NioCorp Developments Ltd. announced that 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 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 (the “Affected Periods“) contained an error related to the accounting for the unamortized deferred financing costs and debt discounts upon extinguishments of debt related to debt conversions. As a result of this error, the Audit Committee determined that the Company’s consolidated financial statements for the Affected Periods should not be relied upon and should be restated by adjusting interest expense recognized in each of the Affected Periods.
The Company previously issued a convertible debt security (the “Lind III Convertible Security“) pursuant to a definitive convertible security funding agreement, dated February 16, 2021 (the “Lind III Agreement”), between the Company and Lind Global Asset Management III, LLC (“Lind III”). Pursuant to the Lind III Agreement, Lind III is entitled to convert the Lind III Convertible Security into common shares, without par value, of the Company (“Common Shares”) in monthly installments over its term at a price per Common Share equal to 85% of the volume-weighted average price per Common Share on the Toronto Stock Exchange for the five trading days immediately preceding the date on which Lind III provides notice to the Company of its election to convert a portion thereof. Each conversion of a portion of the Lind III Convertible Security into Common Shares results in a partial extinguishment of the debt, for which a proportionate amount of the related debt discounts and deferred financing costs should have been recognized as a loss on extinguishment. The Company originally accounted for the unamortized debt discounts and deferred financing costs using a “prospective approach.” Under this “prospective approach,” upon conversion of a portion of the Lind III Convertible Security, a new effective interest rate was computed based on the post-conversion carrying value of the Lind III Convertible Security and the revised estimated remaining cash flows. Using this “prospective approach,” changes in amortization of debt discounts and deferred financing costs were included in future interest expense on a prospective basis.
The identification of the need for the restatement arose out of the Company’s normal quarterly close and review procedures for the quarter ended September 30, 2022. 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 the amortization of debt discounts and deferred financing costs, and concluded that the Company should have expensed a proportionate amount of the debt discounts and deferred financing costs at the time of each conversion.
The change in the timing of expensing debt discounts and unamortized deferred financing costs upon extinguishments of debt related to debt conversions is a non-cash item that affects the timing of recognition, but not the total amount of expense to be recognized over the life of the convertible debt instrument. The loss on extinguishment is included in accretion and amortization expense for convertible debt, which is disclosed as a part of interest expense in the Company’s consolidated statements of operations and comprehensive loss and is not included as a component of operating costs. The following table shows the Company’s interest expense and net loss for the fiscal years ended June 30, 2022 and 2021 as previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 and preliminary estimates of the same on an as-restated basis. The net loss restatement impacts include minor adjustments to account for foreign exchange impacts, as the U.S. dollar-denominated Lind III Convertible Security is carried on the Canadian parent company books:
Fiscal Year Ended June 30, 2022 |
||||||
As Previously |
Restatement |
As Restated |
||||
Interest expense |
$1,906 |
$921 |
$2,827 |
|||
Net loss |
9,929 |
958 |
10,887 |
Fiscal Year Ended June 30, 2021 |
||||||
As Previously |
Restatement |
As Restated |
||||
Interest expense |
$1,113 |
$430 |
$1,543 |
|||
Net loss |
4,390 |
434 |
4,824 |
This correction to the Company’s consolidated statements of operations and comprehensive loss also impacts the Company’s consolidated balance sheets, consolidated statements of shareholders’ equity, and certain notes to the consolidated financial statements, as well as management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q covering the Affected Periods. This correction does not impact the consolidated statements of cash flows besides offsetting adjustments between net loss, accretion of convertible debt, and foreign exchange (gain) loss within the cash flows from operating activities section.
The Company plans to restate the financial statements with respect to the Affected Periods in an amendment to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (the “Amended Form 10-K“) to be filed with the Securities and Exchange Commission (the “SEC“). The adjustments to such financial statement items will be set forth through expanded disclosure in the financial statements included in the Amended Form 10-K, including further describing the restatement and its impact on previously reported amounts. The Company is working diligently with its auditors and others to file the Amended Form 10-K as soon as practicable.
The Company’s management has concluded that the Company had a material weakness in its internal control over financial reporting during the Affected Periods relating to the error described above. The Company’s remediation plan with respect to such material weakness will be described in the Amended Form 10-K to be filed with the SEC.
The Audit Committee has discussed the matters disclosed above with the Company’s independent registered public accounting firm, BDO USA, LLP.
For More Information:
Jim Sims, Corporate Communications Officer, NioCorp Developments Ltd., 720-639-4650, jim.sims@niocorp.com