WESTWATER RESOURCES, INC. - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2019

 

Or

 

o  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 001-33404

 

WESTWATER RESOURCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112

(Address of Principal Executive Offices, Including Zip Code)

 

(303) 531-0516

(Registrant’s Telephone Number, Including Area Code)

 

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

 

 

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 x No o

 

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 x No o

 

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.

 

 

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.    o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Table of Contents

 

WESTWATER RESOURCES, INC.

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4. CONTROLS AND PROCEDURES	28
PART II - OTHER INFORMATION	29
ITEM 1. LEGAL PROCEEDINGS	29
ITEM 1A. RISK FACTORS	29
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	29
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	29
ITEM 4. MINE SAFETY DISCLOSURES	29
ITEM 5. OTHER INFORMATION	29
ITEM 6. EXHIBITS	30
SIGNATURES	31

 

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PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(expressed in thousands of dollars, except share amounts)

(unaudited)

 

				June 30,			December 31,
		Notes		2019			2018
ASSETS
Current Assets:
Cash and cash equivalents		1		$	1,156		$	1,577
Marketable securities		6		—			415
Assets held for sale		4,5		1,767			1,545
Prepaid and other current assets				479			643
Total Current Assets				3,402			4,180
Property, plant and equipment, at cost:
Property, plant and equipment				91,771			91,772
Less accumulated depreciation, depletion and impairment				(71,266		)	(71,219		)
Net property, plant and equipment		7		20,505			20,553
Operating lease right-of-use assets		14		541			—
Restricted cash		1,6		3,768			3,732
Assets held for sale — non-current		4		—			1,493
Total Assets				$	28,216		$	29,958
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable				$	1,813		$	776
Accrued liabilities		5		3,230			1,688
Asset retirement obligations - current		9		881			708
Operating lease liability - current		14		151			—
Total Current Liabilities				6,075			3,172
Asset retirement obligations, net of current portion		9		5,145			5,495
Other long-term liabilities and deferred credits				500			500
Operating lease liability, net of current		14		396			—
Total Liabilities				12,116			9,167
Commitments and Contingencies		13
Stockholders’ Equity:
Common stock, 100,000,000 shares authorized, $.001 par value;
Issued shares — 1,658,371 and 1,436,555, respectively
Outstanding shares —1,658,211 and 1,436,394, respectively		10		2			1
Paid-in capital		10,11		314,179			313,012
Accumulated other comprehensive loss				—			(90		)
Accumulated deficit				(297,823		)	(291,874		)
Treasury stock (161 and 161 shares, respectively), at cost				(258		)	(258		)
Total Stockholders’ Equity				16,100			20,791
Total Liabilities and Stockholders’ Equity				$	28,216		$	29,958

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(expressed in thousands of dollars, except share and per share amounts)

(unaudited)

 

				For the Three Months Ended June 30,						For the Six Months Ended June 30,
		Notes		2019			2018			2019			2018
Operating Expenses:
Mineral property expenses		8		$	(824	)	$	(969	)	$	(1,458	)	$	(1,751	)
General and administrative expenses				(2,054		)	(2,054		)	(3,890		)	(3,859		)
Acquisition costs		3		—			422			—			(333		)
Accretion of asset retirement obligations		9		(30		)	(134		)	(156		)	(268		)
Depreciation and amortization				(25		)	(33		)	(48		)	(67		)
Impairment of uranium properties		7		—			(17,968		)	—			(17,968		)
Total operating expenses				(2,933		)	(20,736		)	(5,552		)	(24,246		)
Non-Operating Income/(Expenses):
Loss on sale of marketable securities		4,6		—			—			(720		)	(93		)
Gain on sale of fixed assets				1			8			1			8
Interest income		4		168			172			334			346
Other income (expense)				(11		)	99			(12)			109
Total other (expense)/income				158			279			(397		)	370
Net Loss				$	(2,775	)	$	(20,457	)	$	(5,949	)	$	(23,876	)
Other Comprehensive Income (Loss)
Unrealized fair value increase (decrease) on marketable securities				$	—		$	(26	)	$	—		$	(1,056	)
Transfer to realized loss upon sale of available-for-sale securities				—			—			90			93
Comprehensive Loss				$	(2,775	)	$	(20,483	)	$	(5,859	)	$	(24,839	)
BASIC AND DILUTED LOSS PER SHARE				$	(1.81	)	$	(25.63	)	$	(3.95	)	$	(35.14	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING				1,532,802			798,200			1,505,668			679,438

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL CASH FLOW INFORMATION

(expressed in thousands of dollars)

(unaudited)

 

				Six Months Ended June 30,
		Notes		2019			2018
Operating Activities:
Net loss				$	(5,949	)	$	(23,876	)
Reconciliation of net loss to cash used in operations:
Non-cash lease expense				7			—
Accretion of asset retirement obligations		9		156			268
Amortization of notes receivable discount		4		(299		)	(337		)
Loss on sale of marketable securities				720			93
Costs incurred for restoration and reclamation activities		9		(333		)	(355		)
Depreciation and amortization				48			67
Stock compensation expense				15			162
Common stock issued for purchase of lithium mineral interests				—			114
Common stock issued for consulting services				—			95
Other income				—			5
Impairment of uranium properties				—			17,968
Effect of changes in operating working capital items:
Decrease in prepaids and other				234			196
Increase (decrease) in payables and deferred credits				1,077			(490		)
Net Cash Used In Operating Activities				(4,324		)	(6,090		)
Cash Flows From Investing Activities:
Deposit for sale of assets		5		1,500			—
Proceeds from the sale of marketable securities, net		4		536			476
Proceeds from disposal of property, plant and equipment				—			8
Proceeds from note receivable		4		750			1,089
Note advances for Alabama Graphite corporate merger		3		—			(1,547		)
Net Cash Provided By Investing Activities				2,786			26
Cash Flows From Financing Activities:
Issuance of common stock, net		10		1,154			4,730
Payment of minimum withholding taxes on net share settlements of equity awards				(1		)	(5		)
Net Cash Provided By Financing Activities				1,153			4,725
Net decrease in cash, cash equivalents and restricted cash				(385		)	(1,339		)
Cash, cash equivalents and restricted cash, beginning of period				5,309			7,722
Cash, Cash Equivalents and Restricted Cash, End of Period				$	4,924		$	6,383
Cash paid during the period for:
Interest				$	1		$	3
Supplemental Non-Cash Information for Investing and Financing Activities:
Securities received for payment of notes receivable - Laramide				$	750		$	750
Common stock issued for acquisition of Alabama Graphite				—			6,394
Stock options and warrants issued for acquisition of Alabama Graphite				—			89
Common stock issued for consulting services				—			95
Common stock issued for purchase of lithium mineral interests				—			114
Total Non-Cash Investing and Financing Activities for the Period				$	750		$	7,442

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(expressed in thousands of dollars, except share amounts)

(unaudited)

 

										Accumulated
										Other
		Common Stock					Paid-In			Comprehensive			Accumulated			Treasury
Six months ended June 30, 2019		Shares		Amount			Capital			Income (Loss)			Deficit			Stock			Total
Balances, January 1, 2019		1,436,555		$	1		$	313,012		$	(90	)	$	(291,874	)	$	(258	)	$	20,791
Net loss		—		—			—			—			(5,949		)	—			(5,949		)
Common stock and common stock purchase warrants issued, net of issuance costs		221,263		1			1,153			—			—			—			1,154
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes		393		—			15			—			—			—			15
Minimum withholding taxes on net share settlements of equity awards		—		—			(1		)	—									(1		)
Unrealized holding loss on marketable securities		—		—			—			—			—			—			—
Transfer to realized loss upon sale of available for sale securities		—		—			—			90			—			—			90
Balances, June 30, 2019		1,658,211		$	2		$	314,179		$	0		$	(297,823	)	$	(258	)	$	16,100

 

										Accumulated
										Other
		Common Stock					Paid-In			Comprehensive			Accumulated			Treasury
Three months ended June 30, 2019		Shares		Amount			Capital			Income (Loss)			Deficit			Stock			Total
Balances, March 31, 2019		1,494,153		$	1		$	313,435		$	0		$	(295,048	)	$	(258	)	$	18,130
Net loss		—		—			—			—			(2,775		)	—			(2,775		)
Common stock and common stock purchase warrants issued, net of issuance costs		164,058		1			738			—			—			—			739
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes		—		—			7			—			—			—			7
Minimum withholding taxes on net share settlements of equity awards		—		—			(1		)	—									(1		)
Unrealized holding loss on marketable securities		—		—			—			—			—			—			—
Transfer to realized loss upon sale of available for sale securities		—		—			—			—			—			—			—
Balances, June 30, 2019		1,658,211		$	2		$	314,179		$	0		$	(297,823	)	$	(258	)	$	16,100

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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WESTWATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(expressed in thousands of dollars, except share amounts)

(unaudited)

 

										Accumulated
										Other
		Common Stock					Paid-In			Comprehensive			Accumulated			Treasury
Six months ended June 30, 2018		Shares		Amount			Capital			Income (Loss)			Deficit			Stock			Total
Balances, January 1, 2018		555,806		$	—		$	297,278		$	287		$	(256,190	)	$	(258	)	$	41,117
Net loss		—		—			—			—			(23,876		)	—			(23,876		)
Common stock and common stock purchase warrants issued, net of issuance costs		387,194		1			11,422			—			—			—			11,423
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes		419		—			162			—			—			—			162
Minimum withholding taxes on net share settlements of equity awards		—		—			(5		)	—			—			—			(5		)
Unrealized holding loss on marketable securities		—		—			—			(1,056		)	—			—			(1,056		)
Transfer to realized loss upon sale of available for sale securities		—		—			—			93			—			—			93
Balances, June 30, 2018		943,419		$	1		$	308,857		$	(676	)	$	(280,066	)	$	(258	)	$	27,858

 

										Accumulated
										Other
		Common Stock					Paid-In			Comprehensive			Accumulated			Treasury
Three months ended June 30, 2018		Shares		Amount			Capital			Income (Loss)			Deficit			Stock			Total
Balances, March 31, 2018		576,628		$	—		$	298,010		$	(650	)	$	(259,609	)	$	(258	)	$	37,493
Net loss		—		—			—			—			(20,457		)	—			(20,457		)
Common stock and common stock purchase warrants issued, net of issuance costs		366,392		1			10,770			—			—			—			10,771
Stock compensation expense and related share issuances, net of shares withheld for payment of taxes		399		—			82			—			—			—			82
Minimum withholding taxes on net share settlements of equity awards		—		—			(5		)	—									(5		)
Unrealized holding loss on marketable securities		—		—			—			(119		)	—			—			(119		)
Transfer to realized loss upon sale of available for sale securities		—		—			—			93			—			—			93
Balances, June 30, 2018		943,419		$	1		$	308,857		$	(676	)	$	(280,066	)	$	(258	)	$	27,858

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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1. BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements for Westwater Resources, Inc. (the “Company,” “we,” “us,” “WWR” or “Westwater”), formerly known as Uranium Resources, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements included in Westwater Resources, Inc.’s 2018 Annual Report on Form 10-K. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2019.

 

Significant Accounting Policies

 

Our significant accounting policies are detailed in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2018.  Refer to Note 14 for revisions made to our lease accounting policies resulting from our adoption of the new lease accounting standard effective January 1, 2019.

 

Reverse Stock Split

 

Immediately following the close of trading on April 22, 2019, the Company effected a one-for-fifty reverse stock split of its common stock. With the reverse stock split, every fifty shares of the Company’s issued and outstanding common stock were combined into one issued and outstanding share of common stock. The reverse stock split reduced the number of shares outstanding from approximately 74.7 million shares to approximately 1.5 million shares. The reverse stock split did not have any effect on the par value of the Company’s common stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash. All share data herein has been retroactively adjusted for the reverse stock split.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” which supersedes existing guidance for lease accounting. This new standard requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The new standard requires a dual approach for lessee accounting under which a lessee accounts for leases as finance leases or operating leases with the recognition of a right-of-use asset and a corresponding lease liability. For finance leases, the lessee recognizes interest expense and amortization of the right-of-use asset, and for operating leases, the lessee recognizes straight-line lease expense. The new lease accounting standard along with the clarifying amendments subsequently issued by the FASB, collectively became effective for the Company on January 1, 2019. The Company adopted the new lease accounting standard by applying the new lease guidance at the adoption date on January 1, 2019, and as allowed under the standard, used the modified retrospective method and elected not to restate comparative periods. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard. We did not elect the hindsight practical expedient to determine the lease term for existing leases. As of January 1, 2019, in connection with the adoption of the new lease accounting standard, the Company recorded a right-of-use lease asset totaling $0.4 million with a corresponding lease liability totaling $0.4 million. Refer to Note 14 for further details on our adoption of the new lease accounting standard.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to estimate lifetime expected credit losses and recognize an allowance against the related instruments. For available for sale debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. The adoption of this update, if applicable, will result in earlier recognition of losses and impairments.

 

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to ASC 326, Financial Instruments — Credit Losses.” ASU 2016-13 introduced an expected credit loss methodology for the impairment of financial assets measured at amortized cost basis. That methodology replaces the probable, incurred loss model for those assets. ASU 2018-19 is the final version of Proposed Accounting Standards Update 2018-270, which has been deleted. Additionally, the amendments clarify that receivables

 

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arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases.

 

These updates are effective for fiscal years beginning after December 15, 2019, and the Company is currently evaluating ASU 2016-13 and 2018-19 and the potential impact of adopting this guidance on its financial reporting.

 

In August 2018, the FASB issued ASU 2018- 13, “Fair Value Measurement (ASC 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement”. This update modifies the disclosure requirements for fair value measurements by removing, modifying or adding disclosures. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. Certain disclosures in the update are applied retrospectively, while others are applied prospectively. The Company is currently evaluating the potential impact of adopting this guidance on its financial statements.

 

Cash, Cash Equivalents and Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the statement of cash flows.

 

		As of June 30,
(thousands of dollars)		2019			2018
Cash and cash equivalents		$	1,156		$	2,715
Restricted cash - pledged deposits for performance bonds		3,768			3,668
Cash, cash equivalents and restricted cash shown in the statement of cash flows		$	4,924		$	6,383

 

Funds deposited by the Company for collateralization of performance obligations are not available for the payment of general corporate obligations and are not included in cash equivalents.  Restricted cash consists of money market accounts. The bonds are collateralized performance bonds required for future restoration and reclamation obligations related to the Company’s South Texas production properties.

 

Notes Receivable

 

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They are carried at amortized cost using the effective interest method less any provision for impairment. Management monitors these assets for credit quality and recoverability on a quarterly basis, including the value of any collateral. If the value of the collateral, less selling or recovery costs, exceeds the recorded investment in the asset, no impairment costs would be recorded.

 

2. LIQUIDITY AND GOING CONCERN

 

The interim Condensed Consolidated Financial Statements of the Company have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern because it is possible that the Company will be required to adversely change its current business plan or may be unable to meet its obligations as they become due within one year after the date that these financial statements were issued.

 

The Company last recorded revenues from operations in 2009 and expects to continue to incur losses as a result of costs and expenses related to maintaining its properties and general and administrative expenses.  Since 2009, the Company has relied on equity financings, debt financings and asset sales to fund its operations and the Company expects to rely on these forms of financing to fund its operations into the near future. The Company will also continue to identify ways to reduce its cash expenditures.

 

The Company’s current business plan requires working capital to fund non-discretionary expenditures for uranium reclamation activities, mineral property holding costs, business development costs and administrative costs.  The Company intends to pursue project financing to support execution of the graphite business plan, including discretionary capital expenditures associated with graphite battery-material product development, construction of pilot plant facilities and construction of commercial production facilities.  The Company’s current lithium business plan will be funded by working capital; however, the Company is pursuing project financing including possible joint venture partners to fund discretionary greenfield exploration activities.

 

At June 30, 2019 the Company’s cash balances were $1.2 million and the Company had a working capital deficit balance of $2.7 million.  Subsequent to August 7, 2019, the Company expects to fund operations as follows:

 

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·                  Payment due August 30, 2019 or earlier in the amount of $1.25 million from sale of uranium royalty interests and the Laramide Resources Ltd. promissory note (Note 4) to Uranium Royalty Corp. (Note 5).

 

·                  The Stock Purchase Agreement with Lincoln Park Capital, LLC. whereby the Company may place up to $10.0 million in the aggregate of the Company’s common stock on an ongoing basis when required by the Company over a term of 24-months ending in June 2021.

 

·                  The Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. which currently has $23.8 million remaining sales capacity, subject to the registration of shares on Form S-3.  The Company is currently ineligible to register additional shares on Form S-3 pursuant to the SEC’s shelf registration rules.

 

·                  Other debt and equity financings and asset sales.

 

While the Company has been successful in the past in raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available to it in amounts sufficient to meet its needs, or on terms acceptable to the Company.  In the event that we are unable to raise sufficient additional funds, we may be required to delay, reduce or severely curtail our operations or otherwise impede our on-going business efforts, which could have a material adverse effect on our business, operating results, financial condition, long-term prospects and ability to continue as a viable business.  Considering all of the factors above, the Company believes there is substantial doubt regarding its ability to continue as a going concern.

 

3. ACQUISITIONS

 

Acquisition of Alabama Graphite

 

On April 23, 2018, the Company completed its acquisition of 100% of the outstanding securities of Alabama Graphite Corp. (“Alabama Graphite”) for total consideration of $8.9 million.  Alabama Graphite is a Canadian entity that indirectly holds a 100% interest in the Coosa graphite project and Coosa mineral properties located in Alabama.  The consideration was comprised of $2.4 million in cash used to fund Alabama Graphite’s operating activities prior to completion of the Alabama Graphite transaction and certain related transaction costs, $6.4 million in common stock of the Company and $89,000 for warrants and options in the Company.  Each Alabama Graphite ordinary share was exchanged for 0.0016 common share of WWR.  Each warrant and option of Alabama Graphite was also exchanged for warrants and options exercisable for common shares of WWR on the same terms and conditions as were applicable prior to the Alabama Graphite transaction, except that the exercise price was converted for the 0.0016 share exchange ratio and for the USD exchange rate on the agreement date which was $0.77809 (CAD to USD) on December 13, 2017.  As a result, the Company issued 232,504 new shares, 7,280 options and 42,888 warrants.  The value of the Company’s common stock issued as consideration was based upon the opening share price on April 23, 2018 of $27.50.  The operating results of Alabama Graphite are included in the Consolidated Statement of Operations commencing April 23, 2018.

 

The Alabama Graphite loan from WWR was $1.8 million on April 23, 2018 and was incorporated into the final acquisition accounting and therefore was eliminated as of June 30, 2018.  Acquisition related costs were $1.9 million as of June 30, 2018, of which, $0.6 million was capitalized as additional cash consideration at the acquisition date for certain transaction costs that were directly related to the asset acquisition.

 

The acquisition of Alabama Graphite was accounted for as an asset acquisition in accordance with ASC 360 as “substantially all” of the purchase consideration was concentrated in a single identifiable asset for graphite mineral interests.  WWR controls the Board of Directors and senior management positions of Alabama Graphite and has overall control over the day-to-day activities of the acquired entity.

 

The following summarizes the preliminary allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

Consideration:
Cash		$	2,397
Issuance of 232,504 common shares for replacement of Alabama Graphite shares		6,394
Issuance of 7,280 options for replacement of Alabama Graphite options		35
Issuance of 42,888 warrants for replacement of Alabama Graphite warrants		54
		$	8,880

 

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The fair value of the consideration given was allocated as follows:
Assets:
Cash and cash equivalents		$	17
Short-term receivables		113
Prepaid expenses		42
Property, plant, equipment and graphite mineral interests		8,973
Total assets		9,145
Liabilities:
Accounts payable and accrued liabilities		265
Total liabilities		265
Net assets		$	8,880

 

The carrying value of the current assets acquired and liabilities assumed approximated the fair value due to the short-term nature of these items.  The fair value of the graphite mineral interests was estimated using a discounted cash flow approach and market comparables.  Key assumptions used in the discounted cash flow analysis include discount rates, mineral resources, future timing of production, recovery rates and future capital and operating costs.

 

4. NOTES RECEIVABLE

 

Laramide Note Receivable

 

As part of the consideration for the sale of Hydro Resources, Inc. (HRI), the Company currently holds a promissory note with a current balance of $2.0 million, secured by a mortgage over the Churchrock and Crownpoint properties owned by Laramide Resources Ltd. (“Laramide”). The note is in the final year of a three-year term and carries an initial interest rate of 5%. The final principal payment of $2.0 million is due and payable on January 5, 2020. Interest is payable on a quarterly basis during the final year. Laramide will have the right to satisfy up to half of the final principal payment by delivering shares of its common stock to the Company, which shares will be valued by reference to the volume weighted average price (“VWAP”) for Laramide’s common stock for the 20 trading days before January 5, 2020. The fair value of this note receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5%.

 

As of June 30, 2019, the Company has received three tranches of Laramide common shares as partial consideration for the sale of HRI, which has resulted in the receipt of 2,218,133, 1,982,483 and 2,483,034 Laramide common shares in January 2017, January 2018 and January 2019, respectively.  These share payments represent the initial consideration from the January 2017 sale of HRI and two note installments in January 2018 and January 2019.  The first note installment in the amount of $1.5 million in January 2018, consisted of $750,000 in cash and the issuance of 1,982,483 of Laramide’s common shares.  The second note installment in the amount of $1.5 million in January 2019, consisted of $750,000 in cash and the issuance of 2,483,034 of Laramide’s common shares.  Additionally, Laramide has made interest payments of $70,764 in cash during the six months ending June 30, 2019 and Laramide made an interest payment for Q2 2019 in the amount of $25,258 on July 18, 2019.

 

For the six months ended June 30, 2019, the Company sold the third tranche of 2,483,034 Laramide common shares and 2,218,133 Laramide warrants resulting in net proceeds of $0.5 million and a net loss on sale of marketable securities of $0.7 million.

 

The following tables show the notes receivable, accrued interest and unamortized discount on the Company’s notes receivable as of June 30, 2019 and December 31, 2018.

 

		June 30, 2019
(thousands of dollars)		Note Amount			Plus Accrued Interest			Less Unamortized Note Discount			Note Balance per Balance Sheet
Current Assets
Notes receivable Laramide — current		$	2,000		$	26		$	(259	)	$	1,767
Total Notes Receivable — current and non-current		$	2,000		$	26		$	(259	)	$	1,767

 

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		December 31, 2018
(thousands of dollars)		Note Amount			Plus Accrued Interest			Less Unamortized Note Discount			Note Balance per Balance Sheet
Current Assets
Notes receivable Laramide — current		$	1,500		$	45		$	—		$	1,545
Non-current Assets
Notes receivable — Laramide — non-current		2,000			—			(507		)	1,493
Total Notes Receivable — current and non-current		$	3,500		$	45		$	(507	)	$	3,038

 

5. ASSETS HELD FOR SALE

 

On March 5, 2019, the Company entered into an Asset Purchase Agreement with Uranium Royalty (USA) Corp. and Uranium Royalty Corp. (together “URC”) for the sale of four of its royalty interests on future uranium production from mineral properties located in South Dakota, Wyoming and New Mexico, as well as the remaining amount of the Laramide promissory note in the amount of $2.0 million as discussed above, for $2.75 million, including $0.5 million paid at signing. On June 28, 2019, Westwater and URC entered into an Amendment to the Agreement (collectively referred to as the “Agreement”). The Amendment extended the date for closing from July 31, 2019 to August 30, 2019. In addition, URC delivered an additional $1.0 million as deposit to the Company upon signing the Amendment, increasing the total deposit to $1.5 million, which will be credited against the purchase price at the closing of the transaction. The transaction will close following satisfaction or waiver of the closing conditions, which conditions include, among other things, the execution of various assignment agreements. Under the terms of the Agreement, the Company is set to transfer ownership of the royalties and promissory note at the closing date in exchange for the final payment of $1.25 million.

 

The Agreement contains certain termination rights and remedies for both URC and the Company.  Subject to certain limitations, in the event that the transaction does not close by August 30, 2019, the Company may terminate the Agreement and retain the $1.5 million deposit. In the event that there is a material uncured inaccuracy in any representation or warranty or a material breach of any covenant of the Company, URC has the right to terminate the Agreement and seek a return of the deposit or to seek specific performance of the Agreement. In the event that there is a material uncured inaccuracy in any representation or warranty or a material breach of any covenant of URC, the Company has the right to terminate the Agreement or to seek specific performance of the Agreement. The Agreement will terminate automatically if the closing thereunder has not occurred on or before August 30, 2019, unless otherwise agreed by the parties.

 

As a result of execution of the Agreement, the Laramide promissory note has been re-classified as held for sale and is recorded at its carrying value of $1.8 million in the June 30, 2019 financials since the carrying value does not exceed its fair value. The $1.5 million cash deposit received from URC could be forfeited in the event that the Agreement is terminated due to the Company’s breach of certain terms of the Agreement. Accordingly, the Company has recorded the deposit as a liability on the balance sheet and will only recognize income when all conditions of the Agreement have been met and closing is complete. The royalty interests being purchased by URC have no carrying value and accordingly, no subsequent adjustments have been made.

 

6. FINANCIAL INSTRUMENTS

 

Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

 

·                  Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are observable at the measurement date.

·                  Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

 

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