods presented and, therefore, were excluded from the dilutive securities computation as indicated below.

 

    For the three months ended
September 30,
 
Excluded potentially dilutive securities (1)   2022     2021  
Options     1,446,400       1,522,500  
Warrants     1,851,625       1,347,011  
Convertible debt     103,000       1,474,400  
Total potential dilutive securities     3,401,025       4,343,911  

 

  (1) The number of shares is based on the maximum number of shares issuable on exercise or conversion of the related securities as of the period end. Such amounts have not been adjusted for the treasury stock method or weighted average outstanding calculations as required if the securities were dilutive.

 

 

 

 

3.RESTATEMENT

 

On February 16, 2021, the Company entered into a Convertible Security Funding Agreement (as amended by Amendment #1 to the Convertible Security Funding Agreement dated December 2, 2021, the “CSFA”) with Lind Global Asset Management III, LLC (“Lind”), pursuant to which the Company issued a convertible security to Lind (the “Lind III Convertible Security”). Pursuant to the CSFA, Lind had certain consent and participation rights applicable in connection with the Transaction (as defined below) and the proposed financing transactions with Yorkville Advisors Global, LP (“Yorkville”), each as described in Note 13. On September 25, 2022, the Company and Lind entered into a Waiver and Consent Agreement (the “Lind Consent”), which included the following principal terms: (i) the consent of Lind to the Transaction and the proposed financing transactions with Yorkville,

 

7

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

including all actions taken by NioCorp as set out in the Business Combination Agreement to permit the completion of the Transaction; (ii) the consent of Lind to NioCorp’s expected cross-listing to The Nasdaq Stock Market LLC (“Nasdaq”) and the consolidation of the Common Shares in order to meet the minimum listing requirements thereof; (iii) the waiver of Lind of its participation right for up to 15% of the total offering in the proposed standby equity purchase agreement between NioCorp and Yorkville; and (iv) the waiver of Lind of certain restrictive covenants in the CSFA.

 

As consideration for entering into the Lind Consent, Lind received, amongst other things: (i) the right to receive a payment of $500, which would be reduced to $200 if the Transaction has not been consummated on or before April 30, 2023 (collectively, the “Consent Payment”); (ii) an extension of its existing participation rights under the CSFA in future financings of NioCorp for a further two-year period, subject to certain exceptions as well as an extension of such participation rights beyond the additional two-year period if Yorkville or any affiliate is a party to any such applicable transaction; and (iii) the right to receive additional Warrants (the “Contingent Consent Warrants”) if on the date that is 18 months following consummation of the Transaction, the closing trading price of the Common Shares on the Toronto Stock Exchange (the “TSX”) or such other stock exchange on which such shares may then be listed, is less than C$10.00, subject to adjustments. The number of Contingent Consent Warrants to be issued, if any, is based on the Canadian dollar equivalent (based on the then current Canadian to US dollar exchange rate as reported by Bloomberg, LP) of $5,000 divided by the five-day volume weighted average price of the Common Shares on the date of issuance. Further, the number of Contingent Consent Warrants issued will be proportionately adjusted based on the percentage of Warrants currently held by Lind that are exercised, if any, prior to the issuance of any Contingent Consent Warrants. The Lind Consent was signed as an amendment to the existing CSFA.

 

The Company originally accounted for both the Consent Payment and Contingent Consent Warrants as contingencies under Accounting Standards Codification (“ASC”) Topic 450: Contingencies.

 

The identification of the need for the restatement arose during the Company’s quarterly close for the quarter ended March 31, 2023. Pursuant to these procedures, the Audit Committee, in consultation with the Company’s management, determined that the Lind Consent should have been evaluated under ASC 470 – Debt (“ASC 470”), which requires an evaluation of the contract amendment under ASC 470 debt modification guidance. 

 

The Company performed a comparison of the discounted cash flows of the Lind III Convertible Security pursuant to the original CSFA and pursuant to the CSFA as amended by the Lind Consent and determined that a debt extinguishment loss of $201 had occurred. Further, ASC 470 requires that the minimum estimated Consent Payment of $200 also be included in the calculation of the gain or loss on debt extinguishment. The Company also evaluated the Contingent Consent Warrant feature included in the Lind Consent and determined that the Contingent Consent Warrants meet the criteria to be considered separate, freestanding instruments, should be accounted for as a liability under ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and should be booked at fair value on the date of the Lind Consent, with subsequent changes in valuation recorded as a non-operating gain or loss in the statement of operations. The following table summarizes the components of the initial loss on debt extinguishment:

 

8

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

Schedule Of Extinguishment Of Debt

    Amount 
Minimum Consent Payment at inception  $200 
Loss on debt extinguishment    201 
Initial fair value of Contingent Consent Warrants   1,221 
Initial loss on debt extinguishment  $1,622 

 

Changes in the fair value of the Contingent Consent Warrants are presented below:

 

    Amount 
Initial valuation, September 25, 2022  $1,221 
  Change in valuation   (257)
Valuation at September 30, 2022  $964 

 

The Contingent Consent Warrants are classified as a Level 3 financial instrument and were valued utilizing a Monte Carlo simulation pricing model, which calculates multiple potential outcomes for future share prices based on historic volatility of the Common Shares to determine the probability of issuance at 18 months following the applicable valuation date and to determine the value of the Contingent Consent Warrants. The following table discloses the primary inputs into the Monte Carlo model at each valuation date, and the probability of issuance calculated by the model.

 

Key Valuation Input  September
25, 2022
   September
30, 2022
 
Share price on valuation date  $7.82   $10.40 
Volatility   62.4%   63.4%
Risk free rate   3.93%   4.04%
Probability of issuance   59.4%   45.5%

 

The loss on debt extinguishment is presented as a non-operating expense in the Company’s condensed consolidated statements of operations and comprehensive loss. This change in accounting also resulted in a decrease in the amount of accretion to be recognized over the remaining life of the Lind III Convertible Security. Accretion expenses are disclosed as a part of interest expense, which is not included as a component of operating costs.

 

This correction to the Company’s condensed consolidated statements of operations and comprehensive loss also impacts the Company’s condensed consolidated balance sheet, condensed consolidated statements of shareholders’ equity, and certain notes to the condensed consolidated financial statements for the three months ended September 30, 2022 as illustrated in the tables below. This correction does not impact the condensed consolidated statements of cash flows besides offsetting adjustments between net loss, accretion of convertible debt, and loss on debt extinguishment within the cash flows from operating activities section.

 

Restatement Impacts to the Condensed Consolidated Balance Sheet (unaudited)

As of September 30, 2022

             
   As Previously Reported   Restatement Impacts   Restated 
Deferred transaction costs  $2,809   $(200)  $2,609 
Total assets   23,246    (200)   23,046 
Convertible debt   755    159    914 
Total current liabilities   6,511    159    6,670 
Warrant liability   -    964    964 
Total liabilities   6,511    1,123    7,634 
Accumulated deficit   (112,951)   (1,323)   (114,274)
Total shareholders’ equity   16,735    (1,323)   15,412 
Total liabilities and equity   23,246    (200)   23,046 

 

 

9

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

Restatement Impacts to the Condensed Consolidated Statement of Operations and Comprehensive Loss (unaudited)

For the Three Months Ended September 30, 2022

             
   As Previously Reported   Restatement Impacts   Restated 
Interest expense  $300   $(42)  $258 
Loss on debt extinguishment   -    1,622    1,622 
Change in fair value of warrant liability   -    (257)   (257)
Loss before income taxes   2,554    1,323    3,877 
Net loss   2,554    1,323    3,877 
Total comprehensive loss   2,559    1,323    3,882 
Loss per share  $0.09   $0.05   $0.14  
Weighted average shares outstanding   27,792,631    -    27,792,631  

 

Restatement Impacts to the Condensed Consolidated Statement of Cash Flows (unaudited)

For the Three Months Ended September 30, 2022

 

   As Previously Reported   Restatement Impacts   Restated 
CASH FLOWS FROM OPERATING ACTIVITIES               
Net loss for the period  $(2,554)  $(1,323)  $(3,877)
Accretion of convertible debt   236    (42)   194 
Loss on debt extinguishment   -    1,622    1,622 
Change in fair value of warrant liability    -    (257)   (257)

 

Restatement Impacts to the Condensed Consolidated Statement of Shareholders’ Equity (unaudited)

As of September 30, 2022

 

   Common
Shares
   Accumulated
Deficit
   Accumulated
Other
Comprehensive
Loss
   Total 
As Previously Reported
Balance, June 30, 2022  $129,055   $(110,397)  $(993)  $17,665 
Debt conversions   1,650    -    -    1,650 
Share issuance costs   (21)   -    -    (21)
Reporting currency translation   -    -    (5)   (5)
Loss for the period   -    (2,554)   -    (2,554)
Balance, September 30, 2022  $130,684   $(112,951)  $(998)  $16,735 
Restatement Impacts
Balance, June 30, 2022  $-   $-   $-   $- 
Loss for the period   -    (1,323)   -    (1,323)
Balance, September 30, 2022  $-   $(1,323)  $-   $(1,323)
As Adjusted
Balance, June 30, 2022  $129,055   $(110,397)  $(993)  $17,665 
Debt conversions   1,650    -    -    1,650 
Share issuance costs   (21)   -    -    (21)
Reporting currency translation   -    -    (5)   (5)
Loss for the period, as restated   -    (3,877)   -    (3,877)
Balance, September 30, 2022, as restated  $130,684   $(114,274)  $(998)  $15,412 

 

As previously reported, the Company restated its consolidated balance sheets as of June 30, 2022 and 2021, and consolidated statements of operations and comprehensive income, equity and cash flows for the years ended June 30, 2022 and 2021. In addition, the restatement impacted the first, second and third quarters of our fiscal year ended June 30, 2022. The summarized restatement impacts for the comparable interim period in fiscal year 2022 are presented below. The restatement corrects errors related to the accounting for the unamortized deferred financing costs and debt discounts upon extinguishments of debt related to debt conversions.

 

10

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

 

Restatement Impacts to the Condensed Consolidated Statement of Operations and Comprehensive Loss (unaudited)

For the Three Months Ended September 30, 2021  

 

   As Previously Reported   Restatement Impacts   Restated 
Foreign exchange loss  $210   $15   $225 
Interest expense   492    113    605 
Loss before income taxes   1,960    128    2,088 
Net loss   1,960    128    2,088 
Reporting currency translation   (109)   (15)   (124)
Total comprehensive loss   1,851    113    1,964 
Loss per share  $0.08   $-   $0.08 
Weighted average shares outstanding   25,802,304    -    25,802,304 

 

Restatement Impacts to the Condensed Consolidated Statement of Cash Flows (unaudited)

For the Three Months Ended September 30, 2021

             
   As Previously Reported   Restatement Impacts   Restated 
CASH FLOWS FROM OPERATING ACTIVITIES               
Total loss for the period  $(1,960)  $(128)  $(2,088)
Accretion of convertible debt   438    113    551 
Foreign exchange loss   273    15    288 

 

 

Restatement Impacts to the Condensed Consolidated Statement of Shareholders' Equity (unaudited)

For the Three Months Ended September 30, 2021

 

   As Previously Reported   Restatement Impacts   Restated 
June 30, 2021 opening balance adjustments:               
Deficit  $(99,076)  $(434)  $(99,510)
Accumulated other comprehensive loss   (1,143)   (16)   (1,159)
Total Shareholders’ equity   13,663    (450)   13,213 
Activity adjustments:               
Loss for the period   (1,960)   (128)   (2,088)
Reporting currency translation   109    15    124 
September 30, 2021 ending balance adjustments:               
Deficit   (101,036)   (562)   (101,598)
Accumulated other comprehensive loss   (1,034)   (1)   (1,035)
Total equity   13,826    (563)   13,263 

 

 

 

  4. GOING CONCERN ISSUES

 

The Company incurred a loss of $3,877 for the three months ended September 30, 2022 (2021 - $2,088) and had a working capital deficit of $3,289 and an accumulated deficit of $114,274 as of September 30, 2022. As a development stage issuer, the Company has not yet commenced its mining operations and accordingly does not generate any revenue. As of September 30, 2022, the Company had cash of $3,192 which may not be sufficient to fund normal operations for the next twelve months without deferring payment on certain liabilities or raising additional funds. In addition, the Company will be required to raise additional funds for construction and commencement of operations. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

11

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

The Company’s ability to continue operations and fund its expenditures, which have historically averaged approximately $1,265 per quarter over the preceding three-year period, is dependent on management’s ability to secure additional financing. Management is actively pursuing 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. Other than the proposed business combination and potential financing packages discussed in Note 13, the Company did not have any further funding commitments or arrangements for additional financing as of September 30, 2022. These consolidated financial statements do not give effect to any adjustments required to realize the Company’s 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.

 

Since March 2020, several measures have been implemented in the United States, Canada, and the rest of the world in response to the increased impact from the novel coronavirus (“COVID-19”) pandemic and subsequent COVID-19 variants. In addition, recent worldwide events have created general global economic uncertainty as well as uncertainty in capital markets, supply chain disruptions, increased interest rates, and the potential for geographic recessions. We believe this could have an adverse impact on our ability to obtain financing, development plans, results of operations, financial position, and cash flows during the current fiscal year. The full extent to which these events and our precautionary measures may continue to impact our business will depend on future developments, which continue to be highly uncertain and cannot be predicted at this time.

 

 

5. DEFERRED TRANSACTION COSTS

 

The Company has deferred third-party costs, including legal fees, other professional and consulting fees, and due diligence fees, incurred in connection with the proposed transaction discussed in Note 13. These costs are deferred until closing, at which time a portion of the costs will be recorded against convertible debt to be entered into in connection with the proposed transaction, with the remainder treated as a reduction to the value of Common Shares issued.

 

 

6.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                     
          As of  
    Note    

September 30,

2022

   

June 30,

2022

 
  Accounts payable, trade           $ 2,904     $ 115  
  Accounts payable accruals             467       654  
  Consent accrual     13       200       -  
  Interest payable to related party     9       51       -  
  Other accruals             48       48  
Total accounts payable and accrued liabilities           $ 3,670     $ 817  

 

  

 

7.CONVERTIBLE DEBT

 

Changes in the Lind III Convertible Security are as follows:

 

    Lind III Convertible Security  
      (Restated)  
Balance, June 30, 2022   $ 2,169  
Accretion expense     194  
Fair value increase due to debt extinguishment     201  
Conversions     (1,650 )
Balance, September 30, 2022   $ 914  

 

 

12

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

Based on the Company’s closing Common Share price of C$14.30 as of September 30, 2022, conversion of the remaining Lind III Convertible Security undiscounted face value of $815 (including accrued interest) would require the issuance of approximately 103,000 Common Shares. For each C$0.10 change in the fair value of one Common Share, the total Common Shares the Company would be obligated to issue would change by approximately 800 shares.

 

 

8.COMMON SHARES

 

a)Stock Options

 

   Number of Options    Weighted Average Exercise Price 
Balance, June 30, 2022   1,446,400   C$ 8.30 
  Granted   -     - 
  Exercised   -     - 
  Cancelled/expired   -     - 
Balance, September 30, 2022   1,446,400   C$ 8.30 

 

 The following table summarizes information about Options outstanding at September 30, 2022: 

 

Exercise Price     Expiry Date   Number Outstanding     Aggregate Intrinsic Value     Number Exercisable     Aggregate Intrinsic Value  
C$ 4.70     November 9, 2022     280,400      C$ 2,692       280,400     C$ 2,692  
C$ 8.40     September 18, 2023     105,000       619       105,000       619  
C$ 5.40     November 15, 2023     378,500       3,369       378,500       3,369  
C$ 7.50     December 14, 2023     182,500       1,241       182,500       1,241  
C$ 7.50     December 16, 2023     52,500       357       52,500       357  
C$ 13.60     December 17, 2024     397,500       278       397,500       278  
C$ 11.00     May 30, 2025     50,000       165       50,000       165  
              1,446,400     C$ 8,721       1,446,400     C$ 8,721  

 

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing Common Share price of C$14.30 as of September 30, 2022, that would have been received by the Option holders had all Option holders exercised their Options as of that date. There were no in-the-money Options vested and exercisable as of September 30, 2022. As of September 30, 2022, there was $0 of unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Option plans.

 

b)Warrants

 

    Number of Warrants     Weighted Average Exercise Price  
Balance, June 30, 2022     1,851,624     C$ 11.60  
  Granted     -       -  
  Exercised     -       -  
  Cancelled/expired     -       -  
Balance, September 30, 2022     1,851,624     C$ 11.60  

 

 

13

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

At September 30, 2022, the Company had outstanding exercisable Warrants, as follows:

 

Number     Exercise Price     Expiry Date
50,000     C$ 8.00     December 18, 2022
441,211     C$ 16.30     May 10, 2023
504,613     C$ 11.00     June 30, 2024
855,800     C$ 9.70     February 19, 2025
1,851,624              

 

 

 

9.RELATED PARTY TRANSACTIONS AND BALANCES

 

Borrowings under the non-revolving credit facility agreement (the “Smith Credit Facility”) with Mark Smith, Chief Executive Officer, President, and Executive Chairman of NioCorp, bear interest at a rate of 10% and drawdowns from the Smith Credit Facility are subject to a 2.5% establishment fee. Amounts outstanding under the Smith Credit Facility are secured by all of the Company’s assets pursuant to a general security agreement. The Smith Credit Facility contains financial and non-financial covenants customary for a facility of its size and nature. The maturity date for the Smith Credit Facility is June 30, 2023.

 

As of September 30, 2022, the principal amount outstanding under the Smith Credit Facility was $2,000 and accounts payable and accrued liabilities as of September 30, 2022, include accrued interest of $51 payable under the Smith Credit Facility. 

 

 

10.EXPLORATION EXPENDITURES

 

    For the Three Months Ended September 30,  
    2022     2021  
  Technical studies and engineering   $ 141     $ 50  
  Field management and other     154       124  
  Metallurgical development     993       436  
  Geologists and field staff     -       11  
Total   $ 1,288     $ 621  

 

 

 

  11. LEASES

 

 The Company incurred lease costs as follows:

 

               
    For the Three Months Ended September 30,  
    2022     2021  
Operating Lease Cost:                
Fixed rent expense   $ 21     $ 21  
Variable rent expense     3       2  
Short term lease cost     2       5  
Sublease income     (6 )     (5 )
Net lease cost – other operating expense     20       23  

 

14

 

 

NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

The maturities of lease liabilities are as follows at September 30, 2022:

       
     Fiscal Year Lease Maturities  
Total lease payments – through September 2023   $ 93  
Less portion of payments representing interest     (7 )
Present value of lease payments – current lease liability   $ 86  

 

 

 

12.FAIR VALUE MEASUREMENTS

 

The Company measures the fair value of financial assets and liabilities based on U.S. 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, including investments in equity securities, 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, 2022, and June 30, 2022, 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, 2022  
    Total     Level 1     Level 2     Level 3  
Assets:                        
Cash and cash equivalents   $ 3,192     $ 3,192     $ -     $ -  
Equity securities     10       10       -       -  
Total   $ 3,202     $ 3,202     $ -     $ -  
Liabilities:                                
Warrant Liability   $ 964     $ -     $ -     $ 964  

 

                                 
    As of June 30, 2022  
    Total     Level 1     Level 2     Level 3  
Assets:                        
Cash and cash equivalents   $ 5,280     $ 5,280     $ -     $ -  
Equity securities     10       10       -       -  
Total   $ 5,290     $ 5,290     $ -     $ -  

 

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NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

The Lind III Convertible Security discussed in Note 7 was initially recorded at fair value, which represented a nonrecurring fair value measurement using a Level 3 input. At September 30, 2022, the estimated fair value of this instrument approximated carrying value given that the instrument was adjusted to fair value on September 25, 2022 and has a short remaining life until maturity. 

 

13.PROPOSED TRANSACTION

 

On September 25, 2022, the Company, GX Acquisition Corp. II, a Delaware corporation (“GXII”), and Big Red Merger Sub Ltd (“Merger Sub”), a Delaware corporation incorporated in September 2022, and a direct, wholly owned subsidiary of the Company, entered into a business combination agreement (the “Business Combination Agreement”). Pursuant to the Business Combination Agreement, as the result of a series of transactions, GXII will become a subsidiary of the Company (as successor by merger to the Company’s subsidiary, Elk Creek Resources Corporation, a Delaware corporation (“ECRC”)), with the pre-combination public shareholders of GXII receiving Common Shares based on a fixed exchange ratio of 1.11829212 (the “Exchange Ratio”) Common Shares for each GXII Class A common share held and not redeemed, and the GXII founders receiving shares in GXII (as successor by merger to ECRC) based on the Exchange Ratio. Pursuant to the Business Combination Agreement, after closing, the GXII founders will have the right to exchange such shares for Common Shares on a one-for-one basis under certain conditions. Pursuant to the Business Combination Agreement, the Company will also assume the obligations under the issued and outstanding GXII warrants, which will be converted into warrants exercisable into Common Shares following closing of the Transaction. The Business Combination Agreement contemplates that the Company will undertake a reverse stock split of the Common Shares at the time of close in connection with an expected cross-listing to the Nasdaq Stock Market (“Nasdaq”). In addition, pursuant to the Business Combination Agreement, post-closing, the Company’s Board will include two directors from pre-combination GXII. The transactions contemplated by the Business Combination Agreement and the ancillary agreements thereto are referred to collectively as the “Transaction.”

 

As currently structured, the Business Combination Agreement is expected to be accounted for as a recapitalization in accordance with U.S. GAAP. Under this method of accounting, GXII will be treated as the “acquired” company for financial reporting purposes. Accordingly, the transaction is treated as the equivalent of NioCorp issuing Common Shares for the net assets of GXII, accompanied by a recapitalization. The net assets of GXII will be stated at historical cost, with no goodwill or other intangible assets recorded.

 

In addition, in connection with the entry into the Business Combination Agreement, the Company announced the signing of non-binding letters of intent (“LOIs”) for two separate financing packages with Yorkville. Subject to entering into definitive agreements, these financings could provide the Company with access to up to an additional $81.0 million to help advance the Elk Creek Project. The financings contemplated by the LOIs include $16.0 million in convertible debentures that are expected to be funded at the closing of the Transaction, and subject to certain limitations can be repaid by the Company in either cash or Common Shares, and a standby equity purchase facility pursuant to which the Company will have the ability to require Yorkville, subject to the conditions set out in the definitive agreements, to purchase up to $65.0 million of its Common Shares.

 

The proposed Transaction is expected to close in the first calendar quarter of 2023, subject to the satisfaction or waiver of certain customary closing conditions contained in the Business Combination Agreement, including, among other things, (i) obtaining required approvals of the Transaction and related matters by the respective shareholders of NioCorp and GXII, (ii) the effectiveness of the registration statement on Form S-4 that the Company originally filed on November 7, 2022, (iii) receipt of approval for listing on Nasdaq of the NioCorp Common Shares to be issued in connection with the Transaction, (iv) receipt of approval for listing on Nasdaq of the NioCorp warrants to be issued in exchange for the GXII warrants that NioCorp has agreed to assume, (v) receipt of approval from the TSX with respect to the issuance and listing of the NioCorp Common Shares issuable in connection with the Transaction, (vi) that NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have at least $5.000001 million of net tangible assets upon the consummation of the Transaction, after giving effect to any redemptions by GXII public stockholders and after payment of underwriters’ fees or commissions, (vii) that, at closing, NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have received cash in an amount equal to or greater than $15.0 million,

 

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NioCorp Developments Ltd.

Notes to the Condensed Consolidated Financial Statements

September 30, 2022

(expressed in thousands of U.S. dollars, except per share amounts or as otherwise stated) (unaudited)

 

 

 

subject to certain adjustments, and (viii) the absence of any injunctions enjoining or prohibiting the consummation of the Business Combination Agreement. The proposed additional financings contemplated by the LOIs will also be subject to the approval of the TSX and the Company’s shareholders.

 

17

 

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, 2022, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. 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.

 

Restatement of Previously Issued Financial Statements

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated to give effect to the restatement of our unaudited interim condensed consolidated financial statements as of and for the three months ended September 30, 2022, as more fully described in Note 3 to the Condensed Consolidated Financial Statements entitled “Restatement.” For further detail regarding the Restatement, see “Explanatory Note” and Item 4, “Controls and Procedures.”

 

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 have been based upon our current business and operating plans, as approved by the Company’s Board of Directors, and may include statements regarding our cash and other funding requirements and timing and sources thereof; results of feasibility studies; the accuracy of mineral resource and reserve estimates and assumptions on which they are based; the results of economic assessments and exploration activities; and current market conditions and project development plans, and the Transaction (as defined below). The material assumptions used to develop the forward-looking statements and forward-looking information included in this Quarterly Report on Form 10-Q include: our expectations of mineral prices; our forecasts and expected cash flows; our projected capital and operating costs; accuracy of mineral resource estimates and resource modeling and feasibility study results; expectations regarding mining and metallurgical recoveries; timing and reliability of sampling and assay data; anticipated political and social conditions; expected national and local government policies, including legal reforms; successful advancement of the Company’s required permitting processes; and the ability to successfully raise additional capital; NioCorp and GXII (as defined below) being able to receive all required regulatory, third-party and shareholder approvals for the proposed Transaction; the amount of redemptions by GXII public stockholders; the execution of definitive agreements relating to the convertible debenture transaction and the standby equity purchase facility contemplated by the term sheets with Yorkville (as defined below); and other current estimates and assumptions regarding the proposed Transaction and its benefits.

 

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

18

 

 

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 Business:

 

  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 our history of losses;
  risks related to the restatement of our consolidated financial statements as of and for the fiscal years ended June 30, 2022 and 2021 and the interim periods ended September 30, 2021, December 31, 2021 and March 31, 2022 and the impact of such restatement on our future financial statements and other financial measures;
  risks related to the material weakness in our internal control over financial reporting, our efforts to remediate such material weakness and the timing of remediation;
  risks related to cost increases for our exploration and, if warranted, development projects;
  risks related to a disruption in, or failure of, our information technology systems, including those related to cybersecurity;
  risks related to equipment and supply shortages;
  risks related to current and future offtake agreements, joint ventures, and partnerships;
  risks related to our ability to attract qualified management;
  risks related to the effects of the COVID-19 pandemic or other global health crises on our business plans, financial condition and liquidity; and
  risks related to the ability to enforce judgment against certain of our directors.

 

Risks Related to Mining and Exploration:

 

  risks related to estimates of mineral resources and reserves;
  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 the establishment of a reserve and resource for Rare Earth Elements (“REEs” or “Rare Earths”) and the development of a viable recovery process for REEs;
  risks related to the estimation of mineral resources and mineral reserves;
  risks related to changes in mineral resource and reserve estimates;
  risks related to competition in the mining industry;
  risks related to the management of the water balance at our Elk Creek Project;
  risks related to claims on the title to our properties;
  risks related to potential future litigation; and
  risks related to our lack of insurance covering all our operations.

 

Risks Related to Government Regulations:

 

  risks related to our ability to obtain or renew 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 changes in federal and/or state laws that may significantly affect the mining industry;
  risks related to the impacts of climate change, as well as actions taken or required by governments related to strengthening resilience in the face of potential impacts from climate change; and
  risks related to land reclamation requirements.

 

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Risks Related to Our Debt:

 

  risks related to covenants contained in agreements with our secured creditors that may affect our assets; and
  risks related to the extent to which our level of indebtedness may impair our ability to obtain additional financing.

 

Risks Related to Our Common Shares:

 

  risks related to qualifying as a “passive foreign investment company” under the U.S. Internal Revenue Code of 1986, as amended (the “Code”); and
  risks related to our Common Shares, including price volatility, lack of dividend payments, dilution and penny stock rules.

 

Risks Related to the Proposed Transaction

 

  risks related to the amount of any redemptions by GXII public stockholders being greater than expected, which may reduce the cash in trust available to NioCorp upon the consummation of the Transaction;

 

 

 

risks related to the occurrence of any event, change or other circumstances that could give rise to the termination of the Business Combination Agreement (as defined below) and/or payment of the termination fees;

 

  risks related to the outcome of any legal proceedings that may be instituted against NioCorp or GXII following announcement of the Business Combination Agreement and the Transaction;

 

  risks related to the inability to complete the Transaction due to, among other things, the failure to obtain NioCorp shareholder approval or GXII stockholder approval or the execution of definitive agreements relating to the convertible debenture transaction and the standby equity purchase facility contemplated by the term sheets with Yorkville;

 

  the risk that the announcement and consummation of the Transaction disrupts NioCorp’s current plans;

 

  risks relating to the ability to recognize the anticipated benefits of the Transaction;

 

 

risks relating to unexpected costs related to the Transaction; and

 

  the risks that the consummation of the Transaction is substantially delayed or does not occur, including prior to the date on which GXII is required to liquidate under the terms of its charter documents.

 

New Risks in this Form 10-Q/A:

 

  risks related to the restatement of our consolidated financial statements as of and for the three months ended September 30, 2022 and the impact of such restatement on our future financial statements and other financial measures; and

 

  risks related to the additional material weaknesses in our internal control over financial reporting as of September 30, 2022 identified by management subsequent to the filing of the Original Form 10-Q, our efforts to remediate such material weaknesses and the timing of remediation.

 

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/A for the fiscal year ended June 30, 2022, as well as other factors described elsewhere in this report and the Company’s other reports filed with the Securities and Exchange Commission (“SEC”).

 

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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.

 

Qualified Person

 

All technical and scientific information included in this Quarterly Report on Form 10-Q derived from the June 2022 Elk Creek Project feasibility study prepared by qualified persons (within the meaning of both National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and subpart 1300 of Regulation S-K (“S-K 1300”), as applicable) has been reviewed and approved by Scott Honan, M.Sc., SME-RM, NioCorp’s Chief Operating Officer. Mr. Honan is a “Qualified Person” as such term is defined in NI 43-101 and S-K 1300.

 

Company Overview

 

NioCorp is developing the Elk Creek Project, located in southeast Nebraska. The Elk Creek Project is an advanced Niobium (“Nb”), Scandium (“Sc”) and Titanium (“Ti”) development stage property. The Company is evaluating the potential to produce several Rare Earth byproducts from the Elk Creek 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 automobiles, bridges, structural systems, buildings, pipelines, and other applications that generally increases strength and/or reduces weight, 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. Rare Earths are critical to electrification and decarbonization initiatives and can be used to manufacture the strongest permanent magnets commercially available.

 

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.

 

Recent Corporate Events

 

On September 25, 2022, the Company, GXII, and Merger Sub, entered into the Business Combination Agreement. Pursuant to the Business Combination Agreement, as the result of a series of transactions, GXII will become a subsidiary of the Company (as successor by merger to the Company’s subsidiary, ECRC), with the pre-combination public shareholders of GXII receiving Common Shares based on the Exchange Ratio of 1.11829212 Common Shares for each GXII Class A common share held and not redeemed, and the GXII founders receiving shares in GXII (as successor by merger to ECRC) based on the Exchange Ratio. Pursuant to the Business Combination Agreement, after closing, the GXII founders will have the right to exchange such shares for Common Shares on a one-for-one basis under certain conditions. Pursuant to the Business Combination Agreement, the Company will also assume the obligations under the issued and outstanding GXII warrants, which will be converted into warrants exercisable into Common Shares following closing of the Transaction. The Business Combination Agreement contemplates that the Company will undertake a reverse stock split of the Common Shares at the time of close in connection with an expected cross-listing to Nasdaq. In addition, pursuant to the Business Combination Agreement, post-closing, the Company’s Board will include two directors from pre-combination GXII. The transactions contemplated by the Business Combination Agreement and the ancillary agreements thereto are referred to collectively as the “Transaction.”

 

The business combination pursuant to the Business Combination Agreement will be accounted for as a recapitalization in accordance with U.S. GAAP. Under this method of accounting, GXII will be treated as the “acquired” company for financial reporting purposes. Accordingly, the transaction is treated as the equivalent of

21

 

NioCorp issuing Common Shares for the net assets of GXII, accompanied by a recapitalization. The net assets of GXII will be stated at historical cost, with no goodwill or other intangible assets recorded.

 

In addition, in connection with the entry into the Business Combination Agreement, the Company announced the signing of non-binding LOIs for two separate financing packages with Yorkville. Subject to entering into definitive agreements, these financings could provide the Company with access to up to an additional $81.0 million to help advance the Elk Creek Project. The financings contemplated by the LOIs include $16.0 million in convertible debentures that are expected to be funded at the closing of the Transaction, and subject to certain limitations can be repaid by the Company in either cash or Common Shares, and a standby equity purchase facility pursuant to which the Company will have the ability to require Yorkville, subject to the conditions set out in the definitive agreements, to purchase up to $65.0 million of its Common Shares.

 

The proposed Transaction is expected to close in the first calendar quarter of 2023, subject to the satisfaction or waiver of certain customary closing conditions contained in the Business Combination Agreement, including, among other things, (i) obtaining required approvals of the Transaction and related matters by the respective shareholders of NioCorp and GXII, (ii) the effectiveness of the registration statement on Form S-4 that the Company originally filed on November 7, 2022, (iii) receipt of approval for listing on Nasdaq of the NioCorp Common Shares to be issued in connection with the Transaction, (iv) receipt of approval for listing on Nasdaq of the NioCorp warrants to be issued in exchange for the GXII warrants that NioCorp has agreed to assume, (v) receipt of approval from the Toronto Stock Exchange (the “TSX”) with respect to the issuance and listing of the NioCorp Common Shares issuable in connection with the Transaction, (vi) that NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have at least $5.000001 million of net tangible assets upon the consummation of the Transaction, after giving effect to any redemptions by GXII public stockholders and after payment of underwriters’ fees or commissions, (vii) that, at closing, NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have received cash in an amount equal to or greater than $15.0 million, subject to certain adjustments, and (viii) the absence of any injunctions enjoining or prohibiting the consummation of the Business Combination Agreement. The proposed additional financings contemplated by the LOIs will also be subject to the approval of the TSX and the Company’s shareholders.

 

Final proceeds will depend upon redemption rates of current GXII shareholders at the consummation of the proposed Transaction. In connection with the closing of the Transaction, a significant number of GXII shareholders may exercise their redemption rights. See Part II, Item 1A, “Risk Factors—If the Transaction is consummated, the combined company may not realize all or any of the anticipated benefits expected as a result of the Transaction.”

 

Elk Creek Project Update

 

On September 6, 2022, the Company announced that it filed with the SEC a Technical Report Summary (“TRS”) based on the Company’s 2022 Feasibility Study for the Elk Creek Critical Minerals Project. The TRS was filed with the SEC to comply with Item 601(b)(96) and S-K 1300, which regulates disclosure of Mineral Resources and Mineral Reserves. A companion Technical Report for Canadian purposes, pursuant to National Instrument 43-101 (“NI 43-101”), was filed by NioCorp on SEDAR on June 28, 2022. The technical data and economic conclusions of these reports are substantively identical, with minor differences between the reports resulting only from the respective disclosure requirements of S-K 1300 and NI 43-101.

 

On September 6, 2022, the Company announced that its demonstration-scale processing plant (the “demonstration plant”) in Quebec, Canada had commenced a three-tonne sample of representative ore from the Elk Creek Project. The demonstration plant project is intended to demonstrate that the Company can extract and separate rare earth elements from ore that NioCorp expects to mine from the Project site, subject to receipt of necessary project financing, and that its simplified process for potentially producing niobium, scandium, and titanium is technically and economically feasible.

 

The demonstration plant will process Elk Creek ore samples in three phases.

 

Phase 1 is designed to demonstrate a new approach to the initial processing of the ore that NioCorp expects to mine from the Project site, subject to receipt of necessary project funding, including calcination, initial leaching, and rare earth extraction;

 

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Phase 2 is designed to demonstrate an improved process for the second stage of leaching along with Niobium and Titanium separation; and

Phase 3 is designed to demonstrate the technical viability of separating high-purity versions of several target magnetic rare earth products from Elk Creek ore samples, as well as confirming previously achieved high recovery rates for high-purity Scandium trioxide.

 

The potential magnetic rare earth products include Neodymium-Praseodymium (“NdPr”) oxide, Dysprosium oxide, and Terbium oxide. NioCorp will utilize conventional solvent extraction (“SX”) technology to test a rare earth separation approach developed by NioCorp and L3 Process Innovation (“L3”).

 

On October 25, 2022, the Company announced that its demonstration plant had completed demonstrating its planned process for removing calcium and magnesium from ore obtained from the Elk Creek Project. This positive result, which is part of Phase I operations of the demonstration plant, is a key milestone in NioCorp’s proposed optimization of its process flow sheet for the Project, which was designed by L3 and NioCorp.

 

The well-known and time-tested process NioCorp is employing to remove calcium and magnesium carbonates from the ore using thermal treatment and leaching is part of the demonstration plant’s Phase I flowsheet. This step operated successfully, and the removed calcium and magnesium were produced at demonstration scale as a mixed calcium and magnesium carbonate. Removing carbonate minerals in this fashion is expected to reduce the size of the follow-on planned production steps and make them more efficient. Characterization of the calcium and magnesium carbonate from the completed demonstration plant production runs has demonstrated very low levels of impurities, and an overall 99% purity of the mixed calcium-magnesium carbonate. Phase I demonstration plant operations will continue with calcination and a ramp-up of leaching operations as testwork and assembly of Phase II and Phase III of the demonstration plant’s planned operations proceed in parallel.

 

Other Activities

 

Our long-term financing efforts continued during the quarter ended September 30, 2022, including the proposed Transaction, discussed above. As funds become available through the Company’s fundraising efforts, we expect to undertake the following activities:

 

  Continuation of the Company’s efforts to secure federal, state and local permits;
  Continued evaluation of the potential to produce Rare Earth products;
  Negotiation and completion of offtake agreements for the remaining uncommitted production from the project;
  Negotiation and completion of engineering, procurement and construction agreements;
  Completion of the final detailed engineering for the underground portion of the Elk Creek Project;
  Initiation and completion of the final detailed engineering for surface project facilities;
  Construction of natural gas and electrical infrastructure under existing agreements to serve the Elk Creek Project site;
  Completion of water supply agreements and related infrastructure to deliver fresh water to the project site;
  Initiation of revised mine groundwater investigation and control activities;
  Land clearing operations intended to prepare property owned by ECRC for the commencement of project construction,
  Initiation of long-lead equipment procurement activities; and
  Operation of a small-scale demonstration plant to address process recommendations contained in the NI 43-101 technical report for the Elk Creek Project filed on SEDAR on May 29, 2019 and to quantify REE metallurgical performance.

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Financial and Operating Results

 

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,  
   

2022

    2021  
Operating expenses   (As restated)1        
Employee related costs   $ 293     $ 319  
Professional fees     164       90  
Exploration expenditures     1,288       621  
Other operating expenses     337       226  
Total operating expenses     2,082       1,256  
                 
Change in fair value of warrant liability     (257)       -  
Loss on debt extinguishment     1,622       -  

Foreign exchange loss 

    173      

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Interest expense     258       605  
Other (gain) loss on equity securities     (1 )     2  
Income tax benefit     -       -  
Net loss   $ 3,877     $ 2,088  

1See Note 3, “Restatement,” to the Condensed Consolidated Financial Statements for a discussion regarding the impacts of the Restatement.

 

Three months ended September 30, 2022 compared to three months ended September 30, 2021

 

Significant items affecting operating expenses are noted below:

 

Employee-related costs decreased in 2022 as compared to 2021 due to timing of the retirement of our general counsel in the second quarter of fiscal 2021.

 

Professional fees increased in 2022 as compared to 2021, primarily due to the timing of legal services related to the TRS filed with the SEC on September 6, 2022.

 

Exploration expenditures increased in 2022 as compared to 2021, primarily due to the timing of demonstration plant development and start-up costs incurred in 2022, as well as costs related to the completion and filing of the TRS filed with the SEC on September 6, 2022.

 

Other operating expenses include investor relations, general office expenditures, equity offering and proxy expenditures, board-related expenditures and other miscellaneous costs. These costs increased in 2022 as compared to 2021 primarily due to increased financial advisory fees and investor relations fees associated with our ongoing financing efforts.

 

Other significant items impacting the change in the Company’s net loss are noted below:

 

Loss on debt extinguishment for 2022 represents the loss incurred under Accounting Standards Codification (“ASC”) Topic 470, Debt, related to the convertible security (the “Lind III Convertible Security”) issued to Lind Global Asset Management III, LLC (“Lind”) pursuant to the Convertible Security Funding Agreement, dated February 26, 2021, as amended by Amendment #1 to the Convertible Security Funding Agreement, dated December 2, 2021, between the Company and Lind, as discussed in Note 3 to the interim condensed consolidated financial statements.

 

Change in fair value of warrant liability for 2022 represents the decrease in the liability associated with the warrants that may be issued to Lind if on the date that is 18 months following consummation of the Transaction, the closing trading price of the Common Shares on the TSX or such other stock exchange on which such shares may then be listed, is less than C$10.00, subject to adjustments, pursuant to the Waiver and Consent Agreement, dated September 25, 2022 (the “Lind Consent”), between the Company and Lind, as discussed in Note 3.

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Foreign exchange loss is primarily due to changes in the U.S. dollar against the Canadian dollar and reflects the timing of foreign currency transactions, primarily U.S. dollar-based related party loans, and subsequent changes in exchange rates. The decline in foreign exchange loss during 2022 as compared 2021 is due to a declining U.S. dollar-based debt balance, partially offset by increased foreign exchange rates in 2022.

 

Interest expense decreased in 2022 as compared to 2021 due to the impacts of conversions on the outstanding balance of the Lind III Convertible Security.

 

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, the exercise of incentive stock options and share purchase warrants, and related party loans.

 

As of September 30, 2022, the Company had cash of $3.2 million and a working capital deficit of $3.3 million, compared to cash of $5.3 million and working capital surplus of $0.6 million on June 30, 2022.

 

We expect that the Company will operate at a loss for the foreseeable future. The Company’s current planned cash needs are approximately $16.0 million until June 30, 2023. In addition to outstanding accounts payable and short-term liabilities, our average monthly planned expenditures are approximately $1,125 per month where approximately $475 is for corporate overhead and estimated costs related to securing financing necessary for advancement of the Elk Creek Project. Approximately $650 per month is planned for expenditures relating to the advancement of Elk Creek Project by NioCorp’s wholly owned subsidiary, ECRC. 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 does not have sufficient cash to continue to fund basic operations for the next twelve months, and additional funds totaling $12.0 million to $13.5 million are likely to be necessary to continue advancing the project in the areas of financing, permitting, and detailed engineering. 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 $6 until June 30, 2023. To maintain our currently held properties and fund our currently anticipated general and administrative costs and planned exploration and development activities at the Elk Creek Project for the fiscal year ending June 30, 2023, the Company will likely require additional financing during the current fiscal year. Should such financing not be available in that timeframe, 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. 

 

On September 25, 2022, the Company, GXII and Merger Sub entered into the Business Combination Agreement. The NioCorp Board considered a number of factors as generally supporting its decision to enter into the Business Combination Agreement, including, but not limited to, the following material factors:

 

  Anticipated Acceleration of Financing Efforts. The Transaction has the potential to (1) provide NioCorp with up to $285.0 million in net cash proceeds at the consummation of the Transaction, depending upon the amount of redemptions by GXII public stockholders, and up to an additional $81.0 million over the next three years (as further discussed below), depending on the consummation of other additional financing arrangements that NioCorp and GXII intend to pursue prior to and following the expected closing of the Transaction and (2) significantly accelerate NioCorp’s efforts to obtain the required Elk Creek Project financing by increasing exposure to institutional investors looking to make strategic investments in critical minerals plays that are crucial to the world’s clean energy transition;

 

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  Non-Binding Yorkville Term Sheets. The signing of non-binding LOIs for two separate financing packages with Yorkville, where, subject to entering into definitive agreements, such financings could provide NioCorp with access to up to an additional $81.0 million to help advance the Elk Creek Project. The financings contemplated by the LOIs include $16.0 million in convertible debentures that are expected to be funded at the closing of the Transaction, and subject to certain limitations can be repaid by NioCorp in either cash or NioCorp Common Shares, and a standby equity purchase facility pursuant to which NioCorp will have the ability to require Yorkville, subject to the conditions set out in the definitive agreements, to purchase up to $65.0 million of NioCorp Common Shares;
  Anticipated Benefits of Nasdaq Listing. A listing on Nasdaq, which is an established national exchange in the United States, would provide broader access to capital and financing alternatives and would otherwise enhance NioCorp’s public profile; and
  Minimum Cash Condition. The consummation of the Transaction is subject to the satisfaction or waiver of certain closing conditions contained in the Business Combination Agreement, including, among other things, that, at the closing, NioCorp and its subsidiaries (including GXII, as successor by merger to ECRC) will have received cash in an amount equal to or greater than $15.0 million, subject to certain adjustments.

The NioCorp Board also considered a variety of uncertainties and risks and other potentially negative factors concerning the Transaction, including, but not limited to, the following:

 

Risks of Failure to Complete the Transaction. The risks that:

 

othe Transaction may not be completed despite the parties’ efforts, including the possibility that the conditions to the parties’ obligations to complete the Transaction (which include certain conditions that are not within the control of the parties to the Business Combination Agreement) may not be satisfied or that completion of the Transaction may be unduly delayed, and any resulting adverse impacts on NioCorp, its business and the trading price of NioCorp Common Shares;

 

othe circumstances under which the Business Combination Agreement could be terminated and the impact of such termination, including the requirement that NioCorp must pay GXII (1) a Base Termination Fee of $15.0 million if it terminates the Business Combination Agreement in order to enter into an agreement providing for a Superior Proposal (as defined in the Business Combination Agreement), for a change of recommendation of the NioCorp Board, or a material breach of certain of NioCorp’s covenants relating to soliciting acquisition proposals or (2) an Intentional Breach Termination Fee of $25.0 million if GXII terminates the Business Combination Agreement as a result of a willful and material breach by NioCorp or as a result of NioCorp’s failure to consummate the closing of the Transaction within five business days after all the conditions to closing have been satisfied;

 

oif GXII is entitled to the Base Termination Fee or the Intentional Breach Termination Fee upon termination of the Business Combination Agreement, NioCorp is also required to pay all documented and reasonable out-of-pocket expenses paid or payable by GXII and its sponsor in connection with the Business Combination Agreement and the Transaction, not to exceed $5.0 million; and

 

othe substantial costs to be incurred in connection with the Transaction, including those incurred regardless of whether the Transaction are completed;

 

Risks Relating to the Benefits of the Transaction. The risks of:

 

onot realizing all the anticipated benefits expected as a result of the Transaction, including the anticipated acceleration of its financing efforts and the benefits of the expected Nasdaq listing,

 

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  and that general economic and market conditions outside the control of the parties to the Business Combination Agreement could deteriorate, any of which could result in NioCorp being unable to achieve the financing necessary to advance, complete construction and commence operation of the Elk Creek Project; and

 

othe substantial costs to be incurred in connection with the Transaction, including those incurred regardless of whether the anticipated benefits of the Transaction are realized;

 

Risks Relating to the Financing. The absence of committed financing and that the parties may not be able to negotiate definitive documentation related to the Yorkville LOIs or may not otherwise be able to consummate the financing transactions contemplated thereby, which could cause NioCorp to encounter difficulties in completing the Transaction with financing terms as favorable as anticipated or at all; and

 

Restrictions on the Conduct of Business. The Business Combination Agreement places certain restrictions on the conduct of the NioCorp business prior to the consummation of the Transaction and other alternatives reasonably available to NioCorp if it did not pursue the Transaction, including continuing to pursue alternative financing arrangements.

 

Except as set forth above, 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 any such additional financing on acceptable terms, if at all. Notwithstanding the restrictions set forth in the Business Combination Agreement, there is significant uncertainty that we would 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. In addition to the proposed Transaction and subject to receipt of the consent of GXII as may be required pursuant to the Business Combination Agreement, management may 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. In addition, we could raise funds through the sale of interests in our mineral properties, although current market conditions and the impacts of the COVID-19 pandemic and other recent worldwide events have substantially reduced the number of potential buyers/acquirers of any such interests. However, we cannot provide any assurances that we will be able to be successful in raising such funds.

 

Based on the conditions described within, management has concluded and the audit opinion and notes that accompany our financial statements for the year ended June 30, 2022, disclose that substantial doubt exists as 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 a development stage issuer and we have incurred losses since our inception. We may 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. The COVID-19 pandemic and other recent worldwide events have created general global economic uncertainty as well as uncertainty in capital markets, supply chain disruptions, increased interest rates, and the potential for geographic recessions. During fiscal year 2022 and continuing into fiscal year 2023, these events continued to create uncertainty with respect to overall project funding and timelines. We believe that the going concern uncertainty cannot be alleviated with confidence until the Company has entered into a business climate where funding of its planned ongoing operating activities is secured. Therefore, these factors raise substantial doubt as to our ability to continue as a going concern.

 

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.

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Operating Activities

 

During the three months ended September 30, 2022, the Company’s operating activities consumed $1.7 million of cash (2021: $1.6 million). The cash used in operating activities for the three months ended September 30, 2022, reflects the Company’s funding of losses of $3.9 million, partially offset by the loss on debt extinguishment, accretion of convertible debt and other non-cash transactions. Overall, operational outflows during the three months ended September 30, 2022, increased slightly from the corresponding period of 2021 due to an increase in exploration-related spending at the Elk Creek Project. Going forward, the Company’s working capital requirements are expected to increase substantially in connection with the development of the Elk Creek Project.

 

Financing Activities

 

Financing inflows were nil during the three months ended September 30, 2022, as compared to $0.3 million during the corresponding period in 2021, primarily reflecting the timing of warrant and option exercises during 2021.

 

Cash Flow Considerations

 

The Company has historically relied upon debt and equity financings to finance its activities. The Company may pursue additional debt and/or equity financing in the medium term; 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, including the impacts of the COVID-19 pandemic on the timing and availability of funding, 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, 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.

 

Critical Accounting Estimates

 

Except as noted below, there have been no material changes in our critical accounting estimates discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Critical Accounting Estimates and Recent Accounting Pronouncements” as of June 30, 2022, in our Annual Report on Form 10-K/A for the fiscal year ended June 30, 2022.

 

Warrants

 

We apply relevant accounting guidance for warrants to purchase our stock based on the nature of the relationship with the counterparty. For warrants issued to investors or lenders in exchange for cash or other financial assets, we follow guidance issued within ASC 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging, (“ASC 815”) to assist in the determination of whether the warrants should be classified as liabilities or equity. The fair value of warrants is estimated using Black Scholes modeling or Monte Carlo modeling, depending on the settlement features embedded in the warrant. Inputs under both models include inputs such as NioCorp’s Common Share price, the risk-free interest rate, the expected term, the volatility, and the dividend rate. Warrants that are determined to require liability classifications are measured at fair value upon issuance and are subsequently remeasured to their then fair value at each subsequent reporting period with changes in fair value recorded in current earnings. Warrants that are determined to require equity classifications are measured at fair value upon issuance and are not subsequently remeasured unless they are required to be reclassified.

 

Certain U.S. Federal Income Tax Considerations

 

NioCorp believes that it qualified as a “passive foreign investment company” (“PFIC”) as defined under Section 1297 of the Code, in recent years, including its taxable years ended June 30, 2022 and June 30, 2021. However, based on the current composition of its income and assets, as well as current business plans and financial expectations, NioCorp does not currently expect to be treated as a PFIC for its taxable year or foreseeable future taxable years. However, this conclusion is a factual determination that must be made annually at the close of each taxable year and, thus, is subject to change. In addition, it is possible notwithstanding NioCorp’s conclusion that the IRS could assert, and that a court could sustain, a determination that NioCorp is a PFIC. Accordingly, there can be no assurance that NioCorp (or any of its subsidiaries) will not be treated as a PFIC for any taxable year. 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 “Risk Factors” section of the

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Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2022, under the heading “Risks Related to the Common Shares.”

 

Other

 

The Company has one class of shares, being Common Shares. A summary of outstanding shares, share options, warrants, and convertible debt option as of November 14, 2022, is set out below, on a fully-diluted basis.

 

 

Common Shares Outstanding

(fully diluted)

Common Shares 27,945,088
Stock options1 1,436,400
Warrants1 1,851,625
Convertible Debt2 115,520

 

1Each exercisable into one Common Share.

2Represents Common Shares issuable on conversion of aggregate outstanding principal amounts of $0.8 million of convertible debt as of November 14, 2022, assuming a market price per Common Share of $8.10 on that date.

 

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 U.S. dollars and Canadian dollars. 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 Canadian dollars 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 (Restated)

 

At the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, 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 concluded at the time that the Original Form 10-Q was filed that, as of the end of the period covered by this Quarterly Report, our disclosure

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controls and procedures were not effective due to the material weakness in internal control over financial reporting relating to the Company’s controls over accounting for non-routine transactions described below.

 

Subsequent to that evaluation, the Company identified an additional error, requiring the restatement of the Company’s condensed consolidated financial statements as of and for the three months ended September 30, 2022, which was partially caused by the same material weakness in internal control over financial reporting that management had concluded existed as of September 30, 2022 at the time the Original Form 10-Q was filed. In addition, subsequent to the evaluation of the effectiveness of the design and operations of our disclosure controls and procedures conducted at the end of the period covered by this Quarterly Report, management concluded that two other material weaknesses in internal control over financial reporting existed as of September 30, 2022, as described below. As a result, the CEO and CFO have reaffirmed their conclusion that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

 

The Company’s disclosure controls and procedures have been designed to ensure 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.

 

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.

 

Material Weaknesses in Internal Control over Financing Reporting Existing as of September 30, 2022

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

 

Our management concluded that the previously disclosed material weakness relating to the Company’s controls over the accounting for non-routine transactions continued to exist as of September 30, 2022. Specifically, such controls were not adequately designed to ensure the consideration of all related relevant accounting guidance when such transactions were recorded. As disclosed in the C