The accompanying reviewed interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles
applicable in the United States of America. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in our Company's annual report on Form 10-K for the year ended June 30, 2017.
In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
Nature of Operations and Going Concern (note 1)
Mineral Properties (note 5
)
NextSource Materials
Inc.
Unaudited Condensed Consolidated Interim Statements of Operations and
Comprehensive
Loss
(Expressed in US Dollars)
|
|
Three
months ended
|
|
|
Three months ended
|
|
|
|
September 30
,
201
7
|
|
|
September 30
,
201
6
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral explor
ation expense (notes 6 and 11)
|
|
|
293,609
|
|
|
|
313,107
|
|
Professi
onal and consulting fees (note 6)
|
|
|
360,287
|
|
|
|
143,717
|
|
Ge
neral and administrative
|
|
|
153,916
|
|
|
|
62,184
|
|
Depreciation (note 4
)
|
|
|
1,748
|
|
|
|
11,001
|
|
Foreign currency translation los
s (gain)
|
|
|
(28,935
|
)
|
|
|
53,236
|
|
|
|
|
|
|
|
|
|
|
Total E
xpenses
|
|
|
780,625
|
|
|
|
583,245
|
|
Net Loss From Operations
|
|
|
(780,625
|
)
|
|
|
(583,245
|
)
|
Other Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value o
f warrant liability
|
|
|
-
|
|
|
|
57,166
|
|
Part XII.6 taxes (note 12)
|
|
|
-
|
|
|
|
(33,630
|
)
|
|
|
|
|
|
|
|
|
|
Net
Loss
and Comprehensive Loss
|
|
$
|
(780,625
|
)
|
|
$
|
(559,709
|
)
|
|
|
|
|
|
|
|
|
|
L
oss per share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares outstand
ing – basic and diluted (note 10)
|
|
|
460,995,711
|
|
|
|
409,761,425
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
NextSource Materials
Inc.
Unaudited Condensed Consolidated Interim Statements of Cash Flows
(Expressed in US Dollars)
|
|
Three
months
ended
September 30
, 2017
|
|
|
Three
months ended
September 30
, 201
6
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net L
oss
|
|
$
|
(780,625
|
)
|
|
$
|
(559,709
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,748
|
|
|
|
11,001
|
|
Change in value of warrant
derivative liability
|
|
|
-
|
|
|
|
(57,166
|
)
|
|
|
|
|
|
|
|
|
|
Change in
non-cash working capital:
|
|
|
|
|
|
|
|
|
Amounts
receivable and prepaid expenses
|
|
|
15,728
|
|
|
|
(34,968
|
)
|
Accounts payable and accrued liabilities
|
|
|
168,004
|
|
|
|
(67,595
|
)
|
Contingency
provision
|
|
|
7,550
|
|
|
|
(1,769
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(587,595
|
)
|
|
|
(710,206
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in) provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuanc
e of common stock
|
|
|
-
|
|
|
|
5,177,885
|
|
Common stock issue costs
|
|
|
-
|
|
|
|
(370,671
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
4,807,214
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(587,595
|
)
|
|
|
4,097,008
|
|
Cash and cash equivalents
- beginning of period
|
|
|
1,964,948
|
|
|
|
544,813
|
|
Cash and cash equivalents
- end of period
|
|
$
|
1,377,353
|
|
|
$
|
4,641,821
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Interest Received
|
|
|
-
|
|
|
|
-
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
NextSource Materials
Inc.
Unaudited Condensed
Consolidated
Interim
Statement of Stockholder’s
Equity
(Expressed in US Dollars)
|
|
Shares
#
|
|
|
Common
Stock
$
|
|
|
Additional
Paid-In
Capital
$
|
|
|
Accumulated Comprehensive Income (Loss)
$
|
|
|
Accumulated Deficit
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- June 30, 2016
|
|
|
364,931,425
|
|
|
|
364,932
|
|
|
|
93,654,114
|
|
|
|
-
|
|
|
|
(93,960,747
|
)
|
|
|
58,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement of common shares subscribed
|
|
|
96,064,286
|
|
|
|
96,064
|
|
|
|
5,081,821
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,177,885
|
|
Cost of issue of private placement of common shares subscribed
|
|
|
-
|
|
|
|
-
|
|
|
|
(370,671
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(370,671
|
)
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(559,709
|
)
|
|
|
(559,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
-
September 30
, 201
6
|
|
|
460,995,711
|
|
|
|
460,996
|
|
|
|
98,365,264
|
|
|
|
-
|
|
|
|
(94,520,456
|
)
|
|
|
4,305,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
794,864
|
|
|
|
-
|
|
|
|
-
|
|
|
|
794,864
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,439,649
|
)
|
|
|
(3,439,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
-
June 30
, 2017
|
|
|
460,995,711
|
|
|
|
460,996
|
|
|
|
99,160,128
|
|
|
|
-
|
|
|
|
(97,960,105
|
)
|
|
|
1,661,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
1,500,000
|
|
|
|
1,500
|
|
|
|
103,500
|
|
|
|
|
|
|
|
|
|
|
|
105,000
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(780,625
|
)
|
|
|
(780,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
-
September 30
, 2017
|
|
|
462,495,711
|
|
|
|
462,496
|
|
|
|
99,263,628
|
|
|
|
-
|
|
|
|
(98,740,730
|
)
|
|
|
985,394
|
|
The accompanying notes
are an integral part of these unaudited condensed consolidated interim
financial statements.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
1.
Nature of Operations and Going Concern
NextSource Materials Inc. (f/k/a/ Energizer Resources, Inc.) (the "Company") is incorporated in the State of Minnesota, USA and has a fiscal year end of June 30. The Company's principal business is the acquisition, exploration and development of mineral resources. The Company has yet to generate revenue from mining operations or pay dividends and is unlikely to do so in the immediate or foreseeable future.
During fiscal 2008, the Company incorporated NextSource Materials (Mauritius) Ltd. (f/k/a Energizer (Mauritius) Ltd.) (“
NSMMAU”), a Mauritius subsidiary, and Energizer Resources Madagascar Sarl. (“ERMAD”), a Madagascar subsidiary of NSMMAU. During fiscal 2009, the Company incorporated NextSource Minerals (Mauritius) Ltd. (f/k/a THB Ventures Ltd.) (“MINMAU”), a Mauritius subsidiary of NSMMAU, and Energizer Minerals Sarl. (“MINMAD”), a Madagascar subsidiary of MINMAU, which holds the ownership interest of the Green Giant Property in Madagascar. During fiscal 2012, the Company incorporated NextSource Graphite (Mauritius) Ltd. (f/k/a Madagascar-ERG Joint Venture (Mauritius) Ltd.) (“GRAMAU”), a Mauritius subsidiary of NSMMAU, and ERG (Madagascar) Sarl. (“GRAMAD”), a Madagascar subsidiary of GRAMAU, which holds the Molo Graphite Project exploration permits. During fiscal 2014, the Company incorporated 2391938 Ontario Inc., an Ontario, Canada subsidiary.
As of
September 30, 2017, the Company had accumulated losses of $98,740,730 (June 30, 2017: $97,960,105), recurring loss and negative operating cash flows, and as such, conditions exist that may raise substantial doubt regarding the Company's ability to continue as a going concern. Substantial doubt about an entity’s ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management has evaluated the significance of these conditions in relation to the Company’s ability to meet its obligations as they become due within one year after the date of these financial statements. As such, management does not believe that the accumulated loss and recurring loss are relevant because since inception, the Company has been entirely financed from the proceeds of securities subscriptions. As of September 30, 2017, the Company had a net working capital position of $959,337 (June 30, 2017: $1,633,214). In the event the Company becomes unable to raise additional equity through securities subscriptions, in order to alleviate substantial doubt regarding the Company’s ability to continue as a going concern related to negative operating cash flows, management has established plans to mitigate planned outflows in order to meet its obligations as they become due by reducing discretionary general and administrative expenditures as well as halting non-critical permitting activities.
These unaudited condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity or debt financing to continue operations, the Company's ability to attract joint venture partners and off
-take contracts and the attainment of profitable operations. These unaudited condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
2.
Significant Accounting Policies
Unaudited Condensed Consolidated Interim Financial Statements
These unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual consolidated financial statements and should be read in conjunction with those annual financial statements filed on Form 10
-K for the year ended June 30, 2017.
In the opinion of management, these unaudited condensed consolidated interim financial statements reflect adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.
Principals of Consolidation and Basis of Presentation
These unaudited condensed consolidated interim financial statements are presented in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").These unaudited condensed consolidated interim financial statements include th
e accounts of NextSource Materials Inc. and its wholly-owned subsidiaries, NextSource Materials (Mauritius) Ltd., NextSource Minerals (Mauritius) Ltd., NextSource Graphite (Mauritius) Ltd., Energizer Resources Madagascar Sarl, Energizer Minerals Sarl, ERG (Madagascar) Sarl and 2391938 Ontario Inc.
All inter
-company balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of these
unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these unaudited condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue and expenses. Management uses past experience and other factors as the basis for its judgments and estimates. Actual results may differ from those estimates. The impacts of estimates are pervasive throughout these unaudited condensed consolidated interim financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects current and future periods. Areas where significant estimates and assumptions are used include: the binomial valuation of the warrant liability, the Black-Scholes valuation of warrants and stock options, the valuation recorded for future income taxes and the assumption that the Company will receive title to the properties after the Madagascar political situation stabilizes.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
3.
Recent Accounting Pronouncements Potentially Affecting
T
he
Company
The following are recent FASB accounting pronouncements, which
the Company adopted for the annual period beginning July 1, 2017.
●
|
"Presentation of Financial Statements Going Concern (ASC Topic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern ("ASU 2014-15") was issued during August 2014. FASB issued guidance on how to account for and disclose going concern risks. This guidance is effective for annual periods beginning after December 15, 2016.
|
●
|
“Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09) was issued in March 2016. This new standard provided guidance for the simplification of several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This standard is effective for annual periods beginning after December 15, 2016.
|
●
|
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”) was issued in August 2016. This update addresses several specific cash flow issues with the objective of reducing the existing diversity in practice.
|
The adoption of
ASU 2014-15, ASU 2016-09 and ASU 2016-15 did not have a significant impact on the Company’s results of financial performance.
The following are recent FASB accounting pronouncements, which may have an impact on the Company's future consolidated financial statements.
●
|
“Leases” (ASU 2016-02) was issued during February 2016. This update will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will also require additional disclosure about the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual and interim periods beginning after December 15, 2018.
|
●
|
“Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting” (ASU 2017-09) was issued in May 2017. This update will provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. This standard is effective for annual periods beginning after December 15, 2017.
|
The Company continues to evaluate the impact of
ASU 2016-02 and ASU 2017-09 on its consolidated financial statements.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
4
.
Property Plan
t and Equipment
The Company owns metallurgical testing equipment in Madagascar.
For the three month period ended September 30, 2017, the Company recognized depreciation expense relating to equipment totaling $1,748 (September 30, 2016: $11,001).
|
|
Equipment
Cost
s
$
|
|
|
Less: Accumulated
Depreciation
$
|
|
|
Net Book
Value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2016
|
|
|
195,561
|
|
|
|
173,650
|
|
|
|
21,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
-
|
|
|
|
11,001
|
|
|
|
(11,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September
30, 201
6
|
|
|
195,561
|
|
|
|
184,651
|
|
|
|
10,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
-
|
|
|
|
10,910
|
|
|
|
(10,910
|
)
|
Derecognition of equipment
|
|
|
(195,561
|
)
|
|
|
(195,561
|
)
|
|
|
-
|
|
Acquisition of metallurgical equipment
|
|
|
27,805
|
|
|
|
-
|
|
|
|
27,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
|
27,805
|
|
|
|
-
|
|
|
|
27,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
-
|
|
|
|
1,748
|
|
|
|
(1,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September
30, 2017
|
|
|
27,805
|
|
|
|
1,748
|
|
|
|
26,057
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
5
. Mineral Properties
Molo Graphite Property, Southern Madagascar Region, Madagascar
On December 14, 2011, the Company entered into a Definitive Joint Venture Agreement ("JVA") with Malagasy Minerals Limited ("Malagasy"), a public company listed on the Australian Stock Exchange, to acquire a 75% interest in a property package for the exploration and development of industrial minerals, including graphite, vanadium and 25 other minerals. The land position consists of 2,119 permits covering 827.7 square kilometers and is mostly adjacent towards the south and east with the Company's 100% owned Green Giant Property. Pursuant to the JVA, the Company paid $2,261,690 and issued 7,500,000 common shares that were valued at $1,350,000.
On April 16, 2014, the Company signed a Sale and Purchase Agreement and a Mineral Rights Agreement (together “the Agreements”) with Malagasy to acquire the remaining 25% interest. Pursuant to the Agreements, the Company paid $364,480 (CAD$400,000), issued 2,500,000 common shares subject to a 12-month voluntary vesting period that were valued at $325,000 and issued 3,500,000 common share purchase warrants, which were valued at $320,950 using Black
-Scholes, with an exercise price of $0.14 and an expiry date of April 15, 2019. On May 20, 2015 and upon completion of a bankable feasibility study (“BFS”) for the Molo Graphite Property, the Company paid $546,000 (CAD$700,000) and issued 1,000,000 common shares, which were valued at $100,000.
Malagasy retains a 1.5% net smelter return royalty ("NSR") on the property. A further cash payment of approximately $785,285 (CAD$1,000,000) will be due within five days of the commencement of commercial production.
The Company also acquired a 100% interest in the industrial mineral rights on approximately 1 ½
additional claim blocks covering 10,811 hectares adjoining the east side of the Molo Graphite Property.
The Molo Graphite Project is located within Exploration Permit #3432 ( “PR 3432”) as issued by the Bureau de Cadastre Minier de Madagascar (“BCMM”) pursuant to the Mining Code 1999 (as amended) and its implementing decrees.
The Molo Graphite Project exploration permit PR 3432 is currently held under the name of one of our Madagascar subsidiary ERG Madagascar SARLU. Our Madagascar subsidiaries have paid all taxes and administrative fees to the Madagascar government and its mining ministry with respect to all the mining permits held in country. These taxes and administrative fee payments have been acknowledged and accepted by the Madagascar government.
We have applied to the BCMM to have the Molo Graphite Project exploration permit converted into an exploitation permit
. The exploitation permit is required to advance the Molo Project into the developmental stage.
A comprehensive Environmental and Social Impact Assessment ("ESIA"), developed to local Malagasy, Equator Principles, World Bank and International Finance Corporation (IFC) standards, is nearing completion. This process was preceded by an Environmental Le
gal Review and an Environmental and Social Screening Assessment; both providing crucial information to align the project development and design with international best practice on sustainable project development.
Application for all necessary permits to con
struct and operate the mine, including water use, construction, mineral processing, transportation, export, and labour will be undertaken within the ESIA review period (6 months), which is expected to be from September 2017 till February 2018.
Security of
land tenure is a process that is estimated to take 6-9 months to complete. Compilation of a comprehensive legal register will also be required
.
The Company cannot provide any assurance as to the timing of the receipt of the required permits and licenses.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
Green Giant Property, Southern Madagascar Region, Madagascar
In 2007, the Company entered into a joint venture agreement with Madagascar Minerals and Resources Sarl ("MMR") to acquire a 75% interest in the Green Giant Property. Pursuant to the agreement, the Company paid $765,000 in cash, issued 2,500,000 common shares and issued 1,000,000 common share purchase warrants, which have now expired.
On July 9, 2009, the Company acquired the remaining 25% interest by paying $100,000. MMR retains a 2% NSR. The first 1% NSR can be acquired at the Company's option by paying $500,000 in cash or common shares and the second 1% NSR can be acquired at the Company
’s option by paying $1,000,000 in cash or common shares.
On April 16, 2014, the Company signed a Joint Venture Agreement with Malagasy, whereby Malagasy acquired a 75% interest in non
-industrial minerals on the Company's 100% owned Green Giant Property. On May 21, 2015, Malagasy terminated the Joint Venture Agreement, which as a result, the Company reverted to its original 100% interest in all minerals on the property.
Since early 2012, the Company has focused its efforts on the Molo Graphite Project and as such only minimal work has been completed on the Green Giant Property since that time. We currently do not consider the Green Giant Property to be a material asset o
f the Company.
Sagar Property, Labrador Trough Region, Quebec, Canada
In 2006, the Company purchased from Virginia Mines Inc. ("Virginia") a 100% interest in 369 claims located in northern Quebec, Canada. Virginia retains a 2% net smelter return royalty ("NSR") on certain claims within the property. Other unrelated parties also retain a 1% NSR and a 0.5% NSR on certain claims within the property, of which half of the 1% NSR can be acquired by the Company by paying $200,000 and half of the 0.5% NSR can be acquired by the Company by paying $100,000.
On February 28, 2014, the Company signed an agreement to sell a 35% interest in the Sagar property to Honey Badger Exploration Inc. (“Honey Badger”), a public company that is a related party through common management. The terms of the agreement were subsequently amended on July 31, 2014 and again on May 8, 2015. To earn the 35% interest, Honey Badger was required to complete a payment of $36,045 (CAD$50,000) by December 31, 2015, incur exploration expenditures of $360,450 (CAD$500,000) by December 31, 2016 and issue 20,000,000 common shares to the Company by December 31, 2015. Honey Badger did not complete the earn-in requirements by December 31, 2015 resulting in the termination of the option agreement.
Since early 2012, the Company has focused its efforts on the Molo Graphite Project and as such only minimal work has been completed on the Sagar Property since that time. We currently do not consider the Sagar Property to be a material asset of the Compan
y.
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
6
. Related Party Transactions and Balances
The Company had related party transactions during the period. Parties are related if one party has the direct or indirect ability to control or exercise significant influence over the other party in making operating and financial decisions. Parties are also related if they are subject to common control or common significant influence. Related parties include corporate entities, members of the Board of Directors and certain key management as well as companies controlled by these individuals.
A transaction is considered to be a related party transaction when there is a transfer of economic resources or financial obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the fair value.
The following related party transactions occurred during the
three-month period ended September 30, 2017:
a)
|
The Company incurred $194,647 in mineral exploration expense and in professional and consulting fees paid to directors, officers or companies under their control (September 30, 2016: $131,784).
|
The following related party transactions balances existed as of September 30, 2017:
a)
|
The accounts payable balance for payroll, management and consulting fees owed to directors and officers or companies under their control was $16,400 at the end of the period (June 30, 2017: $16,400).
|
b)
|
The prepaid payroll balance for payroll expenditures paid to officers was $28,073 at the end of the period (June 30, 2017: $29,746).
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
7
. Common Stock and Additional Paid-in Capital
The
authorized share capital of the Company is 650,000,000 shares with a $0.001 par value. As of September 30, 2017, the Company had 462,495,711 common shares issued and outstanding (June 30, 2017: 460,995,711).
The
Company issued the following common shares during the three month period ended September 30, 2017:
|
(a)
|
On September 30, 2017, the Company issued 1,500,000 common shares upon the exercise of 1,500,000 common share purchase warrants for gross proceeds of $105,000. The proceeds were recorded as accounts receivable at September 30, 2017 and were subsequently received by the Company.
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
8
. Stock Options
The Company
’s stock option plan is restricted to a maximum of 46,000,000 common stock purchase options.
As of September 30, 2017, there were 41,800,000 common stock purchase options outstanding (June 30, 2017: 44,470,000) with a weighted average exercise price of $0.10 and an expiration of 3.4 years.
All the stock options vested on their grant date.
The following is a schedule of the Company
’s outstanding common stock purchase options for the three-month period ending September 30, 2017:
Grant
Date
|
Expiration
Date
|
|
Exercise
Price
|
|
|
Balance
Outstanding
June 30, 201
7
|
|
|
Balance
Outstanding
September
30, 2017
|
|
February 27, 2013
|
February 27, 2018
|
|
$
|
0.21
|
|
|
|
3,725,000
|
|
|
|
3,075,000
|
|
July 9, 2013
|
July 9, 2018
|
|
$
|
0.11
|
|
|
|
880,000
|
|
|
|
730,000
|
|
September 19, 2013
|
July 19, 2018
|
|
$
|
0.15
|
|
|
|
450,000
|
|
|
|
375,000
|
|
January 10, 2014
|
January 10, 2019
|
|
$
|
0.18
|
|
|
|
3,775,000
|
|
|
|
3,050,000
|
|
July 3, 2014
|
July 3, 2019
|
|
$
|
0.15
|
|
|
|
2,750,000
|
|
|
|
2,250,000
|
|
February 26, 2015
|
February 26, 2020
|
|
$
|
0.20
|
|
|
|
4,100,000
|
|
|
|
3,530,000
|
|
December 22, 2015
|
December 22, 2020
|
|
$
|
0.06
|
|
|
|
7,650,000
|
|
|
|
7,650,000
|
|
June 9, 2017
|
June 9, 2022
|
|
$
|
0.07
|
|
|
|
21,140,000
|
|
|
|
21,140,000
|
|
Total Outstanding
|
|
|
|
|
|
|
44,470,000
|
|
|
|
41,800,000
|
|
The following is a continuity schedule of the Company's outstanding common stock purchase options from prior
years:
|
|
Weighted-Average
Exercise Price ($)
|
|
|
Number of
Stock Options
|
|
Outstanding as of June 30, 2016
|
|
|
0.18
|
|
|
|
41,965,000
|
|
Granted
|
|
|
0.07
|
|
|
|
21,140,000
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
0.23
|
|
|
|
(18,635,000
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 201
7
|
|
|
0.11
|
|
|
|
44,470,000
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
0.18
|
|
|
|
(2,670,000
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding as of
September 30, 2017
|
|
|
0.10
|
|
|
|
41,800,000
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
9
. Warrants
As of
September 30, 2017, there were 29,021,256 common share purchase warrants outstanding with a weighted average exercise price of $0.12 and an expiration of 0.5 years.
The following is a schedule of the Company
’s outstanding common stock purchase warrants for the three months ending on September 30, 2017:
Issued
Date
|
Expiration
Date
|
|
Exercise
Price
|
|
|
Balance
Outstanding
June 30, 201
7
|
|
|
Balance
Outstanding
September
30, 2017
|
|
October 7, 2015
|
October 6, 2017
|
|
$
|
0.07
|
|
|
|
7,100,000
|
|
|
|
5,600,000
|
|
July 31, 2015
|
May 4, 2018
|
|
$
|
0.14
|
|
|
|
10,275,499
|
|
|
|
10,275,499
|
|
February 4, 2016
|
February 4, 2018
|
|
$
|
0.11
|
|
|
|
6,437,900
|
|
|
|
6,437,900
|
|
April 11, 2016
|
April 11, 2018
|
|
$
|
0.11
|
|
|
|
3,207,857
|
|
|
|
3,207,857
|
|
June 23, 2014
|
April 15, 2019
|
|
$
|
0.14
|
|
|
|
3,500,000
|
|
|
|
3,500,000
|
|
Total Outstanding
|
|
|
|
|
|
|
30,521,256
|
|
|
|
29,021,256
|
|
The following is the continuity schedule of the Company's common share purchase warrants from prior
years:
|
|
Weighted-Average
Exercise Price ($)
|
|
|
Number of
Warrants
|
|
Outstanding as of June 30, 2016
|
|
|
0.13
|
|
|
|
65,242,431
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
0.14
|
|
|
|
(34,721,175
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 201
7
|
|
|
0.11
|
|
|
|
30,521,256
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
0.07
|
|
|
|
(1,500,000
|
)
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2017
|
|
|
0.12
|
|
|
|
29,021,256
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
10
. Loss Per Share
Basic and diluted loss per share is computed using the weighted average number of common
shares outstanding during the reporting period. Diluted loss per share and the weighted average number of shares of common stock excludes all potentially dilutive shares since their effect is anti-dilutive.
As
of September 30, 2017, there was a total of 70,821,256 potentially dilutive warrants and options outstanding (June 30, 2017: 74,991,256).
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
11
. Segmented Reporting
The Company operates one operating segment, which is the acquisition, exploration and development of mineral resources in Madagascar. No revenue has been generated by any mineral resource properties. Limited amounts of cash and equipment are currently held in Madagascar. Substantially all of the remaining assets are held in Canada. The Company's President and Chief Executive Officer and Chief Financial Officer are the operating decision
-makers and direct the allocation of resources to its geographic segments.
The following is the segmented information by geographic region:
Mineral Exploration Expense
|
|
Madagascar
$
|
|
|
Canada
$
|
|
|
Total
$
|
|
Three-month period ended September 30, 2017
|
|
|
292,139
|
|
|
|
1,470
|
|
|
|
293,609
|
|
Three-month period ended September 30, 2016
|
|
|
279,749
|
|
|
|
33,358
|
|
|
|
313,107
|
|
Cash and Cash Equivalents
|
|
Madagascar
$
|
|
|
Canada
$
|
|
|
Total
$
|
|
As of
September 30, 2017
|
|
|
53,876
|
|
|
|
1,323,477
|
|
|
|
1,377,353
|
|
As of June 30, 2017
|
|
|
44,085
|
|
|
|
1,920,863
|
|
|
|
1,964,948
|
|
NextSource Materials Inc.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
For the three month periods ended September 30, 2017 and 2016
(Expressed in US Dollars)
1
2
.
Contingency
Provision and Legal Settlement
During fiscal 2014, the Company issued 17,889,215 flow-through shares to eligible Canadian taxpayer subscribers with contractual commitments for the Company to incur $3,812,642 in eligible Canadian Exploration Expenditures (“
CEEs”) by December 31, 2014 as per the provision of the Income Tax Act of Canada. The CEEs were renounced as a tax credit to the flow-through share subscribers on December 31, 2013. As at December 31, 2014, the Company had unfulfilled CEE obligations. During the year ended June 30, 2015, the Company recorded a contingent provision for the Part XII.6 taxes and related penalties for the indemnification liability to subscribers for taxes and penalties related to the CEE renunciation shortfall. During the year ended June 30, 2017, the Company paid $131,320 (2015: $nil) in Part XII.6 taxes related to a revised estimate of the CEE renunciation shortfall and maintained the existing contingent provision amount for the indemnification liability to subscribers for taxes and penalties. During the three-month period ended September 30, 2017, the contingent provision was adjusted due to foreign exchange fluctuations to $190,433 (June 30, 2017: $182,883).