LONG-TERM DEBT

12 Months Ended

Jul. 31, 2018

NOTE 10:

LONG-TERM DEBT

On February 9, 2016, we entered into a second amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with the lenders, Sprott Resource Lending Partnership, CEF (Capital Markets) Limited and Resource Income Partners Limited Partnership (collectively, the “Lenders”), whereby the Company and our Lenders agreed to certain further amendments to the $20,000,000 senior secured credit facility (the “Credit Facility”), under which:

		initial funding of $10,000,000 was received by the Company upon closing of the Credit Facility on July 30, 2013; and
		additional funding of $10,000,000 was received by the Company upon closing of the Amended Credit Facility on March 13, 2014.

The key terms of the Second Amended and Restated Credit Agreement are summarized as follows:

		extension of the maturity date from July 31, 2017 to January 1, 2020;
		deferral of the monthly principal payments (each of which is equal to one-twelfth of the total principal) commencement date from July 31, 2016 to February 1, 2019;
		re-pricing and extension of the existing bonus warrants comprised of 2,600,000 share purchase warrants, with each warrant exercisable for one share of common stock of the Company at an exercise price reduced from $2.50 to $1.35 per share until expiry, extended by a further one and a half years from July 30, 2018 to January 30, 2020, subject to accelerated exercise whereby, upon notification by the Company, the warrant holders will have 30 days to exercise their warrants should the ten trading-day volume-weighted average price of the Company’s shares equal or exceed $2.70;
		issuance of second extension fee shares equal to 4% of the principal balance outstanding or $800,000 paid to the Lenders by way of the issuance of 959,613 shares of the Company with a price per share based on a 10% discount to the five trading-day volume-weighted average price of the Company’s shares;
		payment of anniversary fees to the Lenders on each of February 1, 2017, 2018 and 2019, of 5.5%, 4.5% and 4.5%, respectively, of the principal balance then outstanding, if any, payable at the option of the Company in cash or shares of the Company with a price per share calculated as a 10% discount to the five trading-day volume-weighted average price of the Company’s shares immediately prior to the applicable date; and
		maintenance at all times of a working capital ratio of not less than 1:1. The working capital ratio is calculated by dividing current assets by current liabilities, excluding the effects of principal payments on the determination of working capital.

Under the terms of the Second Amended and Restated Credit Agreement, the non-revolving Credit Facility has an interest rate of 8% per annum, compounded and payable on a monthly basis. An underlying effective interest rate of 14.28% has been calculated under the assumption that the Company will carry the full principal balance of $20,000,000 to its contractual maturity on January 1, 2020 without exercising the prepayment feature, and therefore, the anniversary fee payments of $1,100,000, $900,000 and $900,000, which are calculated on the principal balance then outstanding and can be made in shares or cash at the Company’s discretion, will become due on each of February 1, 2017, 2018 and 2019, respectively.

The Second Amended and Restated Credit Agreement supersedes, in their entirety, the Amended and Restated Credit Agreement of March 13, 2014 and the Credit Agreement dated of July 30, 2013.

The incremental value associated with the re-pricing and extension of the bonus warrants was determined to be $104,915 and has been recorded as an additional discount on long-term debt. The incremental value was determined using the Black-Scholes option pricing model using the following assumptions:

Expected Life in Years	3.98
Expected Annual Volatility	71.10	%
Expected Risk Free Interest Rate	1.00	%
Expected Dividend Yield	0.00	%

At July 31, 2018, long-term debt consisted of the following:

	July 31, 2018			July 31, 2017
Principal amount	$	20,000,000		$	20,000,000
Unamortized discount		(465,026	)		(745,165	)
Long-term debt, net of unamortized discount		19,534,974			19,254,835
Current portion		10,000,000			-
Long-term debt, net of current portion	$	9,534,974		$	19,254,835

During Fiscal 2018, and pursuant to the terms of the Second Amended and Restated Credit Agreement, we issued 641,574 shares with a fair value of $900,000, representing 4.5% of the $20,000,000 principal balance outstanding at January 31, 2018, as payment of anniversary fees to the Lenders.

During Fiscal 2017, and pursuant to the terms of the Second Amended and Restated Credit Agreement, we issued 738,503 shares with a fair value of $1,100,000, representing 5.5% of the $20,000,000 principal balance outstanding at January 31, 2017, as payment of anniversary fees to the Lenders.

In Fiscal 2018, the amortization of debt discount totaled $1,180,139 (Fiscal 2017: $1,156,657; Fiscal 2016: $1,245,615), which was recorded as interest expense and included in the consolidated statements of operations and comprehensive loss.

The shares issued to the Lenders either as an anniversary fee or as a bonus have been recorded as discounts on long-term debt, which are amortized using the effective interest rate over the remaining contractual life of the long-term debt.

The aggregate yearly maturities of long-term debt based on principal amounts outstanding at July 31, 2018 are as follows:

Fiscal 2019	$	10,000,000
Fiscal 2020		10,000,000
Total	$	20,000,000